LGPS inflation proof?

MrE1

Peoples' thoughts please.

I'm have a workplace pension with the Council (named the LGPS). 

Do you think the government will keep its promise to keep the LGPS (and any additional pension bought in the scheme via APC) in line with the consumer price index. Or will they default on it like they did this year for the triple lock on the state pension?

Thank you in advance for any opinions and/or ideas given.

ewaste

LGPS is a funded scheme and has little to do with central Government, although they can impact the funding of local authorities. The LGPS is well funded and has a strong covenant ultimately backed by taxpayers. 

I've no doubt the Government will maintain it's obligations, there isn't much of an alternative that wouldn't be political suicide. Especially as the current Government have been kept in power by older voters. 

To be clear they didn't 'default' on the Triple Lock, it's been well covered on here what happened. 

Silvertabby

As ewaste says, there was a very good reason for this year's State pension increase to be in line with CPI rather than the artificially inflated salary figure.

There is no reason to expect that next April's LGPS increase will be anything but CPI as at the end of this September.  RPI (being the measure used then) increase rates were much higher for several years in the 1970s/1980s, and were paid in full.

Andy_L

What could happen is that they try to change the scheme rules going forward (ie only applies to future service, not accrued pension) to have a cap on how high the indexation can be.

Reg_Smeeton

When the LGPS was “reformed” (changing from Final Salary to CARE) in 2014, it was agreed on the basis that there would be no further significant changes to the scheme for 25 years. 

Whether you have faith in this government to honour that commitment is obviously another matter….

SarahB16

Reg_Smeeton said:

When the LGPS was “reformed” (changing from Final Salary to CARE) in 2014, it was agreed on the basis that there would be no further significant changes to the scheme for 25 years. 

Whether you have faith in this government to honour that commitment is obviously another matter….

If I may ask regarding this change from final salary to CARE in 2014 which affected me I presume for myself whose salary has only increased by 1% or 2% a year since 2014 (and sometime no increases whatsoever due to pay freezes) it has been to my advantage that the scheme changed from final salary to CARE hasn't it?  

However, I should add from 2009 to 2014 I was in a much lower paid role at the same organisation so my years worked then will probably benefit from me having those years based on my final salary.  However, saying that with CPI inflation rates the way they are at the moment I think I would have to inflate my lower salary from 2009 by CPI and compare it to my projected final salary to truly compare them as final salary may not be better after all even for those earlier years from 2009 to 2014.      

In this low salary increases/high inflation time we are living in I definitely think CARE is better than final salary pension schemes.

I think my assumptions above are correct aren't they if anyone knows please?   

Silvertabby

SarahB16 said:

Reg_Smeeton said:

When the LGPS was “reformed” (changing from Final Salary to CARE) in 2014, it was agreed on the basis that there would be no further significant changes to the scheme for 25 years. 

Whether you have faith in this government to honour that commitment is obviously another matter….

If I may ask regarding this change from final salary to CARE in 2014 which affected me I presume for myself whose salary has only increased by 1% or 2% a year since 2014 (and sometime no increases whatsoever due to pay freezes) it has been to my advantage that the scheme changed from final salary to CARE hasn't it?  

However, I should add from 2009 to 2014 I was in a much lower paid role at the same organisation so my years worked then will probably benefit from me having those years based on my final salary.  However, saying that with CPI inflation rates the way they are at the moment I think I would have to inflate my lower salary from 2009 by CPI and compare it to my projected final salary to truly compare them as final salary may not be better after all even for those earlier years from 2009 to 2014.      

In this low salary increases/high inflation time we are living in I definitely think CARE is better than final salary pension schemes.

I think my assumptions above are correct aren't they if anyone knows please?   

Every case will be different.  Someone who joined in a very low paid position, who then went on to retire as a chief exec - especially if the major promotions were in the latter years of their career - will almost certainly have been better off in a final salary scheme.  On the other hand, someone who spent 40 years on the lowest pay grade will be better off with CARE, due to the higher accrual rate and annual revaluations.

Everyone else will be in the middle - but as most people seem to be content to remain in the same or similar post, with the high flyers being in the minority, then CARE really isn't the bad boy it's being made out to be.

sevenhills

ewaste said:

To be clear they didn't 'default' on the Triple Lock, it's been well covered on here what happened. 

I thought the triple lock was deemed unaffordable in one year and not implemented. Is that wrong, MeE1 got it right 

Silvertabby

sevenhills said:

ewaste said:

To be clear they didn't 'default' on the Triple Lock, it's been well covered on here what happened. 

I thought the triple lock was deemed unaffordable in one year and not implemented. Is that wrong, MeE1 got it right 

The triple lock is the highest of 2.5%, CPI or average salary increases.

Last year, the average salary increase figure was artificially inflated by the Covid factor - ie, salaries which had been reduced to 80% under furlough were restored to their original 100%.  This 'increase' of 20% was not, by any stretch of the imagination, a true pay rise and so was factored out of the calculations.  I suspect that using the CPI of 3.1% (and note it could have been the minimum 2.5%!) was the easiest and fairest way of doing things.

After all, how many working people actually received a real pay rise of over 8% last year? 

...And before you say that I'd think differently if I were a State pensioner, I am !

molerat

sevenhills said:

ewaste said:

To be clear they didn't 'default' on the Triple Lock, it's been well covered on here what happened. 

I thought the triple lock was deemed unaffordable in one year and not implemented. Is that wrong, MeE1 got it right 

It was more that the wage inflation figure was not representative of reality in that it compared lockdown pay with post lockdown pay which was obviously a large increase.  There was another ONS figure which was increases for those in continual employment which was a bit above the figure eventually used but could have been sold easier than breaking a promise dropping the triple lock.

sevenhills

It would have been 7%, since it could be around 12% this year, a promise is a promise.
Another 10%+ rise in 2024 perhaps.