Local Government Pension Scheme in England and Wales AN UPDATE

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Local Government Pension Scheme in England and
WalesAN UPDATE
LGFPS Division JUNE 2006
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Key facts and figures 2004-05

• 1.76 million active members
• 1.0 million pensioners
• 0.8 million deferred members
• 3.8 billion from employers contributions
• 1.5 billion from employees contributions
• 2.4 billion from investments
• 4.2 billion expenditure on benefits

TC/DCLG/01
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Regulation and management

• Government-sponsored, funded, public service
  pension scheme
• Role of the Secretary of State
• Statutory framework within secondary legislation
• Administered, invested locally, 89 separate
  pension funds
• Number of separate employers in each fund,
  including local authorities, schools, FE/HE
  colleges, private sector contractors

TC/DCLG/02
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Role of the Department

• Affordable and sustainable reform
• Regulation and stewardship
• Regulation and advice on prudential investment
  and management
• Liaison with local government, trades unions,
  HMT, DWP, OGDs, professional bodies (CIPFA, Fund
  Managers) and regulators (Pension Regulator
  Ombudsman).
• Division also responsible for Firefighters
  Pension Scheme

TC/DCLG/03
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Fund valuation process

• Each fund is actuarially valued every three years
• Funds are required to be solvent and produce a
  Funding Strategy Statement
• The next valuation is at 31 March 2007
• The new employers rates will affect local
  authority budgets for 2008-09 - 2010-11

TC/DCLG/04
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Current scheme

• Normal Retirement Age of 65
• Final salary scheme, 1/80th accrual
• 3/80 automatic tax-free lump sum
• Partners pensions
• Survivor benefits
• Ill health provisions
• Compensation and redundancy benefits

TC/DCLG/05
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Revocation

• 1 April 2005 removal of the 85 year rule
• Retrospective revocation to that date at no cost
  to taxpayers. A key Governmental principle
  throughout
• Tripartite Committee discussions
• Consultation 5 December 2005 28 February 2006
• J.R.
• 28 March industrial action

TC/DCLG/06
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Recent amendments

• Regulations laid 30 March
• Remove 85 year rule on 1 October 2006
• Protect existing scheme members closest to
  retirement to 2013
• Introduce flexibilities associated with the new
  simplified tax regime for pensions

TC/DCLG/07
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Recent talks between TUs/LGA

• 30 March Statement calling on both sides to
  begin talks and prepared to introduce further
  amendments before the Summer Recess, in force 1
  October
• 12 April Statement TUs suspended planned
  strikes, began constructive discussions with LGA
• Proposal for additional legal and affordable
  protections for existing members submitted
• Consultation Began 20 May until 3 July
• To be in force for 1 October

TC/DCLG/08
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The new-look scheme

• Facing the Future Green Paper 2004
• Providing for the modern workforce
• Taking account of improving longevity
• Proposed timetable
• Policy paper June 2006 with costed options
• Draft regulations autumn 2006
• Final regulations April 2007
• Implementation April 2008

TC/DCLG/09
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Principles for reform

• TUs/LGA have agreed to recycle 50 of savings
  from removal of 85 year rule and increased
  commutation
• Affordable, sustainable and fair to taxpayers
• Good quality DB scheme that meets the challenge
  of a changing, flexible workforce
• Equality-proofed

TC/DCLG/10
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CHALLENGES

• Balance cost and desire
• Realistic affordable, viable, fair
• Modern flexible, equality-proofed, relevant
• Accessible improved, particularly the low
  paid/female
• Common goals of TUs and Employers for a good
  quality DB, statutorily protected, pension scheme

TC/DCLG/11
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What are the options

• Three options for the basic framework
• -Final salary scheme
• -Career-average scheme
• -Hybrid scheme (Career average plus final salary)
• Other issues
• -Employee contributions
• -Revisiting flexible retirement
• -Improved access
• -Co-habitees pensions
• -Two-tier ill-health provisions
• -Improved death in service benefits
• -Encourage member saving through extra
  contributions
• -Cost sharing

TC/DCLG/12