An affordable and sustainable LGPS

London 24th February City Hall

This half-day symposium, entitled "An affordable and sustainable LGPS", brought together a range of stakeholders to discuss ways to ensure the sustainability of the scheme, and seeks to develop a consensus on options for change.

Click to download the event leaflet (PDF 695kb) which contains details of the agenda and the speakers

The morning started at 9.30am with Anthony Mayer, who chaired two panel sessions, introducing the proceedings with a keynote speech calling for a three step process to ensure the future of the LGPS.

Anthony's opening remarks

"By way of getting your juices running, I want to share the thinking of Mike Taylor and I on the long term sustainability of the LGPS. I shall cover the LGPS only, but my suggestions could cover other funded public sector schemes. And as you will see, my remarks are non-political; now is not the time for bureaucrats to put their feet in it. The context for what I want to say is threefold:

1. The case being made be default that the LGPS is unsustainable. There is a growing body of opinion that over time the unfunded liabilities of LGPS will have to be picked up by the taxpayer unless the fund is closed.

2. This growing body of opinion is a nonsense. All pension funds are always sustainable - if contributions into the fund and/or pensionable retirement ages are increased sufficiently and/or pensions increases are de-indexed from RPI.

3. We are within the next couple of years going to face significant cuts in public expenditure. Increasing employer contributions, funded by the taxpayer, is not realistic or equitable. To ensure public pension funds remain sustainable in the longer term that leaves three choices - increasing employee contributions, increasing retirement ages, changing the benefit structure particularly how benefits and pensions are indexed. All three will be hugely unpopular and will inevitably provoke huge opposition. Increasing employee contributions will reduce public sector employees' incomes in real terms. Increasing retirement ages will have a profound and generally negative impact on many people's lifestyles. Changes to idexation may reduce both future benefits and pensions in payment in real terms.

And yet - and here is the conundrum - doing nothing is not an option. All doing nothing will achieve is a withering away of the LGPS and pensions payable courting even more unpopularity and increasing pressure on the State to pick up the tab. So what do we do to ensure the long term sustainability of the LGPS?

The choices - making employees worse off or making pensioners worse off are both unpalatable. They currently lie on the lap of politicians all of whom have proved to be naturally reluctant to do anything too dramatic. Let me give you one example. The decision to increase the qualifying age for a male OAP from 65 to 66 from 2024 provoked a furore. The 65 year old qualifying age for an OAP was set in 1935, but for civil servants was set in 1834! We now die 13 years later than in at the end of the war in 1945.

So I offer a suggestion, with all due thanks to our Dutch counterparts who have done so - take the LGPS out of politics. Here is an outline three step plan to start thinking about and discussing.

First, Government introduces legislation which sets a minimum threshold requirement for the long term sustainability of the LGPS. This threshold could be at each triennial or even quinquennial valuation. The assets of the LGPS should at least be 80% of its discounted long term liabilities.

The legislation could allow for the removal of the uncertainty which is caused by the current linkage of benefit growth to pay and pension growth to prices. By linking the idexation of both to the performance of funds in meeting the threshold requirement the affordability of future growth in liabilities is assured. Such indexation would also ensure that the 'pain' is shared equally between current and pensioner members if pensions fund coffers need filling up. Finally the legislation might set up an independent LGPS Commission with a 50/50 split between employers and employees and an independent Chairman.

Second this independent LGPS pensions Commission is given one basic remit: maintain the long term sustainability of the LGPS. If at a valuation, the 80% (or whatever it is) funding threshold is broken then it is required to take remedial action. This remedial action can be a mixture of increasing employee contributions, increasing the pensionable retirement age or increasing benefits and pensions by less than inflation. There would be a Government veto on the fourth option - increasing the burden on the taxpayer via an increased employer contribution.

Third, once a valuation pushes the fund over the 80% (or whatever) funding threshold then the Commission has complete freedom to reduce contributions and/or restore inflation indexation to benefits and pensions.

This is controversial and complicated stuff. All we need at present is to start a debate. If there is better plan out there, fine by me. Only one thing is set in stone; doing nothing about the long term sustainability of the LGPS is not an option.

Have a good morning!"

The first panel then set out the issues facing the LGPS, looking at what it is for and what should it be for. Sitting on this panel were:

Joanne Segars: National Association of Pension Funds
Neil Record: Record plc (slides PDF 25kb)
Douglas Anderson: Hymans Robertson (slides PDF 203kb)
Ian Greenwood: West Yorkshire Pension Fund

Extracts from speeches and the major points raised by the panel debate will be available shortly, copies of Neil Record's and Douglas Anderson slides are available to download by clicking above.

The second session discussed alternative views on reform of the LGPS from the perspective of members, actuaries, lawyers and practitioners. Sitting on this panel were:

Brian Strutton: GMB - Britain's General Union (slides PDF 193kb)
Graham Muir: Barnett Waddingham (slides PDF 131kb)
Gary Delderfield: Eversheds (slides PDF 1.2mb)
Terry Edwards: Local Government Association (slides PDF 263kb)

Copies of speakers' slides are available to download by clicking above.

Press coverage of the event is avaiable on the media page