By Marcus Leach
A statutory consultation proposing changes to local government pensions that deliver fair cost savings has been published today (Friday) by the Department for Communities and Local Government.
The Government's draft proposals aim to deliver short-term savings of £900 million, by 2014/15 to the Local Government Pension Scheme in England and Wales. This was set in the Spending Review 2010, which required all public service schemes to make savings to protect the taxpayer.
In recognition of the way the Local Government Pension Scheme is funded it was agreed alternative ways to find savings could be considered if they retained council taxpayer protections. The consultation proposes a balanced mix of increasing employee contributions and adjusting the accrual rates.
The paper proposes a progressively phased increase in employees' contribution tariff from April 2012 that would raise an additional £450 million, or 1.5 per cent of pay, and a change in the accrual rate from April 2013 to raise an additional £450 million, or 1.5 per cent of pay.
The consultation actuarially acknowledges that a lower contribution tariff increase but offset by a larger change in accrual rate, or vice versa, could also deliver the required level of savings.
Any increases in contribution rate will progressively protect low earners and mean high earners pay in proportionally more reflecting their more generous pensions. This mean the Local Government Pension Scheme will continue to be an attractive scheme to all existing and future members.
To that effect a revised pension contribution tariff included in the package proposes:
- no increase in contribution for all those Scheme members earning less than £15,000
- no more than a 0.6 per cent increase for those earning up to £21,000 in 2012/13; and
- high earners will pay progressively more than those in lower salary bands.
"Lord Hutton's report sets out why public sector pensions need to be reformed to more fairly protect taxpayers," Local Government Minister Bob Neill said.
"Today's pension proposals set out a way to save £900 million over the next three years that protects low earners from excessive increases - those who earn less will be asked to pay in less than high earners in the Scheme.
"We will continue to engage with local government and trade unions throughout the consultation as they have a key role to play. We hope all parties will take the time to consider these proposals in a constructive manner."
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