3% extra on pensions – £1 billion pension raid on Council workers is wrong and unsustainable

Tuesday 26th October 2010

Government plans to hike pension contributions are unaffordable and unworkable

GMB commented on a proposal contained in the small print of the Comprehensive Spending Review in which the Treasury outlines an increase in employee contributions in public sector pension schemes, including the Local Government Pension Scheme (LGPS), of 3 percentage points from 2012.

GMB National Secretary Brian Strutton said:

“The Chancellor didn’t mention in his CSR speech that employee contribution levels in the Local Government Pension Scheme (LGPS) will be increased from 6.4% to 9.4%. That was buried away in the small print. Yet the LGPS does not form part of the structural deficit as it is a funded scheme which pays pensions from the 101 LGPS funds, not from Treasury coffers.

An increase in employee contributions from 6.4% to 9.4% and would yield an extra £1 billion per annum from the 1.7 million low paid council workers in the LGPS. As a funded pension scheme the LGPS differs from the other public sector schemes in that pensions are paid from the 101 funds in the UK, not from the Treasury, and has funds worth £132 billion.

This unwarranted hike in member contributions will contribute nothing to the deficit yet will price many council workers out of the scheme. GMBs analysis of the effect of the contribution hike the government wants shows that it is simply not affordable to employees who are already suffering pay freezes and job losses. It is in direct conflict with the recommendations of the Hutton report in not taking any account of employee affordability.

It is also unnecessary. The market value of the LGPS is £132 billion and has an annual cash flow surplus of around £4bn, enough money in the bank to pay all pensions for the next 20 years. The LGPS is well-managed and sustainable for taxpayers but this move will put pension saving out of the reach of much of the workforce – therefore actually increasing the cost to the taxpayer. This is nothing more than another politically motivated attack on pension savers that has nothing to do with any black-hole in the public finances but everything to do with destroying occupational pension saving. The question for the government is this – why are council workers being penalised for having properly built up their own retirement savings?”

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