LGA responds to Hutton review

10 March 2011

Responding to Lord Hutton's review of public sector pensions, Baroness Margaret Eaton, Chairman of the Local Government Association, said:

“Everyone agrees that public sector pension schemes need to strike a balance between what is fair to staff and affordable for the taxpayer, and we will look closely at the detailed recommendations Lord Hutton has made in his report.

“We support a system where pension payments are linked to career average earnings. It addresses the inherent inequalities of the current final salary arrangements which favour those who progress through the salary scales and, in particular, those who get a promotion just before retirement.

“It is pleasing that Lord Hutton has listened to our core arguments that the scheme should be linked to average earnings, and also that there should be no cap on pensionable pay.

“Lord Hutton has recognised that there are significant differences between the funded Local Government Pension Scheme and the unfunded schemes provided in other parts of the public sector.

“We will consider closely the points Lord Hutton makes about the administration of the LGPS. As well as being fully funded locally, the LGPS is governed and administered by locally elected members representing the interests of council taxpayers. The LGPS is fully transparent and more accountable than any other public sector pension scheme.”

Notes:

The Local Government Pension Scheme is a final salary, defined benefit scheme with 4.33 million members (1.81 million contributors, 1.21 million pensioners and 1.31 million deferred pensioners).

The average pension paid under the scheme is £4,235 a year. Employees make a significant contribution to the Local Government Pension Scheme. Employee contributions to the LGPS in England and Wales currently vary between 5.5 per cent of salary for the lowest paid (those earning up to £12,600 a year) to 7.5 per cent for staff earning over £78,700 a year. When the new LGPS was introduced in 2008 this equated to an average employee rate of 6.3%. This compares to an average employee contribution to defined benefit schemes in the private sector in 2008 of 4.9%

Unlike most of the other public sector pension schemes, the Local Government Pension Scheme is a funded scheme, with contributions from employees like private sector defined benefit pension schemes. It is a well-managed scheme with contributions from employees and employers and its Funds are invested in business, property and the markets.

The Funds have more than £140billion in investments and assets, enough to pay benefits for over 20 years. Given the size of the LGPS funds, they are a significant investor in the UK and world economies.

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