1. Pensions roundtable
The latest developments on pensions
Mike Taylor, Chief Executive
LPFA
PPMA Conference 2012 26 April 2012 1

2. Agenda
• The changes – good or bad
– to maintain an affordable sustainable pension scheme
• LGPS post Hutton
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3. 2 years ago
• The battle
– public sector pensions are
• Gold plated
• Unfair
• Unaffordable
– pensions apartheid – public vs. private
– pensions envy
• The campaign – 2009/11
– to maintain an affordable sustainable pension scheme
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4. Fat cat pensions?
• Average LPFA LGPS
pension
– Full time £6,800
– Part time £2,200
– 96% of pensions below
£20,000
– 64% of pensions below £6,000
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5. Retirement Age
• Normal retirement
age 65
• Average length of
service 17 years
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6. Current Local Government
Pension Scheme
• Statutory scheme
– Final Salary, Defined Benefit
– Normal Retirement Age: 65
– 1/60th accrual
• 100 Administering Authorities
– Total assets £150 billion
– 4 million members
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7. Government action over last 2 years
• Independent Public Sector Pensions
Commission
– Chair, Lord Hutton
– Started July 2010
– Interim report October 2010
– Final report March 2011
• Changed basis of indexation July 2010
(effective from April 2011)
– RPI to CPI
– Affects pensions in payment
– Saves £1.8bn per annum by 2014/15
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8. Government action (contd)
• Budget Spending Review (October 2010)
– Increases in member contributions from April
2012
– Average 3.2% by 2014/15
• £2.8 billion per annum including £900 million for
LGPS
• No increase for lowest paid members
• Review state retirement age
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9. 1 year ago
• Lord Hutton’s final report
– to maintain an affordable sustainable pension scheme
• Main conclusions
– Retain defined benefit
– Switch from final salary to career average
– Protect accrued rights
– Increase retirement age
– Review employee / employer balance
– Improve governance
– Implement by 2015
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– 26 April 2012 9

10. Today
• Good scheme maintained
• No forced increase in employee
contributions
• Implement in 2014
… subject to final sign off with Treasury and Department for
Communities and Local Government
–
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11. Challenges ahead
• For fund employers
• For fund administrators
… and not just the new scheme
(NEST, auto enrolment, tax changes)
–
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12. Future Local Government
Pension Scheme
• Statutory scheme
– Career Average, Defined Benefit, revaluation
factors to be agreed
– Retirement Age raised in line with State
Retirement Age
• Now 65
• 66 by 2020
• 67 by 2026
– Accrual rate - may be different
• Other public sector schemes
– Similar, but each negotiating separately
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13. Future Local Government
Pension Scheme
• Complex for members, administrators and
employers
• Links to NEST
• Communication strategies
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14. Future Challenges
• Retaining existing and encouraging new
membership
• Declining numbers in workforce
• Ageing population
• Further longevity improvements
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15. Other issues
• Declining membership will lead to rapid
maturing of the schemes
• Less scope for investment risk
• Need for different investment strategies
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16. Value for money pressures
• Savings
– Improving value for money from
• Scheme administration
• Fund management
• Investment returns
– Potential for scheme mergers
– Potential for sharing services
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17. Pressure for changes in governance
• Governance
– Improving governance
• Better training of pension committee members
• Representation for employers, scheme members
• “Governance dividend”
– Larger schemes estimated to add 0.5% to
annual returns
• LGPS potential up to £750m per annum
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18. Conclusions
• LGPS
– Major changes made
– Good scheme preserved
– Further changes inevitable
• To realise value for money savings
• Better governance
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