They think it's all over... ?
Spain's display in the Euro 2012 final was a masterclass of possession, strategy and teamwork. It may become the blue print of footballing excellence that other teams aspire to. Given that they have been successfully playing this way for a number of years already it looks like it will stand the test of time.
We could ask whether the same can be said for the LGPS pensions reform? Is the proposed scheme going to stand the test of time or, like several of the teams at Euro 2012 will we need to regroup and return to the drawing board in a few years time?
The proposed scheme offers a 20% increase in accrual rate, the revaluation rate of CPI is currently higher than most pay awards and there is protection for anyone within 10 years of retirement in relation to their retirement age and their benefits. So no saving there!
Even for a member who is not protected and is retiring at age 66 in 2025, we would require pay growth to outpace CPI by around 1.5% p.a. on average for each of the next 11 years just so that the proposed scheme doesn't cost more than the current scheme.
So where are the savings?
Actuarial valuations will of course allow for the any savings that result from younger members having a higher retirement age but overall any savings are likely to be modest for any fund when considering the membership as a whole.
A further saving for funds will be from the flexible 50/50 option. How many members will choose this option? And importantly what type of members will choose this option? It was assumed that it will generally be the low paid but there are valid reasons why some higher paid staff may opt out of the full scheme. The take up rate and member type could have a significant impact on cost.
The devil is in the detail and there is much still to be agreed and communicated. However, any actual savings are likely to be modest and will take some time to come through.
So is it all over and we now have a sustainable, affordable scheme that will last for 25 years? If I were a betting man, I'd prefer to put my money on England winning the 2014 World Cup!
Comments
2 comments
The 2013 LGPS valuations will be able to fully factor, among other things, CPI indexation for pensions n payment and NRA set at sate pension age - both oddly ommitted from this rather silly article. The 2013 valuations should show a 2% contribution saving for employers over 2010 (worth £6-900m) and as Hymans Robertson do half the valuations I hope they reflect this.
Posted Monday, July 16, 2012 at 8:14:02 AM by brian strutton
Many thanks for your comment, Brian. Our 2013 LGPS valuations will take all of the proposed changes to the LGPS benefit structure into account. That is assuming that these proposals are agreed, of course.
While the average saving on the future cost of pension accrual might be 1.5 – 2% of pay, the effect on each participating employer’s contribution rate will vary depending on the employer’s membership profile. For example, employees close to retirement will see no change to their promised pension benefits (so no savings) and the low paid/part timers will contribute less (meaning that the employers will have to pay more of the balance of cost).
Employers are unlikely to see any reductions in contributions from current levels following the 2013 valuation as the funding shortfalls calculated in the 2010 valuations are likely to have increased and as we are aware and agree repairing deficits may be the bigger problem to tackle.
The blog post was intended as a short taster to generate debate and a more in depth analysis can be found here
http://bit.ly/LGPSbriefingnote
Posted Monday, July 16, 2012 at 2:59:04 PM by Barry McKay