Local Government Pension Scheme in England and Wales AN UPDATE LGFPS Division JUNE 2006

Key facts and figures 2004-05 1.76 million active members 1.0 million pensioners 0.8 million deferred members £3.8 billion from employers contributions £1.5 billion from employees contributions £2.4 billion from investments £4.2 billion expenditure on benefits TC/DCLG/01

Regulation and management Government-sponsored, funded, public service pension scheme Role of the Secretary of State Statutory framework within secondary legislation Administered, invested locally, 89 separate pension funds Number of separate employers in each fund, including local authorities, schools, FE/HE colleges, private sector contractors TC/DCLG/02

Role of the Department Affordable and sustainable reform Regulation and stewardship Regulation and advice on prudential investment and management Liaison with local government, trades unions, HMT, DWP, OGDs, professional bodies (CIPFA, Fund Managers) and regulators (Pension Regulator Ombudsman). Division also responsible for Firefighters Pension Scheme TC/DCLG/03

Fund valuation process Each fund is actuarially valued every three years Funds are required to be solvent and produce a Funding Strategy Statement The next valuation is at 31 March 2007 The new employers rates will affect local authority budgets for 2008-09 - 2010-11 TC/DCLG/04

Current scheme Normal Retirement Age of 65 Final salary scheme, 1/80th accrual 3/80 automatic tax-free lump sum Partners pensions Survivor benefits Ill health provisions Compensation and redundancy benefits TC/DCLG/05

Revocation 1 April 2005 removal of the 85 year rule Retrospective revocation to that date at “no cost to taxpayers”. A key Governmental principle throughout Tripartite Committee discussions Consultation 5 December 2005 – 28 February 2006 J.R. 28 March industrial action TC/DCLG/06

Recent amendments Regulations laid 30 March Remove 85 year rule on 1 October 2006 Protect existing scheme members closest to retirement to 2013 Introduce flexibilities associated with the new simplified tax regime for pensions TC/DCLG/07

Recent talks between TUs/LGA 30 March Statement: “calling on both sides to begin talks” and “prepared to introduce further amendments before the Summer Recess”, in force 1 October 12 April Statement: TU’s suspended planned strikes, began constructive discussions with LGA Proposal for additional legal and affordable protections for existing members submitted Consultation Began 20 May until 3 July To be in force for 1 October TC/DCLG/08

The new-look scheme Facing the Future Green Paper 2004 Providing for the modern workforce Taking account of improving longevity Proposed timetable: Policy paper June 2006 with costed options Draft regulations autumn 2006 Final regulations April 2007 Implementation April 2008 TC/DCLG/09

Principles for reform TUs/LGA have agreed to recycle 50% of savings from removal of 85 year rule and increased commutation Affordable, sustainable and fair to taxpayers Good quality DB scheme that meets the challenge of a changing, flexible workforce Equality-proofed TC/DCLG/10

CHALLENGES… Balance – cost and desire Realistic – affordable, viable, fair Modern – flexible, equality-proofed, relevant Accessible – improved, particularly the low paid/female Common – goals of TU’s and Employers for a good quality DB, statutorily protected, pension scheme TC/DCLG/11

What are the options…… Three options for the basic framework -Final salary scheme -Career-average scheme -Hybrid scheme (Career average plus final salary) Other issues -Employee contributions -Revisiting flexible retirement -Improved access -Co-habitees pensions -Two-tier ill-health provisions -Improved death in service benefits -Encourage member saving through extra contributions -Cost sharing TC/DCLG/12