LGPS CampaignUpdate Briefing – January 2012

What are the Principles?

•These are the principles on which the negotiations will be based

•They do NOT contain the detail of the new scheme or contribution increases (if any)

•The only agreement is on the broad principles and the timetable

•The principles include the core elements of the ‘Reference Scheme’ which also applies in the NHS, Civil Service and Teachers schemes

30 November important

• N30 was critical to getting the Tory and Lib Dem groups within the LGA on board

• N30 was critical for us to get the clear commitment to avoiding contribution increases, keeping Admitted Body Status and the suspension of the formal DCLG consultation

• The threat of N30 also led to the 10-year + protection ‘offer’ within the Reference Scheme

Important principles 1

•Zero contribution increases for most members, and no increase at all until 2014

•Keep Admitted Body Status•Maintain the inherent and relative value of the

LGPS to other public sector schemes•Prevent opt-out from the scheme and encourage

new members•Ensure employers maintain the required

contribution levels

Important principles 2

•New governance mechanisms to establish good governance, trade union involvement and reduce central government intervention in future

•Negotiation rather than imposition of any changes post 2014, if necessary

• Improved efficiency through a review of procurement, fund management and administration

A ‘Single Solution’

•Talks will address both short and long term issues, rather than two sets of talks

•We argued for this to enable us to deal with contributions and the new scheme together

•Government agreed because LGPS is a funded scheme and membership low paid

•Regulations to create any change agreed to be in place by April 2013

• Implementation be effective from April 2014

New Scheme Design - CARE• The new scheme will be designed around options that

will be worked on a Career Average (CARE) basis• A CARE scheme is still a defined benefit scheme• It is based on annual earnings which are ‘banked’ with

an agreed accrual rate and annual ‘revaluation’ applied• We will press for the best accrual and revaluation rates • At least the equivalent of the Civil Service offer, which is

very favourable• CARE is fairer in a funded pension scheme because

members take out a pension based on what they paid in• In general it is more equality-proof because large

numbers of LGPS members are women in low paid, part-time jobs with few promotion opportunities

Contribution increases and choice

•The principles provide for zero contribution increases for all – or the vast majority of members

•The new scheme will allow choice in retirement age between 55 and 75

•We agreed to review the early retirement factors to minimise the increased Normal Pension Age

•There is scope to negotiate choice to pay more/less and get more/less in benefits

New Scheme Design Principles 1

•The continuation of Admitted Body Status•To encourage flexible retirement, the pension

age is to be any time between 55 and 75•Benefits to be revised up or down relative to the

proximity to the Normal Pension Age• Improved early retirement factors would

minimise impact•The Normal Pension Age be linked to the State

Pension Age, or age 65, whichever is later

New scheme design principles 2

•Scheme cost efficiencies through more effective procurement and provision of administration and investment services

•The method of meeting the costs of protection of final salary, retirement age and the 10 year protection of pension age into the new scheme to be confirmed by the Treasury

•Also their value compared to other public sector schemes and the scope for recycling savings

New scheme design principles 3 –Equal treatment with other schemes•The LGPS to maintain its relative value in terms

of benefits in relation to other public sector schemes

•The scheme design be subject to robust and independent equality impact assessment (EIA) to ensure it meets both effect and intent of equality legislation

New scheme design - data

•New scheme costs to be based on actual data and experience gathered from valuations

•The numbers are based on those supplied by the Government Actuaries Dept (GAD) from evaluation data used to construct the ‘model fund’

•They can be independently verified and are supported by the Association of Consulting Actuaries

Management and Governance 1

•The value of the ongoing scheme and employer contribution cap to be set in future by agreement between principal stakeholders

•The employer contribution cap to contain both floors and ceilings (aka ‘caps and collars’)

•The floors and ceilings be set by scheme regulation, under the control of the principal stakeholders of the scheme (including UNISON) and use model fund (real) data

Management and Governance 2•New governance mechanisms to include agreed

tools to vary liabilities and revenue (i.e. changes to benefit structures and or contribution rates, if needed)

•To include a default mechanism should agreement not be reached within a preset timescale – i.e. neutral third party arbitration

•Default should not contain a predisposed and disproportionate benefit to either employees or employers

Management and Governance 3

•A clear and effective mechanism to ensure individual employers comply with contribution ceilings and floors

•Agreed mechanisms which would allow for employer rates to be set outside of these under agreed circumstances

• Funding levels within the ceiling and floors to be monitored and constrained in an acceptable range

• Floors and ceilings to be an intrinsic part of the scheme and not a separate process

Changing Legislation

•Needs to be in place by 30 March 2013 so actuaries can take the effect of the scheme changes into account in 2013 fund valuations

•This allows for government’s short term reform objectives to be met

•Allows time for changes to systems, process and most importantly consultation and communication with members

4-Stage approach to negotiations

1. Agreement on Principles and time scales2. Agreement on ‘big ticket items’ (contributions,

accrual rate, revaluation rate, protections, employer cap, cost management mechanism – outline)

3. Agreement on remainder of scheme issues4. Agreement on mechanism to provide effective

management of individual funds

Timetable 1

• Allows for consultation throughout• Jan – April 2012: Discussions on stage 2,

consultations by unions and employers on proposals resulting from discussions, costing of stage 2 scheme by GAD

• April – Sept 2012: Joint communication programme for scheme members, redesign of systems and procedures, setting up of cost management mechanism, commence drafting of regulations

Timetable 2

• April – Nov 2012: Discussions on stages 3 & 4, consultation by unions and employers on proposals resulting from discussions, costing of stage 3 scheme by GAD

• Sept 2012- March 2013: Consultation on making and laying new scheme regulations to reflect the outcome of above process

• March 2013: Commencement of scheme valuation

Timetable 3

• Oct 2013: Initial valuation results• Oct 2013- March 2014: Pre-implementation

communications for members and employers, parallel run of systems and procedures, test run of cost management mechanism against model scheme

• April 2014 – New scheme in place, new employer contribution (if any change) from 2013 valuation in effect

If not these principles, then what?•There would have been an imposed ‘solution’ by

the Treasury•The CLG statutory consultation would have

proceeded inc. contribution increases and a worse accrual rate

•Could have resulted in withdrawal of 10-year protection

•There would have been no scope for the flexibility and choice built into the LGPS principles

What if negotiations fail?

•We are still in dispute and the ballot is ‘live’• The option of further industrial action remains

should the negotiations fail to deliver•Campaigning should not stop during negotiations! •We need to put pressure on every councillor and

MP from here onwards• There are still Conservative councils and councillors

who want to cut the costs significantly•We need to keep making our case

Lay Member Involvement•Chairs of the Local Government, Police and

Justice, Higher Education, Community and Water, Environment and Transport SGE’s and the Service Group Liaison Committee were consulted at the draft and final version stages of the process

•They agreed that the principles and timetable be put to SGE’s

•There will be lay member involvement in the negotiations going forward