One of the UK’s largest public sector pension schemes is a ‘national embarrassment’, according to report.
Published by the Centre for Policy Studies (CPS), the new research reveals that the Local Government Pension Scheme (LGPS) risks running out of cash because of excessive pension promises relative to contributions.
The introduction of Pension Boards, and ‘abysmally ineffective’ governance, has exasperated this under-funding problem.
The CPS also describes the LGPS’ cost reporting as an ‘expensive work of fiction’ and calls for a culture change.
Michael Johnson, author of The LGPS: Unsustainable, warns that ‘over the next decade the scheme faces a perfect storm’ due to a combination of the following:
•Past under-funding;
•The end of contracting out rebates (April 2016; costing some £700 million per year);
•Potentially sclerotic investment returns in a post-QE world;
•Employers opting out of the scheme;
•Destructive demographics (the membership is both living longer and ageing);
•Mis-aligned cost and income drivers;
•A crippling accrual rate (increased by 63% in 2014); and
•Ten year grandfathering from 2014, which effectively renders Lord Hutton’s (cost-saving) proposals impotent for a decade.
‘And while 2013’s £47 billion deficit is expected to increase at the next triennial valuation (March 2016),’ Michael Johnson added, ‘it is negative cashflow that is likely to be the LGPS’s undoing.’
