IER Seminar 10 March 2010 Public Service Schemes are under attack How can we defend them?

1. IER Seminar • 10 March 2010 • Public Service Schemes are under attack • How can we defend them? • Focus on Local Government Pension Scheme (LGPS) and the NHS Pension Scheme (NHSPS) • Glyn Jenkins • Head of Pensions

2. SOME FACTS ON THE LGPS SCHEMES 2007/2008 in ENGLAND AND SCOTLAND MEMBERS ACTIVE RETIRED DEFERRED Scotland 225,479 128,412 72,371 England 1.656m 1.049m 1.055m EXPENDITURE INCOME IN* Scotland £1.261 billion £2.743 billion England £6.187 billion £10.610 billion *Income includes employer /employee contributions and investment returns

3. LGPS England & Wales 2008/2009 • Updated figures initial observations • The Funds value have contracted by 19% so what? Investment income still accounts for 27% of scheme income down only 3% not bad in a recession. This is why we support the LGPS taking a long term view. • Scheme income exceeded liabilities by 65% that’s £4,423 billion surplus • Employer contributions may have gone up by 8% but this includes making good past service deficits caused by employers paying too little in the past • Employee contributions have gone up by 15% over the same period and employers still pay less than 50% of the cost of the scheme. • So I don’t see that it deflects any of our key messages that the scheme is cost effective and affordable. • Glyn Jenkins • Head of Pensions

4. SOME FACTS ON THE NHSPS 2009 in ENGLAND and Wales ACTIVE RETIRED DEFERRED 1.380m 610,000 476,000 EXPENDITURE INCOME IN* £5.625 billion £7.780 billion *Income includes employer /employee contributions

5. Secure - for now • Public Service Schemes – • ‘Have defied the trend’ they remain: • Defined benefit mainly final salary • Valued to provide equivalent to 2/3 of pay after 40 years service. • Open to new members This is opposite to the trend in the private sector most final salary schemes are closed to new members. • The concessions are increased retirement age and some form of cost • sharing for the future. Next crunch time around 2012.

6. TIMETABLE FOR ACTION TO KEEP THE LGPS AFFORDABLE • NEXT SCHEME VALUATION DATE • FUNDS IN ENGLAND AND WALES APRIL 2010 • SCOTLAND APRIL 2011 • ENGLAND AND WALES • Time table for • Limited changes to be consulted • on shortly coming into force APRIL 2010 • All funds to supply data to • Government Actuary by 31 AUGUST 2010 • Government Actuary to • Calculate cost of whole • scheme by 31 OCTOBER 2010 • If there is any significant change in the cost of the scheme since the last valuation in 2007 • Employer/Trade Union Side make recommendations to Secretary of State as to what if any changes are needed to: • Keep the scheme affordable • Share any change in cost fairly

7. TIMETABLE FOR ACTION TO KEEP THE NHSPS AFFORDABLE NEXT SCHEME VALUATION DATE FUNDS IN ENGLAND AND WALES APRIL 2012 There is an employer contribution cap of 14.2% until 2016. If this exceeded cost share will apply. Joint Governance Group of Employers and Staff side to try and agree recommendations for change then Secretary of State decides with consent of Treasury. NEXT VALUATION APRIL 2016 Employer contribution cap will be 14%.

8. Public Service Schemes have always changed and always will. • What we need: • Is objective debate • Inclusive of all stakeholders • Nothing ruled in nothing ruled out • What we do not need • Is panic before the valuation results • Symbolic cuts vainly hoping it will appease press bigotry against the public services • Glyn Jenkins • Head of Pensions

9. Local Government Pension Scheme • Debate will start end of year • It may include discussion on move to Career Average • Many experts see this as the Holy Grail but the devil is in the detail. • Increasing retirement ages to match stage pension ages? • Does this mean careers for life! • Can public services deliver? • Glyn Jenkins • Head of Pensions

10. NEED FOR REFORM OF LGPS FUNDS • Need to comply with Governance Provisions of the EU directive (IROP) • Need member representatives with voting rights • Need to contain the costs of investment advice • Need to adopt long term investment strategies reflecting the statutory nature of the schemes. • Rationalise the number of funds • Glyn Jenkins • Head of Pensions

11. MYTH BUSTING in the LGPS • LGPS is being attacked in the media, pressure groups and by Conservatives and Lib Dems. • The LGPS is not a ‘perk’ it allows nearly 2 million workers to save for their retirement. • It is not unaffordable. It can pay back deficits well over 20 years. TU and employers are developing a fair basis for monitoring and sharing future costs. • Other workers do not subsidise it. Only around 5.4% of total income generated for Local Government including Council tax goes to the pension scheme. • A cheaper Money purchase scheme would not provide adequate pensions

12. MYTH BUSTING FOR THE NHSPS • NHSPS is being attacked in the media, pressure groups and by Conservatives and Lib Demsas part of the general attack on unfunded Public Service Pension Schemes • The NHSPS is not a ‘perk’ it allows nearly 1.5 million workers to save for their retirement. And is an increasingly important recruitment and retention tool • It is not unaffordable. There is no £212 billion black hole because it is not funded and not in the Private Sector. Members already pay over a third of the cost and this proportion may increase with cost share. The cost to the taxpayer is known and capped at 14%! • A cheaper Money purchase scheme would not provide adequate pensions

13. FIGHTING ENVY – SOME EMPLOYERS ARE CLOSING GOOD SCHEMES • Average LGPS pension is only now around £4000 pa and the average for women is around £2000 pa. For most the Normal Retirement Age is 65. It is £7000 pa and £5000 pa for women in the NHSPS but 20% of members are GP’s and other higher paid medical professionals. • The minimum income for the State means tested Pension Credit is now around £130 per week for a single person. • Employers who are switching to totally inadequate money purchase schemes are throwing many workers onto the state. • Doing the same in Local Government and the NHS would mean a high proportion of the combined nearly 3.5 million work force would also become reliant on the tax payer. • Over half the cost of the LGPS is met by Employee contributions and investment returns

14. FIGHTING ENVY – SOME EMPLOYERS ARE CLOSING GOOD SCHEMES • . The real divide is not between public and private sector workers but between fat cats in the boardroom who vote each other ludicrously generous retirement packages at early ages while plotting to cut the pensions of their work force. • Closing good schemes just because of envy is a race to the bottom. It will not help those in the private sector that are already heading for poverty

15. ENGAGE POLITICIANS CONFRONT MISCONCEPTIONS • Stopping public service schemes will not cut the costs of past service liability • Funding public services schemes not a viable answer eg last year • the Government had £7.78 billion paid into the NHPS to spend. If it went into a fund where would it find £5.6 billion to pay the benefits? • People do not choose to rely on the state. Government policies often leave them with no choice eg miss-selling of personal pensions in the 1980s • Glyn Jenkins • Head of Pensions