Council-employed social care workers should retire later, pay more towards their own pension and get less out of them according to the Audit Commission.
The watchdog believes the new local government pension scheme (LGPS) in England is unsustainable in the current financial climate and an urgent shakeup is required.
- Raising the retirement age
- Reducing accrual rates
- Raising employee contributions
The LGPS has 1.7 million active members who contribute between 5.5% and 10.5% of wages to their pensions, depending on earnings.
Under the plans, the rate of contributions could be increased by “a few percentage points for higher earners” who would give longer service and be less likely to opt out.
The normal retirement age could be raised although the report does not specify by how much, but people who wanted to retire at 65 could still do so under “flexible retirement policy.”
The Audit Commission noted the LGPS has enough funds to cover three-quarters of its future liabilities and enjoy the positive cash flow.
But it said investment returns had not grown in line with expectations – the value of assets today is about 15% lower than anticipated in 2007.
It added that councils responsibilities for paying pensions would affect the amount of money available to fund services.
“The LGPS needs further reform to address the growing mismatch between liabilities and the resources available to fund them,” the report said.
The information paper on local government pensions in England served as the Audit Commissions contribution to the review of public sector pensions shared by Lord Hutton and announced by the government earlier this year.