Local government pensions ‘too generous and unaffordable’

Local government staff, including social workers, should pay more towards their pensions and get less out of them, according to a report by economists.

The Public Sector Pensions Commission said the local government and NHS schemes were overly generous and unaffordable.

The independent body of pensions experts, set up by the Institute of Directors and Institute of Economic Affairs, recommended increasing employee contributions by 2% and reducing the accrual rate or introducing career-average schemes.

At the launch of the report today, Peter Tompkins, fellow of the Institute of Actuaries and chair of the commission, said: “Contribution increases are probably the easiest change to put forward.

“There is a degree of fairness in it: you are going to keep your pension scheme but it’s going to cost more.”

However, he said the commission did not favour any one strand of reform in particular.

Unions attacked the commission for having a vested interest.

Brendan Barber, general secretary of the TUC, said: “This report is from people who simply want to reduce taxes for business and the super-rich.”

The commission suggested a 2% rise in employee contributions towards their pensions, which could raise up to £2bn a year. For social workers on an average wage of £30,000, this would mean additional contributions of £600 a year.

In addition, the accrual rate of 1/60th should be reduced to 1/80th, the report said, or pensions should be paid according to workers’ average salaries across their career. This would save about £10bn a year.

Currently, a social care worker with a final pensionable pay of £20,000 and 10 years’ service would receive £3,333 a year. Under an accrual rate of 1/80, this would reduce to £2,500.

The commission’s report said the cost of meeting local government pension schemes, which covers most social care workers in England and Wales, are set to rise. It argues that, unless reforms are implemented, this could lead “either to higher levels of council tax or lower spending on other areas of local government”.

The report added that “recent reforms to the main public sector schemes were not only inadequate, but only applied to new members, leaving future accrual of existing members almost entirely untouched”.

Related articles

Pensions threat to local authority social workers

Lowest paid public sector workers spared pay cut in Budget

External information

Public Sector Pensions Commission