Auto-enrolment set for LGPS clash

The £10m publicity drive for auto-enrolment could tempt council pension scheme members to opt-out and move into "inferior, cheaper alternatives", the Merseyside Pension Fund warns.

The scheme said there was a threat members from admitted body employers in the local government pension scheme will switch to the National Employment Savings Trust or alternative vehicles to save on contributions following the government's auto-enrolment marketing campaign.

The Department for Work and Pensions has amassed a £10m war chest, confirmed by Steve Webb in July, to spend on communications to market and publicise auto-enrolment, which will include NEST.

Merseyside said it would now embark on a "significant" marketing campaign to help educate members on the benefits of the LGPS and stop people leaving the scheme for short term savings.

MPF chairman Geoffrey Watt said: "It clearly is a concern for the scheme.

"It's not good for members and certainly not in their best interests in the long run. The other side of the coin is with fewer people enrolling, it has a bad effect on the cash flow projections for the funds."

Admitted body employers are private sector firms providing public services who can choose to enrol their employees in the LGPS.

A DWP spokesperson said: "It will be for employers to decide which scheme will best suit the needs of their workforce, and where an employer already has existing high quality pension provision, we want to encourage and support them to continue to use it to meet the new duties. NEST will be just one of the options available to employers.

"Our communications campaign will build awareness of automatic enrolment and will provide people with essential information."

Mercer public sector consultant Paul Middleman said if an employee sees a scheme that is cheaper than the LGPS people might go into it.

"It will all rest on how strongly the different parts of the argument are communicated. A lot of people in the LGPS don't realise how valuable it is," he said.

Auto-enrolment is set to begin with a 1% employee contribution rate, which could tempt LGPS members - who pay 6.5% on average in contributions - to leave the scheme and go into alternative vehicles to save money.

Wragge & Co pensions partner Paul Carberry said: "If members consent to opting out of the LGPS there's nothing you can do if they're fully informed and give valid consent to a switch to the LGPS to NEST style arrangement.

"There's not legal barrier but you do get into some difficult territory if you try and coerce people into leaving."

The £10m budget, mentioned by Steve Webb in Parliament on 14 July, is a rounded amount allowed to cover DWP work on raising awareness of automatic enrolment.

Minutes from the 19 September MPF committee meeting said: "Publicity surrounding personal pension schemes promoting inferior cheaper alternatives to the LGPS may tempt scheme members to opt out and reduce their pension contributions."