UK - The Conservative chairman of the Local Government Association has attacked coalition plans to hike council worker pension contributions warning the move would lead to mass opt-outs.
Tory peer Baroness Eaton wrote to Chancellor George Osborne warning him plans to raise an extra £900m ($1.4m) of income by 2014/15 by raising contributions by 3.2% will lead to a massive opt-out rate by employees who can no longer afford the scheme.
The letter said this would put the squeeze on remaining members who would have to stump up extra cash, leading to a "vicious circle" of even higher opt-rates.
The letter, co-signed by Lewisham Mayor Sir Steve Bullock said: "The Local Government Group are very concerned that the implications for local authorities, their workforce and the wider economy may not have been fully considered by HM Treasury"
"For some years the LG Group has pursued a policy position of the LGPS being sustainable and affordable. In our opinion these proposals seriously undermine these principles"
The letter added the increase would put the scheme's future sustainability and viability at risk, forcing council schemes to move away from equities into bonds and distort the bond market.
The calls from Baroness Eaton follow similar pleas from the London Pensions Fund Authority earlier this month on the dangers of the planned increase.
The Department for Communities and Local Government has said the extra £900m could be raised by increasing contributions for people earning over £24,000 a year.
People earning between £24,000 and £31,000 would see contributions increases of 3.2%, with those earning above £150,000 contributing 7.5% more.
The LG Group said there was strong evidence to suggest that the opt-out rate would be far greater than the 1% envisaged in the Spending Review announcement if contributions increased. It also warned the increase would worsen industrial relations.
The letter comes on the back of a survey conducted by the Unison the union showing nearly 60% would opt out if contributions were increased.(PP Online, 7 February)
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Professional Pensions is holding its defined contribution (DC) conference on 4 September.