The Local Government Pension Scheme should increase its retirement age to 66 and limit pensionable pay to £75,000 a year, the London Pensions Fund Authority says in its submission to the Public Service Pensions Commission.
As part of raft of wide-ranging changes to the LGPS, the LPFA recommended a number of "quick wins" to the Commission, which could be introduced as early as next April.
These include:
• Linking LGPS pension payments to CPI rather than RPI
• Increasing retirement age from 65 to 66 from 2016
• Changing accrual rates from 60ths to 65ths
• Limiting pensionable pay to £75,000 or £100,000 per year
• Raising employee contributions while minimising impact on the lowest paid
• Confirming that existing rights in any new scheme will be protected through a CPI-indexed preserved benefit
The authority said the quick implementation of these reforms would have an immediate positive impact on local authority spending plans from 2011/12 and prepare the ground for further, long-term reforms to the LGPS, which could be introduced from 2012.
These include:
• Setting up an independent commission or chamber to ensure the scheme's ongoing structure and affordability
• Switching the scheme from a final salary to a career average (CARE) basis
• Designing the new scheme around a guaranteed CARE pension for the member, capped at a level affordable for the tax payer, whilst offering access to a range of optional additional benefits at extra cost and without a tax payer guarantee. These would include death and health cover, a DC top-up pension to increase the basic benefit or enable early retirement, early drawdown of lump sum and assignment for mortgage purposes.
• The benefits would be interchangeable though the membership of the scheme enabling employees to select those most appropriate to their circumstances
• Protecting existing rights via a preserved pension enabling accurate forecasting of future liabilities and simplifying the scheme
• Exploring the options for greater integration of the different unfunded public sector pension schemes
LPFA chief executive Mike Taylor said: "Our aim in drawing up these proposals has been to promote a recognition that change is necessary whilst challenging unsubstantiated and potentially misleading perceptions about the LGPS.
"These proposals set out a cogent, affordable and practical approach to reform. If implemented, we believe these changes would ensure the long term affordability of the scheme whilst securing a decent income in retirement for scheme members."
