Concerns over Draft Pension Bill

The draft Bill contains a range of measures to implement agreements reached by the Government with workers, trade unions and their representatives following the publication of its enhanced offer to pension schemes in November last year. The new arrangements, which are set to come into force from 2015, will see pension entitlements calculated on a career average basis rather than being based on an employee's final salary. In addition, the age at which the majority of public sector employees can retire on full pension will increase in line with the state pension age.

Commenting on the changes, CIPFA pensions panel chair, Bob Summers, said: “Any measures intended to strengthen governance in public sector pensions should be welcomed. We at CIPFA look forward to exploring with the Pensions Regulator how existing governance arrangements and associated Codes of Practice and guidance, particularly in the sphere of the Local Government Pension Scheme, can be deployed to assist the Regulator in discharging these new responsibilities”.

However, Summers expressed some concern at elements of the bill which seek to centralise aspects of the Local Government Pension Scheme under the control of the Treasury,

“The LGPS is unique amongst UK public sector pension schemes in that there is a clear accountability link between local fund administrators and local Council Tax payers. The introduction of a third party that can influence funding strategy and the process by which employer contributions are set weakens that link and restricts the ability of the local fund administrator to manage the fund flexibly to suit local circumstances.”

DCLG’s former head of pensions Terry Crossley sought to allay fears about the wording of the bill, claiming it allowed for scheme-specific elements to be introduced in secondary legislation.

“The real challenge for authorities, senior officers, elected members and ministers is going to be getting the governance and the cost management right and getting the right level of reforms into the bill in secondary legislation for the LGPS,” he said.

Christopher Berkeley of Pinsent Masons, the law firm behind Out-Law.com, cast doubt on the Government's forecast savings. The Treasury has said that the measures contained in the Bill, the final stage in its public sector pension reform programme, will save £65 billion over the next fifty years. The overall reform package will, it said, save an estimated £430bn.

"The fact that the change [in the measure of inflation] from RPI to CPI alone is said to amount to a saving of around £250bn - mind-boggling in itself - makes one wonder how much might have been saved if the Government had stuck to its guns on its original proposals," he said. "The elephant in the room is whether or not longevity improvements will continue apace; if they do then these savings - which are in any event no more than a finger in the wind because of the uncertainties around the component parts, can be expected to evaporate pretty quickly."

However, Berkeley acknowledged that – on paper at least - the Bill meant that the Government could continue to provide "a very valuable defined benefit pension offering" for public sector workers, which was "immeasurably better than the typical workplace pension now offered in the private sector".

Click here to read the draft bill