Social Security and Welfare Reform

Reduced Pension Rights in the Local Government Pension Scheme: who is affected and how much does it cost Government?

  • Published 1st Feb 2006
  • Authors: Peter Kenway,
  • Category: Social Security and Welfare Reform

This briefing paper looks at what evidence there might be to support the case that members of the Local Government Pension Scheme (LGPS) should be better treated than the current proposals for reform from the employers envisage. The particular concern is with the loss of protection for existing members which currently allows any LGPS member who satisfies the ‘Rule of 85’ to retire from the age of 60 without suffering a reduction in their pension.

The paper is concerned with two questions. First, when the media talk about the members of the LGPS, they tend to convey an image of the bowler-hatted civil servant, retiring with a generous pension after a career spent working behind a desk. How accurate an image is this?

Second, reductions in pensions cost central government money, via both reduces income tax and higher benefits for low income pensioners. But these knock-on costs of reducing pensions never seem to be mentioned. How large might they be?

Key findings:

  • Across Britain, nearly four million people belong to the LGPS. Of those that are still employed in the local government sector, two-thirds are women, more than half of them part-time. In 2004, half of the male pensioner members were getting no more than £70 a week in pension while half of the female pensioner members were getting no more than £36 a week.
  • Half of the people eligible to join the LGPS work in just twelve occupations. Classroom assistants are the most numerous. Others in this top dozen include care assistants and home carers, school mid-day assistants, catering assistants and nursery nurses. The great majority of these employees provide services directly to members of the public.

In terms of the impact on central government finances, we estimate that:

  • If there were no LGPS at all, all the members relying instead on the State Pension and Pension Credit alone, the Government would be about £2bn a year worse off due to lower taxes and higher Pension Credit and other benefit payments. This is 50% of the amount that the LGPS paid out in pensions and annuities in the year to March 2005.
  • If the right to take an unreduced pension at 60 is gradually phased out, as planned, from October 2006, the Government will bear between 35% and 40% of the pension that is lost in the form of lower taxes and higher benefits. The Government Actuary’s Department has calculated that the capitalised cost of protecting that right for existing LGPS members as £5.5bn. On that basis, the capitalised cost to the Government of the loss of protection would be around £2bn