Magazine article Public Finance

Get Serious about Pensions

Magazine article Public Finance

Get Serious about Pensions

Article excerpt

THE FUTURE OF public sector pensions is high on the media and political agendas. However, the current debate is generating more heat than light, with claims about trillion-pound deficits aimed more at making headlines than illuminating our understanding of the situation.

We need an informed debate about the future of public sector pensions, but the frenzied preelection atmosphere is not allowing it to take place. That's why the National Association of Pension Funds is calling for an independent public sector pensions commission.

Pensions need a long-term perspective. A commission would be able to find a solution that meets the long-term needs of both taxpayers and public sector workers. It should be made up of employers and employees, as well as pension experts.

There are four main public sector schemes: the Local Government Pensions Scheme, the NHS Pension Scheme, the Teachers Pension Scheme and the Civil Service Pension Scheme. They all have different rules, benefits and costs. As such, there is unlikely to be one answer.

For instance, the Local Government Pension Scheme is different from the other large schemes as it is funded, and is administered locally with 99 different funds across the country. It is the largest of the schemes with 1.7 million active members. The scheme is final salary with l/60th accrual and employee contributions between 5.5% and 7.5%, depending on salary. It was always seen as less generous than its central government counterparts, has always had a retirement age of 65, and the average pension is only £4,000 a year.

At the last valuation in 2007, the scheme was 82% funded with £122bn of funding, but liabilities of £149bn. The scheme's 2010 valuation is expected to show that this funding level has fallen again, putting the scheme under the spotlight with pressure to put up employer contributions.

The next biggest example is the NHS Pension Scheme, the largest centrally administered scheme in Europe. …

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