Mike Taylor - Pensions Roundtable - PPMA Seminar April 2012

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Mike Taylor - Pensions Roundtable - PPMA Seminar April 2012

  1. 1. Pensions roundtable The latest developments on pensions Mike Taylor, Chief Executive LPFAPPMA Conference 2012 26 April 2012 1
  2. 2. Agenda • The changes – good or bad – to maintain an affordable sustainable pension scheme • LGPS post HuttonPPMA Conference 2012 26 April 2012 2
  3. 3. 2 years ago • The battle – public sector pensions are • Gold plated • Unfair • Unaffordable – pensions apartheid – public vs. private – pensions envy • The campaign – 2009/11 – to maintain an affordable sustainable pension schemePPMA Conference 2012 26 April 2012 3
  4. 4. Fat cat pensions?• Average LPFA LGPS pension – Full time £6,800 – Part time £2,200 – 96% of pensions below £20,000 – 64% of pensions below £6,000PPMA Conference 2012 26 April 2012 4
  5. 5. Retirement Age • Normal retirement age 65 • Average length of service 17 yearsPPMA Conference 2012 26 April 2012 5
  6. 6. Current Local GovernmentPension Scheme • Statutory scheme – Final Salary, Defined Benefit – Normal Retirement Age: 65 – 1/60th accrual • 100 Administering Authorities – Total assets £150 billion – 4 million membersPPMA Conference 2012 26 April 2012 6
  7. 7. Government action over last 2 years• Independent Public Sector Pensions Commission – Chair, Lord Hutton – Started July 2010 – Interim report October 2010 – Final report March 2011• Changed basis of indexation July 2010 (effective from April 2011) – RPI to CPI – Affects pensions in payment – Saves £1.8bn per annum by 2014/15PPMA Conference 2012 26 April 2012 7
  8. 8. Government action (contd)• Budget Spending Review (October 2010) – Increases in member contributions from April 2012 – Average 3.2% by 2014/15 • £2.8 billion per annum including £900 million for LGPS • No increase for lowest paid members• Review state retirement agePPMA Conference 2012 26 April 2012 8
  9. 9. 1 year ago • Lord Hutton’s final report – to maintain an affordable sustainable pension scheme • Main conclusions – Retain defined benefit – Switch from final salary to career average – Protect accrued rights – Increase retirement age – Review employee / employer balance – Improve governance – Implement by 2015PPMA Conference 2012 – 26 April 2012 9
  10. 10. Today • Good scheme maintained • No forced increase in employee contributions • Implement in 2014 … subject to final sign off with Treasury and Department for Communities and Local Government –PPMA Conference 2012 26 April 2012 10
  11. 11. Challenges ahead • For fund employers • For fund administrators … and not just the new scheme (NEST, auto enrolment, tax changes) –PPMA Conference 2012 26 April 2012 11
  12. 12. Future Local GovernmentPension Scheme• Statutory scheme – Career Average, Defined Benefit, revaluation factors to be agreed – Retirement Age raised in line with State Retirement Age • Now 65 • 66 by 2020 • 67 by 2026 – Accrual rate - may be different• Other public sector schemes – Similar, but each negotiating separatelyPPMA Conference 2012 26 April 2012 12
  13. 13. Future Local GovernmentPension Scheme• Complex for members, administrators and employers• Links to NEST• Communication strategiesPPMA Conference 2012 26 April 2012 13
  14. 14. Future Challenges • Retaining existing and encouraging new membership • Declining numbers in workforce • Ageing population • Further longevity improvementsPPMA Conference 2012 26 April 2012 14
  15. 15. Other issues • Declining membership will lead to rapid maturing of the schemes • Less scope for investment risk • Need for different investment strategiesPPMA Conference 2012 26 April 2012 15
  16. 16. Value for money pressures • Savings – Improving value for money from • Scheme administration • Fund management • Investment returns – Potential for scheme mergers – Potential for sharing servicesPPMA Conference 2012 26 April 2012 16
  17. 17. Pressure for changes in governance • Governance – Improving governance • Better training of pension committee members • Representation for employers, scheme members • “Governance dividend” – Larger schemes estimated to add 0.5% to annual returns • LGPS potential up to £750m per annumPPMA Conference 2012 26 April 2012 17
  18. 18. Conclusions • LGPS – Major changes made – Good scheme preserved – Further changes inevitable • To realise value for money savings • Better governancePPMA Conference 2012 26 April 2012 18

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