Mike Taylor - Pensions Roundtable - PPMA Seminar April 2012

Mike Taylor - Pensions Roundtable - PPMA Seminar April 2012

• 1.
  Pensions roundtable The latest developments on pensions Mike Taylor, Chief Executive LPFA PPMA Conference 2012 26 April 2012 1
• 2.
  Agenda • The changes – good or bad – to maintain an affordable sustainable pension scheme • LGPS post Hutton PPMA Conference 2012 26 April 2012 2
• 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 scheme PPMA Conference 2012 26 April 2012 3
• 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 £6,000 PPMA Conference 2012 26 April 2012 4
• 5.
  Retirement Age •Normal retirement age 65 • Average length of service 17 years PPMA Conference 2012 26 April 2012 5
• 6.
  Current Local Government PensionScheme • Statutory scheme – Final Salary, Defined Benefit – Normal Retirement Age: 65 – 1/60th accrual • 100 Administering Authorities – Total assets £150 billion – 4 million members PPMA Conference 2012 26 April 2012 6
• 7.
  Government action overlast 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 2014/15 PPMA Conference 2012 26 April 2012 7
• 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 age PPMA Conference 2012 26 April 2012 8
• 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 2015 PPMA Conference 2012 – 26 April 2012 9
• 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.
  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.
  Future Local Government PensionScheme • 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 separately PPMA Conference 2012 26 April 2012 12
• 13.
  Future Local Government PensionScheme • Complex for members, administrators and employers • Links to NEST • Communication strategies PPMA Conference 2012 26 April 2012 13
• 14.
  Future Challenges • Retaining existing and encouraging new membership • Declining numbers in workforce • Ageing population • Further longevity improvements PPMA Conference 2012 26 April 2012 14
• 15.
  Other issues • Declining membership will lead to rapid maturing of the schemes • Less scope for investment risk • Need for different investment strategies PPMA Conference 2012 26 April 2012 15
• 16.
  Value for moneypressures • Savings – Improving value for money from • Scheme administration • Fund management • Investment returns – Potential for scheme mergers – Potential for sharing services PPMA Conference 2012 26 April 2012 16
• 17.
  Pressure for changesin 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 annum PPMA Conference 2012 26 April 2012 17
• 18.
  Conclusions • LGPS – Major changes made – Good scheme preserved – Further changes inevitable • To realise value for money savings • Better governance PPMA Conference 2012 26 April 2012 18