Take the politics out of local government pensions with independent commission: LPFA

The London Pension Fund Authority has called for the creation of an independent commission as part of an overhaul of the Local Government Pension Scheme (LGPS).

The LPFA said a Local Government Pensions Commission should be set up with equal representation from those responsible for paying for the scheme (employers and taxpayers) and those who receive benefits from it (scheme members).

Under the proposals, the commission would be chaired by an independent chairman appointed by the Secretary of State for Communities and Local Government

The authority said it was important to “take the politics out” of the LGPS. The commission would replace the day-to-day involvement of the Secretary of State and “improve the existing lengthy processes which have tended to result in tinkering rather than the wholesale reform the scheme requires”.

The LPFA’s green paper suggests a two-fold remit for the commission: to determine an appropriate and affordable scheme structure within an agreed framework; and to manage the affordability of the scheme in the future and to make recommendations for reduction in scheme deficits. Administering local authorities would retain their existing control over areas such as investment strategy.

Decisions the commission would be expected to take include:

• Whether the scheme should be defined benefit final salary or career average or a hybrid defined benefit/defined contribution arrangement
• The balance of cost between beneficiaries and contributors
• The solvency parameters
• The conditional indexation parameters
• The normal retirement age, and
• Accrual rates.

LPFA chief executive Mike Taylor said: “An affordable and sustainable pension scheme which meets the requirements of its members within the means of its sponsors should be a vital component of long term public finance, health and welfare policy.

“The LGPS differs from most other public sector pensions in that it is funded and benefits from a positive cash flow. But it is becoming increasingly evident that even this scheme must adapt in the face of growing pressures around longevity and public concern over long term costs, if it is to continue to be sustainable for future generations.”