Local Government Pension Scheme: Member Benefits Reform

The local government pension scheme in England and Wales gives 7 million dedicated public servants security in their later years. The majority of its members are women on low-paid roles and often working part-time, with average pensions in retirement of £5,000 a year. These members are at the frontline of public service, working to deliver for the public in our councils, schools, charities, police and fire authorities, and more. This Government are committed to making work pay and ensuring that those who keep our country running are properly rewarded in retirement. That is why we have today launched a consultation that would benefit around 15,000 members, and enhance the benefits open to the women who make up almost three quarters of members, by making maternity leave up to one year automatically pensionable. These proposals all align with the overall aim of ensuring the scheme continues to deliver for members, employers and taxpayers, and invests in their communities.

The Government are proposing the changes to member benefits alongside the significant reforms to investment and pooling, which are also vital. Those reforms aim to improve the long-term sustainability of the local government pension scheme, ensuring that pension promises stretching into the next century are fully funded. The Government propose to do that by strengthening asset pooling in the scheme, improving scheme governance and driving investment in local growth—all those measures ensure that the scheme, in delivering for its members, also delivers for communities.

The members of the local government pension scheme deserve a scheme that rewards their hard work and commitment to public service, and the consultation touches on a wide range of areas of the scheme. There are four proposals I would like to highlight to the House.

First, the proposals would end historical discrimination in the scheme, ensuring that when survivor benefits are calculated when a member dies, there is no discrimination on the basis of the sex of their partner. This would be backdated, correcting the historical underpayment of benefits.

Secondly, the proposals would ensure that there is a better understanding of why individuals opt out of making pension payments. The Government want a secure old age for everyone and, although automatic enrolment in the scheme has increased participation, too many people still opt out and lose the vital benefits the local government pension scheme offers in retirement. This would lay the groundwork for future support of those who feel they cannot afford their pension payments.

Thirdly, the proposals would close loopholes in current rules relating to pension forfeiture, strengthening the framework ensuring that pensions can be removed for serious offences by public servants.

Finally, and most significantly, the proposals would make concrete progress in addressing the gender pension gap. We know that there is still much to understand about the gender pension gap, but it is not fair that, across the scheme, women will on average end their working lives with less generous pension benefits than men. These proposals would see the Government make gender pension gap data reporting statutory and make the last 13 weeks of maternity and shared parental leave automatically pensionable. This would make a real difference in the pension accruals of a significant proportion of the women in the local government pension scheme, and better support them in retirement. The 13-week proposal would be the first time that a public service pension scheme makes this step towards closing the gender pension gap. It reflects that many local government pension scheme members are women in comparatively lower-paid roles, and that the overall package available to the workforce, including pension entitlement, is vital to recruitment and retention of key roles in local public services.

Although these proposals carry costs, those costs are relatively small in the context of overall local government pension scheme liabilities and are significantly outweighed by the difference the proposals will make for members. Further, the Government are mindful that, with the current scheme valuation period, now is the right time for funds and their actuaries to factor these costs into their calculations of future employer contribution rates.

The proposals in the consultation have been tested with stakeholders and address their feedback on how to make the local government pension scheme an exemplar scheme for the public sector and beyond. I want to thank the Local Government Association, the scheme advisory board, local government pension scheme funds and others for their continued support of the Government in our role as steward of the local government pension scheme, and I emphasise the Government’s commitment to the local government pension scheme being locally run.

This first consultation on member benefits in the local government pension scheme will be followed by another consultation this year, on further issues of fairness, equality, integrity and efficacy in the scheme.

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