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Possible changes to TPS and LGPS in 2019 (25 January 2017)

19th June 2019

The Coalition Government's 2013 Public Service Pension Act put in place a major reform of all public sector pension schemes including TPS and LGPS, both of which moved from a final salary basis to become career average schemes for new service. The Act also included measures to limit the scope of major reforms which can only take place if there is employer/union agreement. This Act could be revised by a government with a majority in the Commons and Lords. Right now there is no appetite for, or sign of, this sort of overhaul. AoC's Spring Budget submission makes the case that action is needed sooner rather than later. Although major changes are currently ruled out, more modest changes to contributions and benefits might be implemented in 2019 under measures set out in the legislation. Under an employer cost cap, ministers are required to act if the underlying costs of either scheme (the future service cost) vary by more than 2% between successive national valuations carried out by the Government Actuary Department (GAD). Work has started for each scheme on this process and will continue through the rest of 2017 so that decisions can be made, put to consultation and finalised in 2018 and implemented in 2019. There are differences for the two schemes: GAD's national valuation of the Teacher Pension Scheme will assess the position against the employer cost cap but will also determine any changes to employer contributions. The valuation assesses the scheme as at 31 March 2016, is due to reach a conclusion by March 2018 and any changes to rates are likely to be scheduled for September 2019. If the cost cap is breached (for example because the actuaries predict that teachers are living longer than previously expected) then this will initiate a process which will explore changes to the terms of the scheme. A more immediate risk is that the actuaries will decide that the scheme deficit has not closed as much as required and that this leads to rises in employer contributions. It is quite plausible that employer contributions might rise from current levels (16.48%) to more than 18%. The national exercise in the Local Government Pension Scheme will focus just mainly on the cost cap issue because employer contributions are decided by individual funds in the process described above. If the employer cost cap has been breached, there may be recommendations to change aspects of the scheme. A paper presented to the LGPS Scheme Advisory Board identifies three plausible options on Page 26: reduction in the accrual rate (currently 1/49th), changes to other benefits (spouses or early retirement) and increases in target average staff contribution (6.5%) College staff represent 8% of TPS members and 4% of LGPS members, so as a sector we have limited influence on the process. AoC is nevertheless represented on several consultation groups and can raise issues if necessary.