Wednesday, November 28, 2007

Local Government Pension Scheme: is it a Bath or a Sausage Machine?

It is strange the things you come across at seminars. Like most of the 3.5 million members of the £100 Billion plus Local Government Pension Scheme (LGPS), I thought it was just a means to save for my retirement. Not according to very senior civil servants at the CLG who apparently think it’s a “bath” while the top UNISON governance expert thinks it’s a sausage making machine.

The civil servants have used this term in negotiations with the unions. Apparently they think it’s a bath since there is suppose to be a tank of “money” with two taps pouring money as needed into it (one tap filled by the employer and one by the employees). When the bath reaches the level of the overflow then money flows down the pipe to pensioners. A warm "goldilocks" bath – not too warm, not too cold is of course the civil service “idyll”.

Hmmmm.... I suppose I could point out that actually this bath need 3 taps since 40% of income for the LGPS actually comes from investments. As a estate officer I should point out that the overflow pipe should only be used in an emergency!

The contrary view is that the scheme should really be viewed as a “sausage making machine” and instead of concentrating on the sausages, we should spend more time on the machine itself. Employer and employee’s contributions as well as investment income is poured into the machine, the machine mixes them all up and hopefully the end result is pensions (also known as sausages/benefits).

Instead of spending too much time worrying about the end result (the sausages/pensions/benefits!), you should instead concentrate more on the ingredients and processes. Because if you get them right the sausages (also known as pensions/benefits) will always be ok?

I think all of the delegates at today’s GMB/Unite pension seminar in Eastbourne still think that the LGPS is a saving scheme for their retirement however; the sausage machine argument did make more sense.

One of the major reasons for recent problems in the scheme is that it simply has not been governed properly. For example a few rotten apples have used the scheme as a “cash cow” to keep council tax artificially low and win elections (and worse).

The unions have all traditionally been concerned about benefits to members. However, if we concentrate too much just on the benefits and not the source of these benefits (the scheme itself) then we are just storing up trouble for ourselves since we will always have to be reactive to events instead of being able to have a constructive input into the scheme - before it goes bent.

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