Reform UK’s plan to close the Local Government Pension Scheme to new entrants would deepen recruitment crises, weaken local democracy and push low-paid workers towards poverty in retirement, argues UNISON’s head of pensions Glyn Jenkins.
Reform UK’s announcement that, if elected, it would end defined benefit pension schemes for new local government staff would be a disaster. For council workers, the local government sector and communities in general.
The party’s leadership doesn’t want any new starters admitted to the Local Government Pension Scheme (LGPS). But that ignores the fact the scheme provides decent and not excessive benefits for those working in councils and schools. To do away with it would make recruitment to often low-paid roles much more difficult, and the staffing crisis would worsen. And that’s bad for everyone who relies on the many vital local authority services.
For anyone on low wages, the auto-enrolment system favoured by Reform will only lead to poverty in retirement. Such defined contribution schemes only deliver decent pensions for high earners who can get their employers to pay sizeable contributions too. The millionaires in charge of Reform look after the well-off, not those on low pay. We’ve seen it before and we’re seeing it again.
We also know from experience that stopping new entrants from joining pension schemes leads to their closure even to existing members further down the line.
Reform also want all LGPS assets to be centralised in a UK wealth fund.
UNISON has proposed a single investment vehicle for English LGPS. But local people need to control the investment strategy, so it responds to the needs and wishes of scheme members in each fund. Ministers mustn't be making these decisions. They need local, democratic control. Precisely the opposite of what Reform is proposing.
Reform talks of more investment in Britain. But the LGPS already does that. Almost a sixth (17%) of LGPS assets are in UK equities, compared to 5% for private sector defined benefit pension schemes.
And so much for claims that LGPS funds perform poorly and are invested in ‘woke nonsense’.
If Reform looked properly, the party would find LGPS funds returned an average of more than 7% in the past decade, compared to an average 1.3% for private sector defined benefit schemes. LGPS funds are invested broadly to ensure that if one type of asset performs badly, it dampens the effect across the whole fund. Investments are based on professional advice and locally elected councillors set the investment strategy.
Climate-oriented investment funds have, on average, delivered better returns than traditional funds over the past seven years. Better woke than broke.
And if we’re talking about ‘nonsense’, Reform claims LGPS funds pay high investment-management fees.
The reality is that last year investment costs were about 0.56% of the total asset value. That’s the same as the much-admired Ontario Teachers Fund pension scheme, and on a par with many other UK schemes.
A UK sovereign wealth fund investing more in domestic projects would inevitably have higher investment costs because infrastructure is more expensive and decisions need to scoped out more carefully to avoid bad moves.
In short, as with many other Reform UK announcements, there’s a worrying lack of understanding of the things the party intends to change.
Defined benefit schemes aren’t the ‘gold standard’ Reform has made them out to be. But for low to middle paid staff, they are the chance of an adequate income in retirement. Removing these schemes for future employees will do little for the finances of public services.
What many younger workers really need is an improvement in minimum direct contribution for auto-enrolment schemes. Not to dumb down perfectly adequate direct benefit schemes.
