NAPF calls for independent commission on public sector pensions

The National Association of Pension Funds (NAPF) has called for an independent commission to look at the reform of public sector pensions, as a number of local authorities consider asking for ministerial approval to bring their schemes more into line with private sector pensions.

Joanne Segars, chief executive of the NAPF, said an independent commission was needed to “take the politics out of public sector pensions” although any recommendations it makes should not be a “race to the bottom”.

Meanwhile, the chief executive of the London Pensions Fund Authority, Mike Taylor, has told the Financial Times (23rd February) that “several large local authorities” are considering changes to staff pension arrangements to bring them closer to those in the private sector, before the bad press received by public-sector benefits prompted politicians to suggest more draconian changes.

One option under consideration is to move from pensions based on final salaries to those based on the average salary earned over a lifetime, while other proposals include reducing the rate at which benefits are accrued from the current level of 1/60th of pay (which leads to 2/3 of final salary on retirement after 40 years' service) to 1/80th (which would lead to the pension being half of final salary) or 1/100th  (40% of final salary).

“Doing nothing is not an option,” he said.

Formal valuations of local authority pensions schemes are due at the end of March and are widely predicted to show sharp falls in funding levels. Taylor told the FT that while the average scheme funding  on March 31 2007, the level today was likely to be no more than 65 per cent, representing a shortfall in the region of £70bn.