Local Government Pension Schemes (LPGS) have historically been viewed as perhaps the most stable and fruitful of all public sector pension schemes.
Unlike other schemes facing up to the extreme measures necessitated by the deficit, LGPS remained open to new entrants, and were in far better shape than the majority of their counterpart funds elsewhere in the defined benefit market.
However, between 2011 and 2013, a variety of factors have come together which have created much consternation with local government employees who previously felt their retirement outlook to be particularly stable.
Employee contributions are down, due to the outsourcing of many previously in-house roles to the private sector, and austerity measures have also hit the LGPS fund hard.
The unfortunate truth is that LPGS funds have been plundered to attempt to restore balance to other funds which are in a more precarious position. This has created a bigger deficit, and has meant that pension fund managers have been forced into looking at Liability Driven Investments (LDI’s) in an attempt to curtail the increasingly serious situation represented by the deficit.
As more and more former employees hit retirement, the fund will be further depleted. With lower staffing levels within the sector, there are also fewer contributions. Currently, 19% of the fund is used as investment in LDI’s, but this is likely to increase moving forward. These types of investment carry risk, and hedging the deficit against investment can go either way. LGPS members are now facing up to the very real prospect of:
Working for longer
Reduction in benefits upon retirement
Uncertainty and confusion on exactly how their contributions are being used
The potential for a raft of future rule changes
Their funds being locked into the UK permanently (as of April 2015)
For those currently living and planning to retire overseas, QROPS can provide the solution. Thousands of LGPS have already been moved into a more beneficial and stable scheme in light of the current situation in the UK, and this trend is set to continue.