Chancellor’s tax measure is ‘backdoor’ LGPS reform

Hard headed: George Osborne accused of LGPS reform by the ‘backdoor’

Local government faces a brain drain of top talent – including senior council finance officers – to the private sector, thanks to pension reforms outlined in the Summer Budget, according to an expert.

Chancellor George Osborne announced reductions in the annual tax free allowance to £10,000 a year for higher earners in addition to a cut in the lifetime allowance to £1m from 2016 previously announced.

Steve Simkins, head of public sector pensions at KPMG, told Room151 that the move will leave senior council officers earning more than £110,000 facing pay cuts of up to 10%.

“I think this move – which is a reform to the Local Government Pension Scheme by the backdoor – will prompt senior successful public servants to say ‘this might the time for me to move to the private sector’,” he said.

“In addition, those a couple of steps down the ladder might say it is not worth getting a pay rise to take on a more senior role with more flak, because a large part of the benefit used to be the pension benefits.”

He said that he has already been approached by public sector organisations asking for advice on what can be done to retain their chief executives, board members and other senior staff as a result of the reforms.

He said that the public sector is less able than private sector firms to offer alternative deals to their senior staff due to rules preventing them from offering increased salaries in lieu of pension scheme membership.

Last year, the Wales Audit Office ruled that pay supplements to two council chief executives on top of their salaries were illegal.

“Unlike in the private sector, councils cannot can’t change or mitigate the tax effects of the scheme,” Simkins said.

“Given public sector schemes are set in stone, employees have two choices: in or out. Public servants may move from having gold-plated pension schemes to having nothing.”

Simkins said the government should consider reforms to public sector pension schemes and reward structures to allow more flexibility for employers and senior employees.

Meanwhile, the LGPS Scheme Advisory Board has written to ministers with recommendations on better management of deficits within the scheme.

These include detailed proposals designed to ensure that employer contribution rates are reported transparently and consistently across different schemes.

Photo (cropped): Number 10, Flickr.