Monday, December 13, 2010

Public sector pensions as a business risk - no need to panic?

Tomorrow morning I am attending a briefing for colleges and other organisations who are part of one of the local government pension schemes (LGPS) in the north west. I suspect that the content on long-term developments may be a little vague as we await that final report from Lord Hutton.

How big a business risk is the LGPS now for colleges, transfer housing associations, etc? I do not often sound overly optimistic but I have started to wonder if the pension risk has started to recede.

While the viability of some weaker organisations will still be threatened by the costs of keeping promises, in general the shift to CPI indexing and the 3% pensions levy will have both lowered entitlements and shifted the costs towards employees. (It is worth noting that the indexation change will - according to Hutton's interim report - reduce entitlements by 15% - which disproportionately reduces the burden on employers as they are the ones who underwrite the scheme bar a degree of burden-sharing on life expectancy.)

When I recently suggested that the pensions risk may have slightly abated, the risk of industrial action was drawn to my attention. We have seen industrial action at the BBC - and we may see it elsewhere. But unions have accepted the CPI indexation surprisingly quietly even though it has taken away existing entitlements.

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