The final four posts on local government and independence start with a look at money.
Firstly, a word of warning.
Due to the current perilous state of the UK’s public finances – and the incompetence of the last several UK governments – it would be difficult for anybody, let alone me ( without a university economics department or privately-funded think tank at hand) to make any projections on Welsh local government finances for the foreseeable future other than to say “things are looking a bit shit”.
I know full well when to cede to others’ knowledge of public sector economics.
So this post is more about policy options than spreadsheets and graphs. So it all comes with a healthy pinch of salt.
Local government pensions in England and Wales are currently managed under the Local Government Pension Scheme (LGPS).
The scheme is open to all local government employees including councillors, council staff, non-teaching school staff, as well as civilian police and fire service staff. Teachers, police officers and firefighters have separate public pension schemes.
At a Welsh level, there are eight separate LGPS pension funds corresponding with the eight preserved counties, each one of which is administered by a nominated unitary authority.
For example, the Dyfed Pension Scheme is administered by Carmarthenshire Council (and will include employees in Pembrokeshire and Ceredigion); Mid Glamorgan’s by Rhondda Cynon Taf (including employees from Bridgend and Merthyr Tydfil).
Across EnglandandWales, the LGPS is said to have around 6.1million members as of 2022 making it one of the largest pension schemes in the UK.
Contributions are based on pay, starting (as of April 20227) at 5.5% of pay for someone earning up to £15,000 a year rising to 12.5% for the highest earners earning more than £170,000 (likely to be restricted to the most senior local government officers). This is topped up by employer contributions.
There’s an option to pay half the contribution rate if money is tight and retain some of the benefits.
At the moment, the minimum LGPS voluntary retirement age is 55, with all pensions needing to be claimed by age 75. Some local government jobs are physically demanding – highways, canteen staff, refuse collectors – and warrant an early retirement age for the same reasons there’s a lower retirement age for firefighters and certain military roles.
The UK Government has changed this so that the minimum retirement age under the LGPS will rise to 57 (for those in good health) in April 20288.
Local Government Pensions & Independence
The net assets managed by the LGPS in Wales are quite substantial. Based on the 2020-21 annual reports of the eight Welsh LGPS schemes, their total net assets/investments stood at just under £21.8billion.
Pensions would be one area well worth avoiding tampering with to a great extent regarding independence and it’s something worth a look at in more detail in its own right at some point.
As for how independence could impact the LGPS, in terms of the laws that set the rules, they would carry across as part of the common law system so would remain in effect in Wales. So there shouldn’t be any issue with the rules or management of the scheme.
The more important issues would include the ethical responsibilities of public sector pension funds like the LGPS; though they must balance ethical investments (such as divesting from fossil fuels) with fiduciary duties to act in the best financial interests of members and secure the best return on investments.
There’s the issue of the minimum retirement age and whether it should be raised or lowered or the rules changed.
There’s also an argument that Welsh public sector pensions should – ideally (it won’t always be possible) – invest more in Wales. Energy and housing would be obvious examples.
The pension schemes are already tied to county councils that no longer exist, so there’s perhaps no reason to rock the board and force mergers to match new council boundaries.
The overarching issue would be currency (links above) and how that would affect the value of pensions positively or negatively. In a scenario where Wales retains the pound, the value of pensions would continue to be subject to harmonised financial regulations and be tied to the performance of the London financial sector and government bonds.
If Wales had its own currency, there would be far greater flexibility but that could translate into more volatility if, for example, there were issues with Welsh Government bonds or there were big differences in value between a Welsh currency and the pound.
7. Local Government Pension Scheme. “Your contributions”. Available at: https://www.lgpsmember.org/your-pension/the-essentials/your-contributions/
8. Local Government Pension Scheme. “Taking your pension”. Available at: https://www.lgpsmember.org/your-pension/planning/taking-your-pension/
