The pension freedoms and the subsequent ability for retirees to take their pots as cash pose a “concern” to the Local Government Pension Scheme, according to John Hutton.
Speaking at the NAPF Local Authority Conference, and four years after his Independent Public Service Pensions Commission report into public sector schemes, Hutton (pictured) said reforms announced in the 2014 Budget by Chancellor George Osborne effectively ending compulsory annuitisation and allowing retirees to take their entire pot as cash, will “change the whole landscape, not just for those saving in defined contribution (DC) schemes”.
He said it was too uncertain at the moment to know whether people would take money out of their local government-backed defined benefit schemes, but there was no doubt people will be tempted to take advantage of the freedoms and go into DC schemes.
“You can consider LGPS members will do that,” he said. “We should all be concerned about this as it will have an impact on [LGPS] finances.”
Elsewhere, Hutton said the LGPS “rested on better foundations” than in 2010, but warned the next four years would be an “extraordinary period of change” owing to rapidly changing demographics.
According to Hutton, there are approximately 2,500 babies born in the UK every day, 40% of whom will reach 100-years-old which, he said, was a particular concern for the LGPS as its members tend to live longer than those in most other areas.
He also described the current state of public finances in the UK following the election of a Conservative government as “scary”, adding “the next three-to-four years will be challenging, particularly if the Chancellor wants to get to surplus by 2018.”
In addition, Hutton said the government was right in looking to save costs in LGPS fund management and administration, alluding to the £600m figure attached to the annual current cost of administration.
He said: “Ministers will focus on this – I would if I was a local government minister.”
However, he was challenged by Durham County Council Pension Fund vice chairman Nigel Martin who observed £600m as a percentage of the LGPS’ combined deficit of £180bn was merely “one-third of a percent”.
Hutton also said it would be a “mistake” to turn the LGPS into the “world’s fifth largest sovereign wealth fund” because each scheme has its own liabilities to pay out.
He added: “None of us want to be mandated so we will have to show a better way to deliver change. Schemes need to work together to tackle this.”
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