A union representing civil servants has reiterated its claims that a wave of opt-outs after proposed changes to public sector pensions would "destroy" the UK's Local Government Pension Scheme (LGPS).

A survey of 1000 LGPS members conducted by the GMB union suggests that as many as 55% of its 4.6 million members could pull out of the scheme after the government's proposed contribution hikes and reductions in benefits are introduced. Such a result could severely affect overall contribution levels and threaten the very existence of the LGPS, according to the union.

A 3% contribution hike across the civil service is set to be applied to LGPS members, despite concerns that the LGPS's funded structure makes this unnecessary for its members. The union argues that recent proposals to lessen the reduction in benefits also do not go far enough to compensate LGPS members. 

Brian Strutton, GMB's National Secretary for Public Services said that mass opt-outs after the proposed changes "would destroy a scheme that is sustainable for generations and invests billions of pounds every year in the UK economy."

Strutton says that "these proposals won't generate the savings the government is demanding because members will simply opt-out of the scheme. Who benefits from this? Not taxpayers who will have to support these workers in retirement; not councils who will have to sell assets or make more cuts to services to support the obligations they already have to the scheme; and certainly not the school dinner ladies, care workers, bin men, social workers and other scheme members for whom a decent retirement is now in jeopardy."

Critics point out though that opting out would not be a wise choice for LGPS members despite it likely to become less attractive pension plan. The scheme is one of the few open defined benefit schemes and therefore more generous than most pension offerings in the private sector.

One adviser told Pension Funds Insider that "it's ok for all these people to say they are going to opt out now when they are understandably angry about the changes. When they are confronted with a form and about to sign away their best chance for a comfortable retirement I imagine common sense would kick in for most people."

There are widespread fears, however, that even a modest opt-out rate could significantly affect the funding dynamics at the LGPS, which altogether has a mammoth £132bn in assets. As its deficit stood at £23bn at the end of 2010 many would argue it does not need to hike contributions, although the size of the deficit at a scheme separated into 99 regional funds is in itself a keenly debate point.

Independent Pensions consultant John Ralfe estimated at the end of 2010 that the FRS17 deficit actually stands closer to £100bn, a much more severe position than the scheme's own figures suggest.

Strike vote

The GMB union also announced this week that its members have voted to join a host of other unions in striking on November 30. At least 80% of ballot papers returned were in favour of strike action, the union stated, although only 33% of its members returned ballot forms.

Unions are hoping to win further last minute concessions from the government on the proposed changes to public sector pensions. Strutton said "it is now clear that millions of workers will be protesting on November 30th at the Government's attack on jobs and pensions. It is not too late for the government to pull back from this confrontation and scrap this attack on pensions".

dbillingham@wilmington.co.uk