Wednesday, 17 August 2011

Public sector pension plans pose danger to private firms

17 Aug 2011

Undermining the huge investment power of local government pension funds (LGPFs), is a dangerous financial gamble, with serious consequences for the UK economy, warns UNISON, the UK’s largest union today (17 August). A study by the union reveals the enormous risk posed to companies on the London Stock Exchange, and to major UK banks, by Government plans to change the pension scheme. 

The scheme’s investments, worth a whopping £160 billion last year, make it equivalent to one of the largest institutional investors in the world. The funds own 1.5% of shares in the largest companies on the London Stock Exchange – investing nearly £11 billion in the top 11 companies. LGPFs also own 1.5% of UK banks shares.

Dave Prentis, UNSION General Secretary, said:

“Local government pension funds are a steady and significant stream of investment for many big UK firms. Worth £160 billion, it’s a huge financial boost to private companies, and to the UK economy as a whole.

“But this could all change if Government plans to raise contribution rates, price people out of the scheme. A quarter of local government workers already opt out because they can’t afford to save for their retirement.

“At least 20% more could opt out if contribution rates go up further. This will hit cash flow hard and could mean investments are cashed in early. The worst case scenario is that the schemes collapse entirely. This would be a disaster for the taxpayer, who would have to pick up a massive means tested benefits bill later on down the line.”

Top facts on the local government pension scheme:

The scheme went through a thorough review in 2008 to make it sustainable and affordable for the long term. And it worked – a fact confirmed by a recent report by the Chartered Institute for Public Finance & Accountancy (CIPFA).

Local government workers already pay between 5.5 and 7.5% of their salary into their pension. The average pension in local government is £4,000, dropping to just £2,800 for women.

The local government scheme could fund all its liabilities for twenty years without a single penny more in contributions.

UNISON UK Press Release

Further info:
Tables with amount of LGPF holdings in major FTSE companies and banks, available from the press office.


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