Change in pension contributions – explanation below .
Several members contacted our branch this month as they noticed a change in the employer contributions.
The branch contacted the Council and requested that they put out an announcement to the workforce explaining why this has happened and what it means to each member.
Below is the statement sent out in an email to all staff. We are conscious that not all staff have access to a work email, which is why we are publishing the statement in full on our web site.
Change in the employer contribution to the Local Government Pension Scheme
As of this month, there has been a reduction in the amount of pension contribution that the council will pay into the Barnet Pension Fund (part of the LGPS). This does not affect your pensions benefits in any way.
You may have noticed in your payslip that the amount of Employer Contributions towards the Barnet Pension Fund has reduced. This does not affect your pension benefits in any way. Pension benefits, and your contributions to your pension, are set according to a formula. The council pays in an amount to ensure that there is enough money in the pension fund to cover all of these benefits, and this amount is recalculated from time to time.
Understanding the Pension Fund Financial Background
It is important to understand the financial background to the Pension Fund. The Barnet Pension Fund (the “Fund”) funding position has improved to a very strong financial position due to increased long-term interest rates. This means that the Fund expects higher returns on the investments it holds.
This also means that the Fund is expected to need less money from employers like the Council to fund the benefits promised.
Despite this improvement in funding, the Council had been paying around £6 million a year to address a “funding shortfall”, which was determined on 31 March 2022, when the contribution rate was set. Crucially, the Council had been paying more than necessary to address the “shortfall” that existed in March 2022.
The Actuary, an independent specialist advisor to the Fund, has determined that this shortfall no longer exists at the present time – indeed on 31 December 2023, the Actuary estimated the Fund was 123% funded.
Council’s Financial Situation
As you will be aware, and like many local authorities, the Council is facing significant financial challenges, prioritising resources to protect essential services. Due to current financial pressures, the Council requested to contribute only what is required to address the funding shortfall identified on 31 March 2022 (rather than more than was what was required).
Pension Committee’s Decision Making
The Pension Committee, composed of elected members, carefully considered whether it was appropriate to review the Council’s pension contributions over four meetings. Expert advice from legal professionals confirmed the legality of the review.
In February, the Pensions Fund Committee approved the Council’s request for a reduction to their contribution from 28.4% to 20.4% of salaries (i.e. an 8% reduction) over a two-year period, starting from April 2024. This contribution reflects the amount required to address the funding shortfall on 31 March 2022 and does not take into account the significant improvement of the Funding of the Pension Fund since then.
Impact on member contributions
Individual member contributions will not change. LGPS pension contributions are set by regulations and no Local Authority has the power to alter them. This means that the recent decision to reduce the Council’s employer contribution rate will have no effect on individual member contributions.
Impact on member benefits
Member benefits are a statutory obligation set out in the statutory regulations governing the Local Government Pension Scheme and therefore cannot be changed by the Council and remain fully protected. Pension scheme member benefits are therefore not impacted by any adjustment to the Council’s contribution rate.
Monitoring the Position
If the financial position of the Fund deteriorates significantly, such as through decreased interest rates or poor performance of the Fund’s assets, the Pension Fund Committee has the power to require the Council to increase its contributions to previous levels. As part of the agreement, and to protect the Fund, the Pension Fund Committee requires the Council to demonstrate that it is budgeting for the higher level of contribution within its long-term financial planning. The Fund will also have another full valuation in any event in March 2025.
End.