In a new report released today, the Audit Commission has called for substantive reforms in Local Government Pension Scheme to ensure its sustainability in the long term. This report would be fed into John Hutton's overall review on the affordability of public sector pensions, who is expected to present his initial report in September this autumn.

The Local Government Pension Scheme (LGPS) in England is the largest public sector pension scheme by membership. It has 1.7 million active members, 1.15 million members with deferred pensions, and 1.1 million receiving pensions. Nearly three-quarters of its members are women, and nearly half work part-time. This scheme is different from other public sector pensions as they are backed by local funds however, in recent times, some of these investments have failed to deliver the expected returns and is currently only meeting about 75% of the scheme's future liabilities.

The Audit Commission does acknowledge that there have been reforms made in the recent past however more needs to be done to ensure the scheme's sustainability especially with rising costs due to longer life in retirement along with increases in wages and benefits. The report produced by the Audit Commission offers various incremental reforms rather than transformative reforms. The watchdog argues that radical reforms could prove to be more costly in the short term. The recommendations are as follows:

- Employee contributions could be raised, but tapered to discourage members on lower salaries from opting out.
- Savings could be made by raising the normal retirement age and reducing the rate at which pension benefits are earned.
- Local pension funds could be allowed more discretion to adjust the level of benefits offered to pension fund members.
- Local government employers should keep liabilities in check by controlling wage costs.

There is distortion in the media about public sector pension especially in the LGPS as there are many who work part time and also due to lower wage levels for many employees argues Eugene Sullivan, the Chief Executive of the Audit Commission.

"Around half of pensions in payment are below £3,000 a year," he adds.

 ‘With Lord Hutton’s Commission putting public sector pensions under the microscope, we hope that this paper will inform the debate about the long term health of council pensions in England, and clearly lay out the choices facing elected councillors and policy makers.’