Consulting actuary Punter Southall said that increasing employee contributions would not make the scheme unsustainable.
"We do not agree that increasing employee contributions to the Local Government Pension Scheme by around 3% of salary would seriously undermine the future sustainability and viability of the scheme," said John Prior, head of Punter Southall’s public sector outsourcing team.
Prior was responding to a letter to Chancellor George Osborne from the Tory chairman of the Local Government Association, Baroness Eaton, which claimed there was of "strong evidence" that the higher contributions could cause a "significant level of opt-outs", throwing the "sustainability and viability" of the pension scheme into question.
The letter was in response to government plans to phase in increased contributions for six million members of public sector pension schemes from April 2010, saving the Treasury £1.8 billion annually by 2014/15.
Public employees will be expected to contribute an extra 3.2% towards their pensions under the plans. Former Labour Cabinet minister Lord Hutton will unveil further details when he delivers the final report of his Independent Public Service Pensions Commission in a few weeks' time.
"While any increase in contributions is likely to be unpopular with employees, the majority of employees are likely to conclude that they are better off staying in the scheme," said Prior.
"This has tended to be the case in the private sector, where some of the few remaining ‘open’ final salary schemes have increased employee contributions without any significant increase in opt-out rates."
Prior said that, even if opt-outs increase, it was unlikely to have a significant effect on the scheme’s overall maturity and hence investment strategy in the short-term.
"The idea that this change will distort the bond market and impact on the UK stockmarket seems far-fetched. Any change in investment strategy is likely to happen gradually over a period of many years."
While an increase in opt-outs may lead to employees failing to make adequate pension provision for themselves, leading to further reliance on the state via means-tested benefits in retirement, this was part of a wider pension problem and not restricted to either the public or private sectors, Prior added.
The Local Government Pension Scheme (LGPS) has 3.5 million members and assets of more than £130 billion, making it one of the largest pension schemes in the country.
A recent survey by the GMB union suggested that almost two out of five public sector employees could opt out if asked to pay more. If hundreds of thousands of staff withdrew their contributions to the LGPS, there are fears that the scheme would be unable to fund itself, leaving retired former council workers dependent on state benefits.
