UK - Proposals to increase contribution rates across the UK's Local Government Pension Schemes (LGPS) will undermine their sustainability and lead to the funds maturing more rapidly as members opt out, the UK Treasury has been warned.

In a letter to chancellor George Osborne, Baroness Eaton, chairman of the Local Government Association (LGA), warned that proposals to increase contributions by at least 3.2% over a three-year period would not succeed in raising the desired £900m in additional funds.

The letter also warns that the proposed increase does not take into account job losses the public sector will suffer as a result of budget cuts to combat the UK's deficit, or how these cuts will affect the number of active scheme members.

The letter said further: "There is considerable risk […] the £900m target additional income by 2014-15 will not be achieved unless even greater increases are imposed on those scheme members who remain."

Because the increased rates would only apply to members earning more than £24,000, it would increase pressure on higher earners, with those paid more than £42,001 particularly penalised by contribution increases of as much as 7.5%.

The letter notes that the rise in opt-outs would create a vicious circle, whereby higher rates would be employed to combat an ever-reducing active membership.

What is more, it will come at a time when councils have been forced to freeze pay - resulting in a further deterioration of industrial relations.

Baroness Eaton and fellow signatory Sir Steve Bullock, who chairs the employer board dealing with staff pay, said a falling membership rate would lead to increased pressures on the state to provide means-tested benefits in old age.

The letter concludes: "For some years, the LG [Local Government] Group has pursued a policy position of the LGPS being sustainable and affordable. These proposals seriously undermine these principles."

However, the organisation conceded that changes to benefits could be discussed with union representatives as a way of reducing the pressure on the public purse.

The London Pensions Fund Authority had previously warned that the increase would break the schemes before Lord Hutton would be able to fix them and echoed the LGA's conclusion that mass opt-outs would follow.

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