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Waverley Borough Council Committee System - Committee Document

Meeting of the Executive held on 08/04/2008
New Pension Regulations



APPENDIX H
Waverley Borough Council

EXECUTIVE - 8TH APRIL 2008

Title:
NEW PENSION REGULATIONS
[Portfolio Holder for Human Resources: Cllr Mrs P M Frost]
[Portfolio Holder for Finance: Cllr M H W Band]
[Wards Affected: N/A]

Summary and purpose:

The Local Government Pension Scheme (LGPS) is a statutory pension scheme that applies to all staff within local government. Significant changes have been agreed to the scheme to ensure it remains affordable and relevant for the 21st Century. These changes come into effect on 1 April 2008.

Environmental Implications:

There are no environmental implications arising from this report.

Resource Implications:

LGPS pensions are funded from employer and employee contributions. The employer contribution is set following a triennial actuarial valuation of Waverley’s pension scheme. The 2007 triennial revaluation recently published takes into account the anticipated impact of the new LGPS. The cost of decisions in individual cases (eg on early retirement or award of additional pension benefits) is taken into account in the business case put forward for decisions.

HR and Legal Implications:

The LGPS is a statutory scheme with some parts subject to local decision on how provisions will apply. In formulating and reviewing pension and flexible retirement policies, Waverley seeks to establish a framework for the exercise of its discretionary powers which is equitable, workable, and affordable having regard to the foreseeable costs.

Decisions in each case should take account of the implications for service provision as well as any costs to be borne by Waverley.

Pension regulations to apply from 1 April 2008 have now been made, but guidance on their application is not yet available, and amendment regulations are expected to correct some drafting errors. It is therefore possible that Waverley will wish to review these policies in the light of the guidance issued, or any subsequent changes to the Regulations.


Equality and Diversity Implications:

This report sets a framework for Waverley to exercise its powers in a way that is equitable and would not give rise to any equality or diversity challenge.

Background

1. The Local Government Pension Scheme (LGPS) is a statutory pension scheme that applies to all staff within local government. Significant changes have been agreed to the scheme to ensure it remains affordable and relevant for the 21st Century. These changes come into effect on 1 April 2008.

2. Discretionary provisions in the LGPS enable local authority employers to manage employment situations to the advantage of the Council and employee.

Key Issues

3. The LGPS Regulations effective from 1 April 2008 (LGPS 2008) include several provisions requiring scheme employers to decide on their approach locally, to publish policy statements and to keep them under review.

4. These LGPS 2008 arrangements will supersede policies and delegations on pension matters that were agreed in relation to previous LGPS Regulations.

5. Banding of contributions - Regulation 3. LGPS 2008 introduces tiered employee pension contribution rates dependent on salary level. Many staff will see their pension contributions increase as a result, compared to the current 6% employee contribution rate for all staff.

6. Scheme members will pay pension contributions according to the table below and based on their whole time equivalent pay (so part-timers will pay contributions determined by their whole-time equivalent pay, not the part-time pay actually earned).

BandWhole-time equivalent pay

(Figures will increase on 1 April each year by the rise in RPI)

Contribution band
1Up to 12,0005.5%
2More than 12,000 and up to 14,0005.8%
3More than 14,000 and up to 18,0005.9%
4More than 18,000 and up to 30,0006.5%
5More than 30,000 and up to 40,0006.8%
6More than 40,000 and up to 75,0007.2%
7More than 75,0007.5%



7. Employers need to establish a policy on how existing and new employees will be allocated to a contribution band and determine under what circumstances, if any, they would amend the contribution band. Once the contribution band is set, it is applied to all pensionable earnings during the year.

8. Pensionable pay includes all salary payments in respect of employment. Pensionable pay does not include payments in respect of non-contractual overtime and travel subsistence or expenses.

9. Power to increase pension benefits - Regulation 12 and 13. An employing authority can agree to increase pension benefits by either increasing total pension membership by up to 10 years (Regulation 12) and / or by awarding an additional pension up to 5,000 per year (Regulation 13).

10. The previous Regulations gave the power to increase membership by up to 6 2/3 years; this is now increased to 10 years. The power to award additional pension up to 5,000 pa is a new provision.

11. In cases of dismissals on the grounds of redundancy or efficiency, Waverley has in place a policy (agreed by the Executive in March 2007 - see Annexe 1) for determining compensation to be granted under the Local Government (Early Termination of Employment) (Discretionary Compensation) (England and Wales) Regulations 2006 in cases agreed by the Executive.

12. Waverley has, hitherto, decided against making use of the power to augment service and it is proposed to continue that approach for regulations 12 and 13 on the grounds that it would be difficult to apply a consistent objectivity test and difficult to avoid an age discrimination challenge.
Waverley agrees not to augment service.

13. Shared cost AVCs – Regulation 15. An employing authority can contribute to the cost of additional voluntary contributions (AVCs). It is not proposed to use these provisions. 14. Flexible Retirement – Regulation 18. LGPS 2008 includes the opportunity for employees aged 55* or over who reduce their working hours or pay grade to receive all or part of their pension benefits while continuing to work if their employer consents. If the benefits are taken before age 65 they are reduced in accordance with guidance from the Government Actuary unless the employer agrees to waive the actuarial reduction. (* From age 50 for members at 31 March 2008 who retire flexibly before 31 March 2010).

15. Waverley’s agreement for the change to contractual terms is required as well as consent to release the pension benefits early. In some cases there is a cost for early payment of pension benefits, which would need to be considered. The cost would be covered either by actuarial reduction of the pension benefits or Waverley could chose to waive the reduction in pension benefits, either in whole or in part. By doing so Waverley must make a payment to the Pension Fund to cover the fund strain. This can be paid over three years with the addition of interest. However it is recommended that flexible retirement be considered only where there is clear financial benefit to Waverley.
16. Flexible retirement could be a useful employment strategy in certain circumstances. It enables retention of valuable experience and knowledge that would otherwise be lost if an employee were to retire or leave. It also offers an effective means to reduce capacity or achieve organisational change, and can assist with workforce planning.

17. For the employee, it enables a step down towards retirement and allows individuals to make a gradual adjustment to life without paid employment. Any benefits paid as a result of flexible retirement are not subject to abatement (i.e. liable to reduction or suspension if the new pay plus pension exceed the earnings at retirement) while the individual remains with the same employer.
Waverley agrees to a flexible retirement policy attached as Annexe 3.

18. Early payment of pension – Regulation 30. The normal retirement age is 65. Employees aged 55 (50 until 2010) or over can retire before age 60 with their employer’s consent, with an actuarial reduction to benefits applying. Deferred members can also apply for early payment of pension benefits under this regulation. The employer can agree to waive the actuarial reduction on compassionate grounds.

19. From the age of 60, employees can choose to retire before the normal retirement age without the employer’s consent and with the actuarial reduction of benefits applying. (Some employees who were scheme members at 30 September 2006 and who will be age 60 by March 2016 retain a right to retire at age 60 with no actuarial reduction if their age and service add up to 85). In exceptional circumstances Waverley could agree to waive the actuarial reduction, on compassionate grounds, as recommended by the Deputy Chief Executive and Head of HR. There is a cost to Waverley in theses circumstances.

20. Agreeing to requests for early retirement from current employees can be a useful employment strategy in certain circumstances. Early retirement under this regulation would be for reasons not covered by other regulations or employment policies. Employees who leave on the grounds of redundancy, efficiency or ill health may receive their pension benefits immediately under different regulations.

21. However for deferred members there is little benefit to Waverley and it is proposed that these cases should only be agreed where there is no cost the Waverley.
Internal Dispute Resolution Procedure (IDRP)

22. The new IDRP requires each employer to appoint a “specified person” to hear appeals from any scheme member or their dependent or representative who disputes a decision that the employer has made. The Surrey County Council as offered their Pensions Manger to act as the “specified person “ for the Districts and Boroughs.

23. If the SCC Pensions Manager has been involved in the case that has been appealed Waverley needs to have another reserve “specified person “ who may hear the appeal. It is recommended that Waverley makes an arrangement with another District or Borough to hear appeals on a reciprocal basis.


Timetable for Implementation

24. Decisions on contribution bandings must be made as soon as possible and be applied from April 2008.

25. The new LGPS Regulations come into effect from 1 April 2008. Details of scheme employers’ policy statements are to be provided to the administering authority (Surrey County Council Pensions Dept) by the end of June 2008.

Recommendation

It is recommended that

1. the arrangements for setting contribution bands for employee pension contributions, as set out in paragraph 6 above be noted;

2. The pensions policy statement set out in Annexe 2, the flexible retirement policy set out in Annexe 3, the Early Retirement, Compensation and Severance Policy (previously approved as an interim policy Executive 27.3.07) attached as Annexe 1 be agreed;

3. Surrey County Council’s Pensions Manager will act as Waverley's “specified person” to hear appeals under the Internal Dispute Resolution Procedure and will seek reciprocal arrangements with another Surrey District or Borough to have a reserve “specified person” for case where the Pension manager has been involved already;

4. the pension contribution band for existing staff be set in April 2008 and to agree that the pension contribution band for new staff should be set in relation to their starting pay (spinal point), with the banding being reviewed and adjusted each time there is a change to pensionable pay;

5. if, for any reason, the Waverley Pay Award is not agreed by 1 April, the bandings be reviewed when the pay award is settled, and any changes applied be backdated to 1 April;

6. the proposed pensions policy in respect of Regulations 12,13,15 and 30 be agreed, as set out in Annexe 2; and

7. the proposed policy for flexible retirement in respect of Regulation 18 be agreed, as set out in Annexe 3.

Background Papers (DoR)

There are no background papers (as defined by Section 100D(5) of the Local Government Act 1972) relating to this report.

CONTACT OFFICERS:

Name: Alex Overington Telephone: 01483 523
E-mail: alex.overington@waverley.gov.uk

Name: Paul Wenham Telephone: 01483 523238
E-mail: paul.wenham@waverley.gov.uk

Comms/exec/2007-08/276

ANNEXE 3

FLEXIBLE RETIREMENT FOR MEMBERS OF THE
LOCAL GOVERNMENT PENSION SCHEME

POLICY STATEMENT


1. This policy statement is made in accordance with Regulation 12 of the Local Government Pension Scheme (Amendment) (No. 2) Regulations 2006 (‘the regulations’). This policy will be reviewed annually. If the Council decides to change its policy, it will publish a statement of the amended policy within one month of the date of its decision.

2. In formulating and reviewing its policy, the Council

a. has regard to the extent to which the exercise of its discretionary powers (in accordance with the policy), unless properly limited, could lead to a loss of confidence in the public service; and b. is satisfied that the policy is workable, affordable and reasonable having regard to the foreseeable costs.

3. In response to written requests from eligible employees for Flexible Retirement, the Council will:

Consider all requests for flexible retirement. Approve requests only when it is in the Council’s interests to do so. All costs falling on the Council as an employer must be affordable and within existing budgets.

A request should typically involve a reduction in salary of 40%, either through reduced hours or level of responsibility (grade).

The employee’s contract of employment will be amended by mutual agreement to reflect the new hours or grade, as agreed, and continuity of service will be preserved for terms and conditions purposes. They can continue in employment until they achieve the Council’s Normal Retirement Age, at which point the Planned Retirement process will be initiated.

The waiving of pension benefit reductions will only be considered in exceptional circumstances.
Flexible retirements will be approved by the Executive following a recommendation from CMT.

ANNEXE 2
Waverley Borough Council

Pension Policy Statement

These statements of policy and delegations are made in respect of the exercise of discretionary functions under the Local Government Pension Scheme (Benefits, Membership and Contributions) Regulations 2007, which come into effect from 1 April 2008.

Pension RegulationPolicy Decision/Authority
Regulation 12. Power of employing authority to increase total membership by up to 10 years
      Waverley has decided against making use of the power to
      augment service and it is proposed to continue that approach
      on the grounds that it would be difficult to apply a consistent
      objectivity test and difficult to avoid an age discrimination
      challenge
Executive and full Council
Regulation 13. Power of employing authority to award additional pension up to 5000 per annum
Waverley has, hitherto, decided against making use of the
power to award additional pension up to 5000 per annum, on
the grounds that it would be difficult to apply a consistent
objectivity test and difficult to avoid an age discrimination
challenge
Executive and full Council
Pension RegulationPolicy Decision/Authority
Regulation 15. Shared – cost AVCs Waverley will not offer shared-cost AVCsExecutive and full Council
Regulation 30. Early payment of pension benefits Early retirement policy –
to consider and decide individual cases on their merits, where this is in the mutual interests of the employee and employer, and where other HR policies and other pension provisions are not appropriate. Employer costs of the early payment of pension benefits will be taken into account in all cases.

Pension benefits payable will normally be reduced. In exceptional cases on compassionate grounds Waverley may determine that the actuarial reduction will not apply.

Deferred Members – where a deferred member requests early payment of pension benefits this will only be agreed compassionate grounds or to relieve severe financial hardship and where there is no cost the Waverley
Executive and full Council

Waverley will keep this policy statement under review and will make such revisions as are appropriate following a change in policy.

The Regulations quoted are correct at the time of drafting. Numbering may change over time as amendments to the LGPS regulations are agreed.

In preparing, or reviewing and making revisions to, the policy statement Waverley will have regard to the extent to which exercise of any of the functions above could lead to a serious loss of confidence in the public service (Regulation 66).

Comms/exec/2007-08/276