Hampshire County Council
Cabinet 24 March 2003
Policy and Resources Policy Review Committee 27 March 2003
Consultation papers on the Local Government Pension Scheme
Report of the County Treasurer
Contact: Chris Sharratt, ext 7506
1.1 The Pension Fund Panel on 29 November 2002 received a report on two consultation papers on the Local Government Pension Scheme (LGPS) issued by the Office of the Deputy Prime Minister (ODPM) on:
· retirement benefit package options
· the scope for further simplification of the LGPS regulatory framework
1.2 The report sets out the proposed response
2.1 The report to the Panel is attached at Appendix 1. It was agreed that the County Treasurer be authorised to agree with the Chairman of the Panel the responses to the two discussion papers by 17 April 2003. This response would take into account the comments agreed at the Panel and also the content of the Green Paper on pensions reform and a further paper from the Local Government Pensions Committee (LGPC) on the issues raised by the earlier ODPM discussion paper.
3.1 The Government's Green Paper on Pensions, "Simplicity, Security and Choice: Working and Saving for Retirement", was issued on 17 December 2002, along with a document entitled "Simplifying the Taxation of Pensions" and technical papers on changes to the regulatory framework for pensions and proposals for a new kind of pensions regulator. Details of these proposals are given in Appendix 2.
3.2 Responses to the Department for Work and Pensions (DWP) on the Green Paper are requested by 28 March 2003 and the Inland Revenue on their consultation document by 11 April 2003. The DWP's proposals are fairly generalised and envisage further consultation. The Inland Revenue's proposals are more explicit and include raising the early retirement age to 55 and limiting an individual's retirement fund value to £1.4 million, of which 25% may be taken as a tax free lump sum from 2004.
4.1 The LGPC's proposed response to the ODPM discussion papers was circulated to the local authorities in February 2003 for their views. LGPC Circular 130, which summarises their proposed response to ODPM, is attached at Appendix 3. It contains a questionnaire which authorities are asked to complete and return to LGPC by 11 April 2003.
5.1 The Leader has asked that current pensions issues should be considered by the Policy and Resources Policy Review Committee at its meeting on 27 March 2003 and this report and appendices will enable views to be sought on the proposed response to the various consultation papers.
5.2 The Cabinet is therefore asked to confirm the proposed responses as set out below:
· Appendix 4 - to the ODPM on retirement benefit package
options ( 17 April 2003)
· Appendix 5 - to the ODPM on further simplification of the
LGPS (17 April 2003)
(these responses are based on discussions at the Pension Fund Panel)
· Appendix 6 - completed questionnaire to LGPC on ODPM
discussion papers (11 April 2003)
(this response is based on current policy)
5.3 No responses are necessary to the DWP as further consultation is envisaged. Similarly no response is proposed to the Inland Revenue on proposed taxation changes for individuals.
5.4 Any significant changes by the Policy Review Committee can be considered by the Leader and incorporated in the responses by the April deadlines.
5.5 The LGPC's questionnaire sets out 15 key points which reflects the status quo and it is therefore assumed that these will be agreed. There are four proposals for change:
a) New employees to pay 7% of pay (inclusive of partners pensions)
instead of 6%
b) Benefits earned in future to be paid at age 65 normally instead of 60 to reduce future costs
c) Lower age limit for early retirement to be raised from 50 to 55 (on grounds other than ill health)
d) Early retirement benefits to be liable to be reduced, unless the employer chooses to pay more to avoid such reductions.
5.6 These proposals all shift the burden from the employer to the employee. The 6% employee contribution rate is fixed by statute, and there may be an actuarial case to increase the percentage to reflect improved longevity since the rate was initially fixed. The shift upwards in benefits paid at 65, or early retirement at 55 would remove some of the burden from the Fund in future, but should perhaps apply only to new employees. Early retirements are covered by additional short-term contributions to the fund, so that there is no extra strain on pensions `liabilities'. There would be no net saving to Hampshire - the burden would shift to employees instead of employers funding the savings required for improved efficiencies. This may be a retrograde step - it is good practice management that is the issue. Similarly people retiring early (through redundancy or efficiency) would have reduced benefits, unless the employer made those good with added costs.
5.7 The Cabinet is therefore asked to consider whether it wishes to support or object to these four changes in submitting the questionnaire to LGPC.
6.1 Appendix 7 is attached for Members of Cabinet (and the Policy Review Committee) who may require more information on the LGPS, and the Hampshire Fund before considering the proposed response to the consultation papers.
Section 100 D - Local Government Act 1972 - background papers
The following documents disclose facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of this report.
NB the list excludes:
1. Published works.
2. Documents which disclose exempt or confidential information as defined in the Act.