Contact: Jon Pittam, ext 7400

1 Summary

1.1 This report is produced in response to a Consultation Paper entitled Pensions for elected members of local authorities in England, which was issued by the Department for Transport, Local Government and the Regions (DTLR) on 12 September 2001, with responses requested by 26 October. A copy of the Consultation Paper is available in the members' room.

1.2 This report is being submitted to both the Standards Committee on 29 October 2001 and the Pension Fund Panel on 30 October 2001.

2 The Proposals

2.1 DTLR proposes to amend the Local Government Pension Scheme (LGPS) so that some elected members could opt to join the LGPS, if the (independent) Remuneration Panel recommends that and the County Council agrees. They would be subject to the same pension arrangements as employees, including the requirement to pay 6% of their remuneration (ie members' allowances) into the LGPS, except that:

· they could pay pension contributions up to age 70 (rather than 65)

· their pensions would be based on their average salary as a local government councillor, adjusted for inflation, rather than final year's salary.

2.2 A copy of Your Pension. An employee's guide 2001 to the LGPS and the Hampshire Pension Fund is available from the County Treasurer. Eligible elected members would not be entitled to "discretionary compensation".

2.3 However, DTLR intends that only executive members and policy review committee chairmen could have this option. For other elected members, the consultation paper suggests that personal pension schemes or stakeholder pensions are more appropriate. Local authorities do not have the legal power to operate those schemes nor does the consultation paper suggest they should, so most elected members would make their own pension arrangements. It is not clear whether the Government intends that councillors not eligible for membership of the LGPS could enter a stakeholder pension arrangement, with the local authority making an employer contribution.

2.4 It should be noted that these proposals also apply to eligible elected members of district and unitary councils. Those in Hampshire would contribute to the Hampshire Pension Fund.

2.5 Independent remuneration panels would be required to recommend which particular member positions should receive pensionable remuneration. The panel will need to include amongst its membership at least one member who has knowledge of pension schemes.

2.6 The Government also seeks views on the proposed role of independent remuneration panels in the process of determining which members are to be eligible for pensionable remuneration through the LGPS. In particular the Government would welcome views on what minimum level of remuneration and what extent of commitment (presumably this means level of responsibility as a councillor) would mean that a member could benefit more from access to the LGPS than from other pension provision.

3 Comments

3.1 DTLR's proposals seem discriminatory in that only executive members and policy review committee chairmen could become eligible for LGPS membership.

3.2 The LGPS itself may not be the most appropriate scheme for elected members. A stakeholder pension could be more appropriate, especially as members' eligibility for the LGPS, as proposed by DTLR, may be prescribed and limited and because council membership may be intermittent and of uncertain duration. Different retirement ages and pension calculations within the LGPS for members and employers also seem anomalous and possibly discriminatory.

3.3 The Local Government Association (LGA) remains of the view that local authorities are best placed to decide on the principle of offering access to pensions to its members, on the advice of the independent panel (which in their view provides the necessary reassurance to the public). It is recognised that in practice many councillors may not wish to take up the offer, which would be a matter for individual financial calculation (perhaps relating to other pension arrangements and the councillor's required contribution of 6% of members' allowances into the LGPS). The Government's proposals appear designed to replace that corporate and individual decision-making process by one restricted to a prescribed statutory framework. The Council would also need to make additional employer's contributions to the LGPS, currently at 11.7% of pensionable remuneration.

3.4 The proposal to require at least one member of the independent remuneration panel to have pensions expertise would seem unnecessary. The panel could, in preparing its recommendation, look to the officers of the County Council for such technical advice. The requirement would also make it more difficult to complete the membership of the panel.

3.5 An alternative solution would be for each local authority to provide access to a stakeholder pension on a voluntary basis for all of its elected members with an employer's contribution equivalent to that which it pays into the LGPS, currently £1.95 for each £1 paid by the employee in Hampshire.

4 Conclusion

4.1 As the LGA required views by 18 October and the DTLR comments on the consultation paper by 26 October, the following response has been submitted after consultation with the Leader (as Chairman of the Pension Fund Panel) and the Chairman of the Standards Committee.

The County Council welcomes proposals to enable members to be entitled to pensionable remuneration.

However, the Council believes that eligibility should be available to all members. The Council also believes that contribution or participation should be a matter of personal choice based upon eligibility determined by the independent remuneration panel. It suggests that personal pension arrangements would be a better solution, possibly via stakeholder pensions with an employer's contribution made equivalent to that paid into the LGPS. It does not believe that the LGPS is the appropriate vehicle for such arrangements particularly as regards the consultation paper's proposed restrictions on eligibility. Different requirements to extend the retirement age to 70 instead of 65 and to calculate pensions based on average rather than final salary also suggest that the LGPS is less appropriate.

Members also felt that retirement age should be extended to 75, as many continue to serve up to and beyond that age. 75 is also the limit at which lump sums can be converted to annuities.

A flexible and personal pension arrangement is required which members can opt-in to at their choice.

4.2 The response made clear to the LGA and DTLR that consideration of the proposals is occurring on 29 and 30 October and further views may be submitted after their deadlines.

Recommendation

That the Government's consultation proposals and the interim response be noted, and any further comments be submitted depending upon views expressed at the meetings of the Standards Committee on 29 October and the Pension Fund Panel on 30 October.

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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.

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