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Contact: |
Jennifer McNeill - Personnel Manager Tel: 023 8064 4000 Ext 2348 |
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1 |
Summary |
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1.1 |
To inform Members of the requirements of the Local Government (Discretionary Payment) (Amendment) Regulations 1999 and to seek their views on the policy to be adopted and published by this Authority. |
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1.2 |
To inform Members of the requirements of the LGPS 1997 and seek their views on the policies to be adopted and published by this Authority. |
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2 |
Background |
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2.1 |
It is for the Combined Fire and Rescue Authority to make the decision on the policy to be adopted in line with the above regulations, but in so doing, a natural point of comparison will be the position of Hampshire County Council employees, as most employees will formerly have been subject to those terms. The policies proposed in this paper are broadly similar to those applied by the County Council with the following difference: |
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· the option of buying in additional membership of LGPS rather than awarding added years. This increases the options available without significant long-term financial impact. |
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2.2 |
The Local Government Pension Scheme (LGPS) is offered to all employees of HFRS, full time and part time, who are employed under `Green Book' conditions, and to Control Room staff who are employed under `Grey Book' conditions. |
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2.3 |
At the time the Service separated from Hampshire county Council and became a Combined Fire Authority, there should have been a new policy prepared and published regarding discretionary powers on the occasion of redundancy and/or early retirement. In addition, the situation regarding pensions changed in 1997 and 1999. |
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2.4 |
This report seeks the agreement of the Fire Authority regarding the recommendations contain therein so that the discretionary powers may be publicised as required. |
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2.5 |
The Local Government (Discretionary Payment) (Amendment) Regulations 1999 came in to force on 1st April 1999. The revised Regulations resulted in principal amendments to the previous Regulations; namely: - |
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(i) |
to require an employing authority to formulate and publish policy statements on how they intend to exercise their discretionary powers with regards the award of `added years' or the award of compensation payments. These relate to the powers to: |
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(ii) |
Calculate a redundancy payment on a sum up to the employee's actual weekly pay instead of the statutory maximum currently £260. |
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(iii) |
To pay increased lump sum redundancy compensation up to a maximum of 66 weeks pay for employees aged 18 or over, but under 50 years, with two years' service (minimum period of service to qualify for a redundancy payment). |
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(iv) |
Award up to 10 added years to an employee aged 50 years or over who has a minimum of five years' local government service who takes early retirement on the grounds of efficiency of the service or redundancy. |
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(v) |
To provide LGPS employers with statutory discretion to award a single lump sum payment of up to 66 weeks' pay, as an alternative to `added years', to employees over 50 and with a minimum of five years' local government service who are made redundant or retired in the interests of the efficiency of the service |
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(vi) |
To pay an employee over 50 with between one and five years local government service up to five weeks redundancy pay for each year of service. |
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(vii) |
To formulate and publish policy statements on reducing added years pension payments both during and following a period of re-employment subject to the LGPS. |
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2.6 |
In addition the Service also needs to agree its policy on the following discretions in the LGPS: |
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- Granting early payment of pension benefits upon application between the ages of 50 and 60 years. |
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- Granting unreduced pension benefits on compassionate grounds upon application from members of the Scheme aged 50 or over |
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- Augmentation of service for a new scheme member |
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- Augmentation of service for a retiring scheme member |
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- Counting service before 6 April 1988 for Widowers Pension |
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- Reducing an employees contributions after 40 years service. |
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- Sharing costs of Additional Voluntary Contributions (SCAVC) |
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2.7 |
HFRA should have issued its written policy statement by 30 June 1999, it was originally thought that Hampshire County Council's policy could be used but as Hampshire Fire and Rescue Service is a separate employing body, it must agree its own policy. Consequently it cannot currently exercise any discretionary powers in accordance with either the compensation or LGPS Regulations. |
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3 |
Key Considerations |
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3.1 |
It is the aim of the Service to ensure, as far as possible, security of employment for its employees by careful forward planning. However, it is recognised that there may be changes in legislation, organisational requirements and technological developments which can affect staffing needs. The Service, in consultation with the recognised Trade Unions, will seek to minimise the effect of redundancies by endeavouring to redeploy surplus employees to alternative employment. |
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3.2 |
In addition, early retirement in the interests of the efficiency of the service can be an effective management `mechanism' to introduce revised departmental structures to meet the needs of our ever changing business. New legislation may alter the work requirements and thereby the range of skills and abilities required of employees. Early retirement allows those over 50 years of age with 2 years service to leave HFRS with their pension (if they are members of the LGPS). In many cases, the employees concerned are long serving individuals and early retirement can be a mutually acceptable way of effecting change. In addition, an employee may volunteer to accept early retirement to enable another employee to remain if under threat of compulsory redundancy. It may also assist in helping to bring about savings needed as a result of pressure to reduce service expenditure. |
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3.3 |
The Discretionary Payment Regulations require the Authority to formulate, publish and keep under review a policy of how they will exercise their discretionary powers on the occasion of redundancy and/or early retirement in the interests of the efficiency of the service. The intention of the Regulations is to introduce a greater level of transparency in the way in which discretionary powers are used and to ensure, as far as possible, that authorities are seen to be accountable, consistent, prudent and acting in an appropriate manner. |
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3.4 |
Pension regulations are quite detailed. This report covers the key areas that HFRS must have a policy on. Any awards subsequently made will have to be in line with regulations and LGPS rules governing at the time. |
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4 |
Early retirement on grounds of efficiency of the Service |
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4.1 |
Employees over 50 years of age with 2 years service may be retired in the interests of the efficiency of the service and will receive a pension based on their accrued service. This is not a redundancy situation and no redundancy payment is made; it is a mutual agreement to terminate employment with immediate payment of pension. The Regulations give the Authority discretion to award either: |
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- added years up to a maximum of 10 years, or - buy up to 6 and 2/3rd years of membership in the LGPS, or - award a single lump sum of up to 66 weeks pay. |
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Examples of costs are set out in 14.1. |
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4.2 |
The option to award up to 10 added years can also apply if the employee is not a member of the LGPS but had the opportunity to be a member. |
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5 |
Redundancy (Voluntary and Enforced) |
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5.1 |
Employees under 50 years of age who are made redundant do not have access to their local government pension, but will have their benefits preserved. The Regulations do however give the Authority discretion to enhance the redundancy payment by awarding up to a maximum of 66 weeks redundancy pay. The alternative is the statutory maximum of up to 30 weeks pay. |
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5.2 |
Employees over 50 years of age with 2 years service will receive their accrued pension. If 5 years service has been completed Regulations give the Authority discretion to award either: |
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- up to a maximum of 10 added years, or - buy up to 6 and 2/3rd years membership in the LGPS, or - award a single lump sum of up to 66 weeks pay. |
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Financial implications are set out in 14.1 |
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5.3 |
The option to award up to 10 added years can also apply if the employee is not a member of the LGPS but had the opportunity to be a member. |
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6 |
Early Retirement - Employee Request |
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6.1 |
The Local Government Pension Scheme Regulations 1997 introduced an additional discretionary option to receive retirement benefits between the ages of 50 and 60. This allows the employer to grant payment of pension benefits to either a past leaver who attains age 50 or an immediate leaver between the ages of 50 and 60 if there are benefits to the Service of doing so. If the employee has achieved the schemes 85 year Rule (Service and age in completed years totaling 85) the benefits are paid unreduced. There is a strain on the Fund from such retirements and the Service would have to reimburse the Fund to the value of the strain in each case. It is possible where the 85 year rule has not been satisfied for there not to be a cost to the Service as this will be met by the reduction in the employees benefits. |
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7 |
Early Retirement on Compassionate Grounds |
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7.1 |
There is one further option provided by LGPS where a past or present employee over 50 years of age may retire early and claim their pensions and that is on the grounds of compassion. This option should only be used in exceptional cases and in recognition of this the Hampshire Pension Fund do not pass the Fund strain onto the employer. If HFRS agree to the payment of benefits they can be paid without any reduction for not satisfying the schemes 85 year Rule. Each case should be reported and agreed on its merits or can be approved by a nominee of the Authority with delegated powers. |
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8 |
Augmentation of Service for a New Scheme Member |
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8.1 |
HFRS can decide to grant to a new scheme member aged under 59 an extra period of membership in the LGPS. |
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8.2 |
Any such decision must be made within six months of appointment. |
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8.3 |
The effect would be to increase LGPS benefits paid by the pension fund when the person retires. |
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8.4 |
HFRS is obliged to reimburse the pension fund when these benefits are paid. |
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8.5 |
The LGPS regulations prescribe the maximum period which could be granted, depending on a person's age at recruitment and benefit earned in previous pension schemes. |
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Costs: For example, awarding one year in the LGPS to a person aged 55 earning £20,000 per annum would cost about £5,000. This does, however, avoid all ongoing costs of added years pensions payments by HFRS annually. |
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9 |
Augmentation of Service for a Retiring Scheme Member |
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9.1 |
HFRS may decide to grant to a retiring scheme member aged 50 or over an extra period of membership in the LGPS. (This cannot be in addition to either the existing power to award " added years" or to the enhanced redundancy payment"). |
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9.2 |
Any such decision must be made up to one month before and six months after retirement. |
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9.3 |
The effect would be to increase LGPS benefits paid by the Pension Fund to the retired person. |
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9.4 |
HFRS is obliged to agree to reimburse the Pension Fund within one month of augmenting the person's service, otherwise the award is void. |
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9.5 |
The LGPS regulations prescribe the maximum period which can be granted, depending on a person's age at retirement and LGPS benefits, with an upper limit of six and two third years. |
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9.6 |
This option could be used instead of awarding ` added years' in respect of Redundancy and Efficiency of the service retirements |
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Costs: For example, awarding one year in the LGPS to a person aged 55 earning £20,000 per annum would cost about £5,000. This does, however, avoid the ongoing costs of added years pension payments by HFRS annually. |
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10 |
Counting Service before 6 April 1988 for Widowers' Pensions |
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10.1 |
Currently, women count service from 6 April 1988 for calculation of a widower's pension. The employer can now allow earlier service to be included. |
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10.2 |
Strictly speaking, each woman concerned must elect to count service before 6 April 1988, but a decision by the employer covering all women will be acceptable. |
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10.3 |
Strictly speaking, the HFRA must extend the time limit for accepting such elections, but it is assumed this will be done. |
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10.4 |
The effect of counting service before 6 April 1988 for widowers' pensions is to equalize benefits for the spouses of male and female contributors to LGPS for service back to 1 April 1972. |
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10.5 |
A few women have been paying extra contributions to increase their widowers' pensions. These contracts will be treated as completed. |
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Cost: The estimated cost for the LGPS as a whole is up to 0.1% of all employees' pay. Hampshire County Council's consulting actuaries have included costs for employers participating in Hampshire's Pension Fund in the current employers contribution. |
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11 |
Reducing a Pension whilst a Pensioner is Re-employed |
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11.1 |
LGPS pensions have always been subject to reduction or suspension whilst an ex-local government employee is re-employed in a job which is eligible for the LGPS. The reduction or suspension ends when the re-employment ends. |
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11.2 |
The effect is to ensure that annual rates of pension plus re-employment pay taken together do not exceed pre-retirement pay, adjusted for changes in the cost of living in the interim. Normally a person re-employed up to half-time at the old rate of pay suffers no reduction. |
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11.3 |
HFRS can also apply this restriction to any pension payments resulting from its award of added years. Not to do so would add to employers' costs generally. |
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11.4 |
At the end of a period of re-employment, added years benefits can be reduced in accordance with a set formula. The purpose is to ensure that benefits are no more than a person could have received at age 65 if the first employment had continued to that age. |
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14 |
Financial Implications |
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14.1 |
In all the above cases where pension is payable, the Service will pick up the cost of the lump sum and pension payment attributable to any added years awarded. There is also a `capitalisation' charge levied by the pension fund administrators as the fund has lost the contributions that had been anticipated up until their retirement age, the fund has also had to pay the pension earlier than anticipated. This charge can be spread over three years with interest. However, there are ongoing annual costs to HFRS for added years granted. If the Service is buying service in LGPS rather than giving added years it avoids the ongoing annual cost to HFRS but not the `capitalisation charge'. |
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14.2 |
Management has to decide whether the costs of an early retirement are justified to achieve the aim of restructuring a section or department, or to improve efficiency by replacing staff not having the necessary experience and skills with those who have. Audit guidance suggests a self financing approach over five years. |
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14.3 |
It is impossible to predict the number of redundancies or early retirements in the interests of the efficiency of the service which may be requested or become desirable in the next few years. There will inevitably be a need for change of staffing numbers and employee skills and abilities, especially as the Modernisation Agenda for the fire service takes effect. Historically, the number of employees made redundant or retired in the interests of the efficiency of the service have been low in HFRS so it is anticipated that the financial impact of awarding enhanced severance payments can be closely controlled. |
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14.4 |
If the Authority does not formulate and publish its policy on the discretionary powers in both the Compensation Regulations and the Local Government Pension Scheme it will be acting outside of their statutory powers. That is they will be ultra vires. This would be an unlawful act. The Authority must, therefore, make and publish a policy, even if it is saying no enhancements for added years or additional compensation payments above the statutory minimum will be made under the compensation regulations and additional benefits will not be granted under the LGPS. |
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14.5 |
Advanced contractual commitments cannot be made and powers can only be used at the time of a termination in accordance with the stated and published policy at the time after taking into account the financial implications. The policy can be reviewed by the HFRA at any time as required. Any amendment, however, must be published within one month of being made and cannot be acted upon until one month has passed since its publication. |
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14.6 |
Some of the recommendations do attract additional cost to HFRS. Members may choose not to offer these, however, this may restrict the Service's ability to make voluntary staffing changes in the future. Costs are calculated per case according to set formulae. Any discretionary powers must be financially workable, affordable, accountable, reasonable and value for money, ideally self financing over 5 years. |
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14.7 |
To illustrate costs, the effect on payments to employees currently being made redundant using statutory redundancy at actual pay and no added years is compared to the payment of either the enhanced redundancy payment, awarding added years in accordance with the table in 16.3 or buying service in the LGPS. The costs to HFRS are illustrated in Annex 1. |
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15 |
Considerations |
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15.1 |
The Authority must decide how it will exercise its discretionary powers under the LGPS Regulations, 1997 and the Local Government (Discretionary Payment) (Amendment) Regulations 1999 on the occasion of redundancy and/or retirement in the interests of the efficiency of the Service. There are several considerations which must be made in this regard. |
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15.2 |
Determine the level of redundancy payment due. |
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There are three options to be considered: |
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1 |
Calculate a redundancy payment using the statutory definition of a `week's pay' as defined in the Redundancy Payments Act 1965 and subsequent legislation (currently a maximum of £260 per week). |
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2 |
Exercise discretion to calculate a redundancy payment on a sum up to the employee's actual weekly pay. As redundancy dismissals arise as a result of organisational change and are not due to any fault on the part of affected employees. It is reasonable to reward their service by using actual pay in the calculations. |
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3 |
Pay an employee over 50 years old with between one and five years local government service up to five weeks redundancy pay for each year of service. |
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16 |
Award Added Pension Years on the Occasion of Redundancy and/or Early Retirement in the Interests of the Efficiency of the Service |
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There are five options to be considered: |
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1 |
Pay no added pension years. |
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2 |
For those aged over 50 with a minimum of five years' local government service, award up to the maximum of 10 added years. |
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3 |
For those aged over 50 award up to one added year for each five years service, up to a maximum of six and two thirds. This would apply the same maximum for the awarding of added years and buying service in the LGPS. Any award of added years above 62/3 would result in a reduction of benefits in respect of the redundancy payment which will cancel the benefit of the added years. This is a statutory requirement. The following scale is suggested: |
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NB: |
A above applies to buying service in LGPS only. |
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4 |
For those aged over 50 with a minimum of two years local government service, buy enhanced membership in the LGPS Scheme. |
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5 |
Awarding ` added years ` under options 2 and 3 can be applied to an employee who is not a member of the LGPS but had the opportunity to do so. |
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17 |
Award an Enhanced Redundancy Compensation Payment of up to 66 Week's Pay |
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There are five options to consider: |
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1 |
Award no enhanced compensatory payment. Statutory redundancy payment will apply. This uses a maximum salary of £260 / week - see Annex 1. |
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2 |
Award a redundancy payment based upon actual pay. |
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3 |
Award increased redundancy compensation up to a maximum of 66 weeks for employees aged 18 or over, but under 50 years, with two years local government service. (Minimum period to quality for a redundancy payment). These payments should be determined by reference to the employee's age and length of service at the date of leaving and will be inclusive of any statutory redundancy payment. |
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4 |
Award a single lump sum payment of up to 66 weeks pay (based on same criteria as above) to employees over 50 and with a minimum of five years local government service. This would be as an alternative to `added years' and buying service, as detailed in 16 (2), (3) and (4) above. See Annex 2. |
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5 |
Award a single lump sum payment of up to 20 weeks pay to employees over 50 with between one and five years service. |
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18 |
European Convention on Human Rights and the Human Rights Act 1998 |
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18.1 |
The proposals within this report are compatible with the provisions of the European Convention on Human Rights and the Human Rights Act 1998 and considered in the light of the Race Relations (amendment) Act 2000. |
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Recommendations |
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That it be a RECOMMENDATION to the Authority to agree to the following discretionary powers under the Local Government (Discretionary Payment) (Amendment) Regulations 1999 and the LGPS Regulations 1997. |
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1 |
Efficiency of Service |
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1.1 |
To award added years or buy service (depending on case merit) up to a maximum of six and two third years (not ten as available) in accordance with the scale in 16 (3), for those over 50 years of age. |
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1.2 |
Not to award a single lump sum payment of up to 66 weeks pay as an alternative to added years or buying service in the LGPS. |
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1.3 |
Not to award added years to employee's not in LGPS. |
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2 |
Redundancy (Voluntary and Enforced) |
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2.1 |
To make redundancy payments calculated on the employee's actual pay. |
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2.2 |
Not to use increased redundancy compensation up to a maximum of 66 weeks for employees aged 18 or over but under 50 years with two years service. |
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2.3 |
To award added years up to a maximum of six and two thirds (not 10 as available) or buy service (depending on case merit) to employees over 50 years of age in accordance with the scale in 16 (3). |
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2.4 |
Not to award a single lump sum of up to 66 weeks pay as an alternative to added years or buying service in the LGPS. |
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2.5 |
Not to award added years to employees not in LGPS. |
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2.6 |
Not to award employees over 50 with between one and five years local government service, up to 20 weeks redundancy pay. |
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3 |
Early Retirement Employee request |
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To consider early retirement requests on their merits and costs, for leavers between ages 50 and 60. |
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4 |
Early Retirement on Compassionate Grounds |
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To consider early retirement requests on their merits for past and present employees over 50 on compassionate grounds without reduction of benefits under the schemes 85 year Rule. |
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5 |
Augmentation of service for a new scheme member |
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Not to award extra periods of membership for new LGPS members. |
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6 |
Augmentation of Service for a Retiring Scheme Member |
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Not to grant extra period of membership in LGPS to retiring scheme members aged over 50 except in cases of redundancy and efficiency of the service as an alternative to awarding `added years'. |
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7 |
Counting Service before 6 April 1998 for Widowers Pension |
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To allow eligible women to count service from 1 April 1972 to enable an equalization of benefits for the spouses of male and female contributors to LGPS. |
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8 |
Reducing a Pension whilst a pensioner is re-employed |
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8.1 |
To reduce or suspend added years pensions for ex HFRS employees during re-employment in a job which is eligible for the LGPS and total income from new pay and pension exceeds final pay. |
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8.2 |
To reduce added years benefits following a period of re-employment subject to the LGPS to ensure total benefits at age 65 are not more than would have been payable if the first employment had not been lost. |
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9 |
Reducing an employee's contribution after 40 years service |
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To waive employee pension contribution for employees requesting it upon completion of 40 years LGPS membership and while they are not accruing additional benefits. |
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10 |
Shared Cost Additional Voluntary Contributions (SCAVC) |
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Not to contribute to a SCAVC scheme. |
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11 |
Effective date of implementation |
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To apply benefits to all employee terminations from 1 January 2004. |
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12 |
Delegated Powers |
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To give delegated powers to the Chief Fire Officer, Deputy Chief Fire Officers in liaison with the Director of Corporate Services, to agree benefits under recommendations 1 to 11 above. |
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Section 100D - Local Government Act 1972 - background papers |
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The following documents disclose the 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 the report. |
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- Hampshire County Council's - Your Pension and Employees guide dated 2002 |
- The Local Government (Discretionary Payment) (Amendment) Regulations 1999 |
- Local Government Pension Scheme Regulations 1997 |
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NB The list excludes: |
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1 Published Works |
2 Documents that disclose exempt or confidential information as defined in the Act |
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File ref: Secretarial/WP/word/Corporate/HFRA/HFRA Personnel 4 2 04 Pensions/ 26 January 2004 |
