Contact: David Wilson, ext 7407

1 Background

1.1 At its meeting on 26 May 2005, the Panel considered a report on the Government's proposal to revoke significant changes made to the Local Government Pension Scheme (LGPS) which had come into effect on 1 April 2005. The Panel endorsed a draft response to the proposed revocation prepared by the Local Government Pensions Committee (LGPC).

1.2 The main changes which had been introduced on 1 April 2005 were:

· Removal of the 85-year rule

· A rise in the minimum pension age from 50 to 55.

1.3 The actuarial valuation carried out as at 31 March 2004 assumed that these changes would be made and would stay in place, and budgets have been prepared accordingly. Revocation would mean additional costs unless compensatory changes were made quickly.

1.4 The LGPC's draft response to the revocation proposal argued that the logic of the changes was inescapable to reduce the costs of the Scheme, and that, if revocation went ahead, compensatory changes should be made no later than April 2006.

1.5 At the start of the consultation period on the revocation, the Government set up a Tripartite Committee, to be chaired by the Deputy Prime Minister, with representatives of the employers and trade unions, to consider the long-term future of the Scheme, with `nothing ruled in or ruled out'. However, government ministers have since made clear that no additional grants will be made available by central government to cover any costs.

1 Revocation

1.1 Despite the LGPC's comments, on 13 July 2005 the Government confirmed the revocation of all the significant changes by introducing the Local Government Pension Scheme (Amendment) Regulations 2005. These were retrospective to 1 April 2005.

1.2 If an administering authority takes the view that the revocation will increase the actuarial value of a Fund's liabilities, the new regulations allow, although do not require, such an authority to commission from its actuary an interim valuation as at 31 March 2005 and revised actuarial certificate. Such interim valuations can be prepared by rolling forward using the data supplied for the formal valuation carried out as at 31 March 2004. Funds not seeking a revised certificate need to be clear about the reasoning behind that decision and be able to provide a full explanation.

1.3 Funds are also asked to consider the impact on their Funding Strategy Statement of the revocation and any revised actuarial certificate.

1.4 Regardless of whether funds decide to opt for interim valuations, they should ask their actuary for details of the cost of revocation at total fund level. This information needs to be supplied to the Office of the Deputy Prime Minister (ODPM) by 30 September 2005, to assist the Tripartite Committee with its review of the long-term future of the Scheme. Any recommended revisions to employers' contribution rates should also be notified to the ODPM by that date, to assist the Government in devising any amending regulations needed to ensure the Scheme's continued solvency.

2 Action taken

2.1 The County Treasurer has discussed the County Council's options as administering authority with the Fund's actuary, Hewitt Bacon & Woodrow.

2.2 It has been agreed that Hewitt Bacon & Woodrow will carry out the following work by 30 September 2005:

· Quantification of the costs of revocation at total fund level for the Tripartite Committee, at a cost of up to £1,500

· A roll-forward interim valuation, also for the Fund as a whole, at an estimated cost around £2,000.

2.3 At this stage the County Treasurer has not asked formally for a revised actuarial certificate to be issued. This is because there is currently no mechanism to rescind such a certificate if higher rates are recommended, should compensating cost reductions be made to the LGPS by April 2006, which could make such increases unnecessary. Hewitt will be in a position to issue a revised formal certificate if it is required, however.

2.4 No amendment is required to the Fund's Funding Strategy Statement at this stage. However, it will be kept under review as circumstances develop.

2.5 An update will be prepared for the Panel as soon as possible on the results of the interim valuation.

Recommendations

1 That the Government's revocation of the changes to the Local Government Pension Scheme made with effect from April 2005 be noted.

2 That the County Treasurer's action under delegated powers in commissioning the actuary to carry out an assessment of the costs of the revocation and an interim valuation as at 31 March 2005 be endorsed.

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.

TITLE FILE

None.