Contact: David Wilson, ext 7407

1. Introduction

1.1 At its meeting on 20 September 2005, the Panel noted that the Government had implemented the Local Government Pension Scheme (Amendment) Regulations 2005 revoking all the significant changes to the Scheme which had taken effect on 1 April 2005.

1.2 These regulations allowed administering authorities to commission an interim actuarial valuation as at 31 March 2005 using data rolled forward from the full valuation carried out at 31 March 2004. The Government also asked funds to seek from their actuaries details of the cost of revocation at total fund level, and that this should be supplied to the Office of the Deputy Prime Minister (ODPM) by 30 September 2005. This information would assist the Tripartite Committee of the Deputy Prime Minister, employers and trades unions, which was established by the Government when the changes were revoked, in determining what changes needed to be made from April 2006 to cover these costs.

1.3 The Panel endorsed the County Treasurer's action in asking the actuary to carry out an assessment of the costs of revocation and an interim valuation at 31 March 2005 for the Hampshire Fund.

1.4 This report summarises the results of these exercises, and gives a brief update on the progress in the Tripartite Committee's discussions.

2. Cost of revocation

2.1 The actuary was asked to identify the cost at total fund level of one additional year's membership in 2005/06 counting towards the 85-year rule, compared with the position as it would have been without the revocation. This is because the revocation reinstated the 85-year rule, whereby Scheme members can retire at 60 (or at 50 with their employer's consent), with no reduction of pension, if their age in years plus their completed years in service exceed 85 years. The actuary has calculated this cost to be 1.7% of the Fund's total estimated pensionable pay. Based on estimated pensionable pay for all employers in the Fund in 2005/06 of £690.7m, this gives a cost of £11.7m.

2.2 This information was passed to the ODPM and Tripartite Committee by the due date.

3. Interim actuarial valuation at 31 March 2005

3.1 The actuary carried out an interim valuation exercise using membership data rolled forward from 31 March 2004, but based on market conditions at 31 March 2005.

3.2 The following table compares the results of the interim valuation with the outcome of the full valuation carried out at 31 March 2004.

* Because of stepping the rate is actually planned to rise to 295% in 2007/08.

3.3 These results were forwarded to the ODPM as required by the regulations.

3.4 The funding level fell between March 2004 and 2005 from 69% to 66%. Although investment markets have continued to recover since March 2004, this has been more than offset by both the accumulation of another year of liabilities from past service, and falling bond yields, which are the main determinant of the rates used to discount accrued liabilities to current value.

4. The Tripartite Committee's discussions

4.1 The Tripartite Committee of the Deputy Prime Minister, employers and trades unions is continuing to discuss ways of reducing the cost of the Local Government Pension Scheme from April 2006 and over the longer term, with a view to ensuring that no extra cost falls on either the Government or employers.

4.2 The Government has recently taken legal advice that the continuation of the 85-year rule contravenes European age discrimination legislation and will therefore have to be abolished by October 2006 at the latest. This has not been received favourably by the unions. Nonetheless, it is understood that the Government will be issuing a consultation paper very shortly with proposals designed to reinstate the losses funds have suffered as a result of revocation, following the Tripartite Committee's discussions. The County Treasurer will update members on any further developments at the meeting.

4.3 It is therefore assumed that there will be no further increase in employers' contribution rates in 2006/07 and 2007/08 beyond those already planned from the 2004 valuation (ie the total employers' contribution rate will not be more than 275% and 295% of the employees' rate in those years until the results of the next full actuarial valuation as at 31 March 2007).

Recommendation

1 That the Panel note this report.

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:

Published works.

Documents which disclose exempt or confidential information as defined in the Act.

TITLE FILE

None.