Contact: Head of Pensions Services [email protected] telephone 01962-847568

1. Summary

1.1 Because of recent and proposed changes to the pension scheme and compensation regulations, the County Council must review its policy statements and procedures for the early retirement of non-teaching staff. These must also comply with employment equality law.

1.2 These do not apply to ill health retirement or voluntary retirement from age 60, which are outside the employers' control and do not add to employers' costs directly, because the actuary makes provision for them in employers' contribution rates. Other early retirements cost money and are within employers' control.

1.3 The proposed policy statements and procedures are set out in the Appendix.

2. Statutory powers

2.1 The Local Government Pension Scheme (LGPS) Regulations entitle an employee who is aged at least 50 to the immediate payment of benefits if they are retired on grounds of redundancy, or in the interests of efficiency of the service, or if they retire voluntarily before age 60 and the employer consents to immediate payment of benefits.

2.2 All such retirements place a strain on the pension fund, so the employer has to make additional payments into the fund, spread over no more than three years.

2.3 The LGPS Regulations also permit an employer to augment an employee's period of LGPS membership at any age, which increases their benefits at retirement. This power can be used to `top up' service, by up to 6⅔ years, or to age 65 if that is less, provided that the employer makes further payments into the fund.

2.4 The Local Government (Early Termination of Employment) (Discretionary Compensation) (England and Wales) Regulations currently permit employers to award compensatory added years to employees aged at least 50 who are retired on grounds of redundancy, or in the interests of efficiency of the service. The Department for Communities and Local Government (DCLG) proposes revoking this power from 1 October 2006, because it is age-discriminatory.

2.5 Instead the DCLG proposes a new discretionary power which would enable a local authority to give up to two years' pay as lump sum compensation to any employee who leaves on grounds of redundancy or efficiency of the service.
It could not be used if LGPS service has been augmented for the same termination of employment.

2.6 The power to augment LGPS membership will still be available when compensatory added years end, as long as the employer has a policy in place by
1 October 2006..

2.7 LGPS membership used to be limited to 40 years. This meant that people who entered at age 18 would have paid for 42 years at age 60 but only get benefits for 40 years. Such employees could be granted a `contribution holiday' for the period over 40 years that they could not count. Changes to the LGPS from 6 April 2006 remove the 40 year limit and end such holidays. They now count the holidays as periods of membership, which adds to their benefits. The employer now has discretion to recover their `waived' contributions.

2.8 The scheme changes also permit employers to grant `flexible retirement' for employees aged at least 50, whose hours or grade are reduced. This would enable an employee to draw their pension while continuing to work. As with current early retirements, benefits would be paid at reduced rates if the employee is under 60, or is between 60 and 65 and does not meet the 85 year rule, so as to offset the strain on the pension fund. The employer can waive the reductions but has to compensate the fund.

2.9 There is no guidance within the scheme on the extent to which hours or grade must be reduced - it is possible achieve a flexible retirement with just a one hour reduction in working hours.

2.10 Employers need to determine the criteria for a flexible retirement policy. In establishing these criteria consideration needs to be given to the resourcing impact and public perception, as well as potential financial implications.
The criteria for HCC's flexible retirement policy will be submitted to EHCC Committee later this year.

3. Current policies

3.1 Current early retirement policies for non-teaching staff are as follows:

· the pension fund's charge for early retirement must be affordable

· any redundancy payment will be based on current weekly rates of pay

· an award of compensatory added years will be considered, where allowed

· the Executive Member for Policy and Resources can approve Chief Officers' and HM grade early retirements

· other retirements can be approved under joint, delegated authority by the relevant Chief Officer, County Treasurer and Director of Human Resources, including voluntary early retirement, where that is in the council's interests.

· There is no policy to augment periods of LGPS membership.

4. Proposed policies

4.1 It is proposed to vary the existing policies, without adding to costs, as follows:

· augmentation of LGPS membership will be considered in any redundancy or efficiency retirement case, instead of an award of compensatory added years

· alternatively, lump sum compensation of up to two years' pay, inclusive of any redundancy payment, will be considered

· the Executive Member for Policy and Resources will approve Chief Officers' and HM grade retirements, including voluntary early retirement and flexible retirement

· other retirements can be approved under joint, delegated authority by the relevant Chief Officer, County Treasurer and Director of Human Resources.

· all costs falling on the County Council as an employer must be affordable, within existing cash limits.

Recommendations

That the Committee

(a) agrees the revised discretionary pension policy statement for publication as set out in the Appendix

(b) authorises the County Treasurer to recover the employee contributions that were waived during contribution holidays.

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

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

None.

Appendix - Pension policy statement for non-teaching employees

"Your Pension - An Employee's Guide" explains that your employer can exercise certain discretions under the Local Government Pension Scheme (LGPS). In addition, if you are made redundant or retired in the interests of the efficient exercise of your employer's functions - known as early retirement - your employer can compensate you under the Local Government (Early Termination of Employment) (Discretionary Compensation) (England and Wales) Regulations. From1 October 2006 the County Council will exercise these discretionary powers as set out below, and inform you if it alters them in future :

· it will consent to immediate payment of benefits to an employee who requests this and retires voluntarily between ages 50 and 60, or reduces their hours or grade after age 50 under the flexible retirement arrangements, provided that the relevant Chief Officer, the Director of Human Resources and the County Treasurer agree that it is in the Council's interests to do so, and having regard to the pension fund's charge for paying benefits early being affordable in each case

· if you are made redundant or retired early at any age, it will consider increasing your LGPS membership within the limit allowed by the LGPS, or awarding up to two years' pay in compensation, inclusive of any redundancy payment, provided that this and the pension fund's charge for paying benefits early are affordable. Augmentation of LGPS membership will be considered in any redundancy or efficiency case, instead of an award of up to two years pay

· it will base any redundancy payment due to you on your actual weekly rate of pay, rather than the statutory limit and on your complete number of years of continuous service with local authorities

· if you are a Chief Officer or a Hampshire management grade employee in the situations listed above then it will submit your case for prior approval to the Executive Member for Policy and Resources

· it will pay preserved benefits without reductions to an ex-employee over age 50 on compassionate grounds, provided that the Chief Executive and the County Treasurer are satisfied that the person had to give up work to care for an aged or sick relative or partner. Serving employees can apply for this before leaving

· it will automatically include a woman's LGPS membership between 1 April 1972 and 5 April 1988 in the calculation of her widower's pension at no charge to her.

· it will reduce or suspend where necessary the added years pension paid to you during a period of re-employment with a LGPS employer. At the end of the period of re-employment it will reduce, according to a set formula, the added years element of your pension. In both instances you will be no better off, in pension terms, than if you had remained in the original job. Details of the formula are available from Pensions Services Section.

(Note: the last three items are not new but are included for the sake of completeness)