Contact: Mike Crowfoot, Assistant Head of Pension Services, (01962) 847584; [email protected]

1 Summary

1.1 Changes to the Local Government Pension Scheme (LGPS) from 6 April 2006 introduced a new retirement category of `Flexible Retirement' for non teaching staff.

1.2 This committee at its September meeting approved an interim policy. This report sets out a proposed comprehensive policy and amended policy statement promised by the previous report.

2 Statutory powers

2.1 Her Majesty's Revenue and Customs (HMRC) amended its overriding rules for all pension schemes from 6 April 2006.

2.2 HMRC rules had previously required a person to retire / leave their employment before pension benefits could be paid. The new rules, however, allow scheme members to receive their pension benefits while continuing in employment.

2.3 The LGPS was also amended from 6 April 2006 to allow `Flexible Retirement', from age 50, with the payment of accrued pension benefits if the employer agrees to:

· Hours of employment or responsibility (grade) being reduced.

· Pension benefits being paid.

2.4 If the LGPS `rule of 85' (service and age in complete years totalling 85) is not satisfied, pension benefits will be reduced if the person is under 65.

2.5 An employer can waive the reduction. By doing so it must make a payment to the Pension Fund to cover the fund strain. This can be paid over three years with the addition of interest.

2.6 A fund strain will also arise if a person is under 60 years of age and has satisfied the `rule of 85' or could have done so before age 60.

2.7 A person can remain in the LGPS in continuing employment and earn additional pension benefits.

3 Benefits of flexible retirement

3.1 Flexible retirement can have benefits for both the employer and employee.

3.2 For the employer it enables retention of valuable experience and knowledge which otherwise would be lost if an employee were to retire or leave.

3.3 For the employee it enables a step down towards retirement avoiding the cliff edge of full time work to full time retirement or the consequential loss of income from reducing hours of employment or responsibility while remaining employed.

3.4 Flexible retirement also provides an additional option to the existing practice of retirement with pension benefits followed by the need to seek further employment.

3.5 The LGPS provides that where a person returns to work, in employment subject to its rules, following retirement and the payment of pension benefits the pension in payment is liable to reduction or suspension if the new pay plus pension exceed the earnings at retirement. This provision does not apply to flexible retirement.

4 Costs

4.1 Where a person is between the ages of 50 and 60 and satisfies the LGPS `rule of 85' before age 60 a strain will be placed upon the Pension Fund by the payment of pension benefits. In which case the employer must make an additional payment to the Pension Fund. This can be spread over no more than three years with the addition of interest.

4.2 Where a person is between the ages of 50 and 65 and has not satisfied the `rule of 85', then pension benefits must be reduced as with other early retirements. This will fully offset the strain on the pension fund unless the person is under 60 and the `rule of 85' could have been satisfied before that age in which case there will also be a fund strain to be paid by the employer.

4.3 An employer can waive the reduction in pension benefits and pay the strain on the Pension Fund of doing so.

5 Other considerations

5.1 The implications for the service, in particular the resourcing impact, from a persons reduction in working hours or level of responsibility must be considered in all cases.

5.2 The LGPS does not require a minimum reduction in hours or grade before flexible retirement can be granted. However, local authorities have a responsibility to act in a prudent manner and the public perception of workers receiving pension benefits while continuing to receive close to full salary must also be considered

6 Proposed policy

6.1 Taking account of costs and other considerations the proposed policy is:

· All requests for flexible retirement will be considered

· Approval will only be given if it is in the County Council's interests to do so.

· A request should typically involve a reduction in salary of 40 per cent either through reduced hours or level of responsibility (grade).

· The County Council will not provide replacement employment for the reduction in pay.

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

· The waiving of pension benefit reductions will only be considered in exceptional circumstances.

· Flexible retirements will be approved by:

(a) For all Chief Officers and HM Grades where there is either a Pension Fund strain charge or exceptionally the salary reduction is less than 35%, the Executive Member for Policy and Resources.

(b) In other cases where there is a Pension Fund strain charge or exceptionally the salary reduction is less than 35%, the relevant Chief Officer and the County Treasurer and the Director of Human Resources.

(c) In all other cases the relevant Chief Officer.

Recommendation

1 That the committee

(a) approve the above policy

(b) agree the revised discretionary pension statement for publication as set out in the Appendix.

Section 100D - Local Government Act 1972 - background documents

The following documents discuss facts or matters on which this report, or an important part of it, is based and have been relied upon to a material extent in the preparation of this report.

NB: The list excludes:

None