Contact: Nick Weaver, Head of Pensions Services (01962) 847584; [email protected]

1 Executive Summary

1.1 Hampshire County Council needs to have an early retirement policy for its employees. The current policy uses some powers which the Government considers to be age discriminatory. The Government has therefore changed the powers available to local authorities and a new policy needs to be agreed.

1.2 The old policy:

· used actual weekly pay in redundancy calculations

· allowed departments to award compensatory added years (CAY)

· did not use the option to pay an additional lump sum of up to 66 weeks pay inclusive of any redundancy payment

1.3 The new powers:

· remove the ability to award CAY

· increase the limit on the additional lump sum to 104 weeks pay inclusive of any redundancy payment

· allow Local Government Pension Scheme (LGPS) members to opt to use their additional lump sum (over the amount of the statutory redundancy payment) to buy additional pensionable service

1.4 The proposed new policy:

· continues to use actual weekly pay in redundancy calculations

· uses the option to pay an additional lump sum

· allows LGPS members to choose to use some of their compensation lump sum to augment LGPS service

1.5 The amount of additional lump sum could be decided in a number of ways:

· on a case by case basis

· a multiplier of redundancy payment, limited to a maximum number of weeks e.g. 52 weeks

· a multiplier of the redundancy payment

· the maximum 104 weeks in all cases

1.6 Using a multiple of the redundancy payment, applied consistently across departments, will ensure that Hampshire County Council practice is non age discriminatory.

1.7 The median multiple, from a Society of County Treasurers survey was twice the redundancy payment, (including the statutory amount.) The cost would be similar to an award of 3 years CAY under the old rules.

1.8 The Hampshire County Council old policy was to allow departments to award CAY on a case-by-case basis. This makes like for like cost comparisons difficult. If the department's previous policy was not to award CAY, the cost will be higher.. Conversely if the policy was to award 6⅔ years CAY, the costs would be lower.

1.9 In addition the following points need to be considered when deciding a multiplier:

· In 1998 the short-term employer contribution rate was introduced. This meant that employers met the cost of the pension fund strain from early retirements, rather than the pension fund. Since then no awards of 6⅔ years have been made, and the incidence of redundancies and early retirements has been very low.

· The phasing of the cost is very different. Under CAY the cost was spread over the life of the person being made redundant with a relatively small initial payment. Under the new regulations the whole cost is due immediately. This will have a bigger impact upon ability to pay within service budgets.

· The cost will increase for anyone under 50, as they would not have qualified for any payment under CAY.

· The Committee also needs to consider the possibility of increased costs if there are more redundancies and early retirements in future during the much tighter financial regime expected with the Comprehensive Spending Review 2007.

1.10 For these reasons it is suggested that the Committee should also consider a multiple of one - a lump sum restricted to the redundancy payment, in order to minimise future employer's costs.

1.11 The recommended new discretionary compensation policy for early retirement on grounds of redundancy or the efficiency of the service is that

a) Redundancy payments are based upon actual pay and not the statutory maximum (currently £310 per week).

b) Compensatory added years are not awarded for terminations in the period 1 October 2006 to 31 March 2007.

c) Additional lump sum compensation for employment terminated on the grounds of redundancy is determined by the Committee either using a multiplier of once or twice the redundancy payment.

d) Augmentation can be awarded as an alternative to the additional lump sum compensation above the value of the statutory redundancy payment.

e) Payments for efficiency terminations be awarded at the discretion of each department, up to the equivalent of a redundancy termination.

f) For Chief Officers or Hampshire Management grade employees in the situations listed above the case will be submitted for prior approval to the Executive Member for Policy and Resources, subject to the agreement of the Director of Human Resources and the County Treasurer.

1.12 This report sets out

· the statutory redundancy payments scheme

· the old and new compensation regulations

· considerations and proposals for a new policy

· options and proposal for the calculation of any additional lump sum

2 Statutory Redundancy Payments

2.1 The upper and lower age limits for the right to a statutory redundancy payment (previously age 18 and age 65) were removed with effect from 1 October 2006, as a result of the age regulations.

2.2 Different multipliers for different age groups are still used in the lump sum calculation as the Government felt that a single multiplier would unfairly discriminate against older workers.

3 Local Government Compensation Regulations

3.1 Until 1 October 2006 local authorities had powers to make discretionary compensation payments to employees whose employment was terminated on the grounds of redundancy or efficiency.

3.2 The powers enabled local authorities to:

· Calculate compensation payments (including a statutory redundancy payment) on an employee's actual pay instead of the statutory maximum (currently £310)

· Award up to 10 compensatory added years (CAY) to employees between the ages of 50 and 65, depending upon age and service.

· Pay lump sum compensation (based upon an employee's age and service) up to a maximum of 66 weeks pay when CAY is not awarded.

3.3 Communities and Local Government (CLG) replaced these powers with new provisions from 1 October 2006, in order to comply with the age regulations which took effect on that date.

3.4 The new powers allow local authorities to:

· Retain the discretionary power to waive the maximum weekly ceiling for calculating a statutory redundancy payment and to use an employee's actual pay.

· Award a one off lump sum payment of up to 104 weeks pay inclusive of the statutory redundancy payment, but with no set formula for its calculation.

· Award CAY for leavers to 31 March 2007 only.

3.5 At its November meeting this Committee agreed not to use the power to award CAY after 30 September 2006 as it could leave the County Council open to challenge under the age regulations.

3.6 In addition, the LGPS provides for:

· the immediate payment of pension benefits to a member over the age of 50 whose employment is terminated on the grounds of redundancy or efficiency.

· employers to award (augment) additional service of up to 6 years 243 days to current employees.

3.7 The new powers provide an opportunity for employers to give LGPS members the choice of using the value of the lump sum, over the statutory redundancy amount, to augment pensionable service.

4 Considerations for a new policy

4.1 The County Council is required to develop and publish their policy on the award of discretionary payments under the new powers. This policy must comply with the age regulations.

4.2 The County Council has tended to manage its workforce changes without recourse to redundancy programmes. All the cases where compensatory added years have been awarded were for early retirements on efficiency grounds. The County Council has always had low numbers of early retirements as a result of redundancy but a future increase is likely as a result of service changes and restructuring for example in Libraries. CSR07 may also lead to reductions in workforce numbers in future which could increase the incidence and cost of early retirements and redundancies. This makes it important that there is a clear and consistent policy in place.

4.3 A number of factors need to be considered when making the policy. These include:

· Scope and effectiveness of the current policy

· Ability to implement organisational changes

· Cost

· Reasonableness

· Protecting the County Council from legal challenge

· Employee relations implications.

5 Proposals for new policy

5.1 The four discretionary powers allowed to local authorities in cases of redundancy and efficiency are:

· Redundancy payment

· Compensatory added years

· Additional lump sum payment

· Augmentation of pensionable service for LGPS members

5.2 Appendix 1 sets out the County Council's current policy together with the proposals for the new policy and the cost implications.

5.3 The figures used in the cost implications are based on an employee aged 55, on a salary of £20,000 pa and assumes inflation at 2% per annum.

5.4 It is recommended that the new policy to award additional lump sum compensation or to augment LGPS service applies to all cases of redundancy.

5.5 It is recommended that in cases of termination of employment in the interests of efficiency, augmentation only will apply on a case by case basis at the discretion of each department

5.6 It is also recommended that payment in cases of efficiency does not exceed what would have been paid under redundancy.

6 Additional lump sum

6.1 This Committee has already agreed that the use of up to 104 weeks pay as an additional lump sum compensation payment (inclusive of the redundancy payment) will be considered. The County Council must now have a policy which does not leave it open to challenge under the age regulations.

6.2 There are four main options (detailed in Appendix 2) for the calculation of any additional lump sum:

Option 1. Maximum flexibility: each case considered on its own merits

Option 2. Use an arbitrary multiplier of redundancy payment and set a limit on maximum number of weeks e.g. 52 weeks

Option 3. Use an arbitrary multiplier of redundancy, up to the maximum 104 weeks.

Option 4. Maximum payment in all cases of 104 weeks

6.3 Using a multiple of the redundancy payment, applied consistently across departments, will ensure that Hampshire County Council practice is non age discriminatory.

6.4 Using a multiplier ensures compliance with age regulations by tying any additional lump sum to the statutory redundancy payment (which the CLG says is non discriminatory).

6.5 A multiplier of two represents the median position of other county councils in a recent survey by the Society of County Treasurers.

6.6 The Committee also needs to consider the possibility of increased costs if there are more redundancies and early retirements in future during the much tighter financial regime expected with the Comprehensive Spending Review 2007.

6.7 It is suggested that the Committee should also consider a multiple of one - a lump sum restricted to the redundancy payment, in order to minimise future employer's costs.

6.8 The chosen option will be made available to all redundancy terminations and at the discretion of the employing department would be used for efficiency terminations.

7 Impact assessment

7.1 The proposed changes are designed so as not to be discriminatory and will ensure compliance with age regulations.

8 Financial impact

8.1 In practice the number of compensatory added years awarded in cases of redundancy and efficiency varied across departments depending upon their budgetary position, but have been of low incidence since 1998.

8.2 The new power to award up to 104 weeks pay (inclusive of any redundancy payment) as lump sum compensation to replace CAY for those between the ages of 50 and 65, if used, must also be extended to those under 50 and those over 65. This would increase short term costs.

8.3 A case study of potential costs from the restructuring of Libraries is attached at Appendix 3 which may help the Committee in determining whether the multiplier should be one or two times the redundancy payment in determining the additional lump sum and augmentation for redundancy or early retirement. It also compares costs with the other options in paragraph 6.2.

Section 100 D - 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:

Appendix 1

Appendix 2

The table below sets out the possible basis for calculating the additional lump sum payment.

Appendix 3

Case Study : Library Service restructure

The Library service is currently undergoing a major restructure. It is anticipated that between 30 and 40 staff will be made redundant, primarily on a voluntary basis. Redundancies will be dated after 1 April 2007, so all staff taking redundancy will be affected by the policy agreed by this Committee.

The restructure is being done in three phases. Staff have been asked to express an interest in volunteering for redundancy and have been provided with personal quotations of the expected financial consequences. These have included the redundancy payment based on the current regulations, but not the additional lump sum payment being considered in this report.

At the time of writing, staff who have volunteered for redundancy under phase 1 of the restructure have been identified but not finally confirmed.. Phase 1 of the restructure will account for about 60% of the total planned restructuring.

The total of the redundancy payments for these staff is £297, 000. The additional cost of the four options to pay an additional lump sum identified in para 1.5 would be as follows :

· on a case by case basis : would depend on negotiation. Currently nothing has been offered in the process, so this should be nil cost in this case.

· a multiplier of redundancy payment, limited to a maximum number of weeks e.g. 52 weeks depends on multiplier and maximum number of weeks £297,000 for 52 weeks, using a multiplier of two.

· a multiple of the redundancy payment : £297,000, if a multiple of twice the redundancy payment is adopted.

· the maximum 104 weeks in all cases : £1.033 million

All these amounts would be paid on the date of redundancy.

Under the old policy the awarding of Compensatory Added Years (CAY) would have been discretionary. The intention would have been to award no CAY (nil additional cost) for this restructure exercise.

This is only the first phase of the Library restructure. Further redundancies will be needed in phases 2 and 3. In broad terms it is likely that the cost of these will be to add approximately two thirds (66%) to each figure quoted above.