Contact: Nick Weaver, Head of Pension Services (01962) 847587 [email protected]

1 Summary

1.1 The Local Government Pension Scheme (LGPS) regulations give employing authorities certain discretions over the exercise of their functions in the LGPS.

1.2 Hampshire County Council's discretionary policies need to be reviewed in order to comply with the new LGPS regulations that came into effect on 1 April 2008.

2 Recommendations

2.1 In order to comply with the new LGPS regulations, it is recommended that:

a) The Director of Human Resources and County Treasurer draft a policy for the next meeting of this Committee on whether, and in what circumstances, to award additional membership years to active members.

b) The Director of Human Resources and County Treasurer draft a policy for the next meeting of this Committee on whether, and in what circumstances, to award additional pension to active members.

c) The Committee note the changes to the regulations regarding flexible retirement and receive a report on partial flexible retirement when the details are available from Communities and Local Government (CLG).

d) The Committee approve the updated flexible and early retirement policies reflecting the change to the earliest age a pension can be paid.

e) The Committee approve the employee contribution rate banding assignment and assessment policy.

3 Background

3.1 The Local Government Pension Scheme (LGPS) regulations give employing authorities certain discretions over the exercise of their functions in the LGPS.

3.2 A new Local Government Pension Scheme (LGPS) came into effect on 1 April 2008. Employers need to update their existing discretionary policies to comply with the new regulations.

4 Employer discretions in the Local Government Pension Scheme

4.1 Under the Local Government Pension Scheme (Administration) Regulations 2008, each employer must have a written statement of its policy in relation to the exercise of its functions in four areas:

· power to increase total membership years of active members (regulation 12)

· power to award additional pension (regulation 13)

· flexible retirement (and waiving of the early payment reduction on compassionate grounds) (regulation 18)

· early payment of pension (and waiving of the early payment reduction on compassionate grounds) (regulation 30)

4.2 Hampshire County Council already has policies on both flexible and early retirement. However, under the new scheme, the earliest age at which a pension can be paid has been increased from age 50 to age 55 (with protections until 2010 for existing members). All existing policies therefore need to be updated in light of this change.

4.3 Hampshire County Council's existing discretionary policy statement is shown in Appendix A.

4.4 In addition, employers must also decide how to assign employees to the new pension contribution rate bands.

5 Power to increase total membership of an active member

5.1 An employer can increase the total membership of an active member. The member's total additional membership (including additional membership in respect of different employments) must not exceed 10 years. The employer has to pay for the additional cost of this membership.

5.2 Hampshire County Council does not currently have a policy to increase total membership of active members. The Director of Human Resources and County Treasurer will draft proposals on whether, and in what circumstances, to apply this discretion for consideration by the Committee.

6 Power to award additional pension

6.1 The new scheme regulations allow for the award of up to £5,000 additional annual pension to active members. The employer pays for this by way of a one off lump sum, according to costs calculated by the Government Actuary.

6.2 This is a new discretion under the new regulations. The Director of Human Resources and County Treasurer will draft proposals on whether, and in what circumstances, to apply this discretion for consideration by the Committee.

7 Flexible retirement

7.1 The current policy on flexible retirement needs to be updated for the change to the earliest age at which flexible retirement can be applied for (increasing to age 55, with protections until 2010 for existing members).

7.2 In addition, the new regulations allow members to take only part of their benefits on flexible retirement, leaving the rest of their accrued pension to be paid when they fully retire.

7.3 This may be an attractive option for those who still meet the rule of 85 (this rule allows benefits to be paid without reduction if the member retires when their age plus service equal 85).

7.4 If the member meets the rule of 85 but takes all their benefits on flexible retirement, the second set of benefits (built up in the lower grade or reduced hours post) will be subject to the full reduction if they are taken before age 65.

7.5 If the member only took part of their benefits on flexible retirement, the rule of 85 is also considered to be met when they fully retire, so no early payment reduction will be applied to the second payment benefits.

7.6 The Department for Communities and Local Government (CLG) are still to provide details of how partial flexible retirement will work and the costs to the employer.

7.7 Hampshire County Council will need a policy to allow partial taking of benefits but cannot do this until CLG provide clarification. In the meantime, the existing policy does need to be updated to reflect the change in the earliest age at which members can apply for flexible retirement.

8 Early retirement with employer's consent

8.1 The current policy on early retirement with employer's consent needs to be updated for the change to the earliest age at which an application can be made. (Under the new scheme, the earliest age at which a pension can be paid has been increased from age 50 to age 55, with protections until 2010 for existing members).

9 Employee pension contribution rate bands

9.1 From 1 April, employees will pay different pension contribution rates, depending on the pay band they are in. The bands for 2008/09 are shown below.

9.2 Employers have to decide:

· how they will assess whole time equivalent pensionable pay for employees to attribute them to a band, and

· whether employees will move bands during the year if their pay changes.

9.3 In discussion with other employers in the Hampshire Pension Fund it has been agreed that policies need to balance maximising employee contributions with minimising the administration burden.

9.4 It is therefore recommended that an employee's band will be determined with reference to the whole time annual pensionable pay at the beginning of April (or their start date if they are employed during the year) plus any ad-hoc pensionable payments paid in the previous financial year.

9.5 It is further recommended that contribution rate bands are only changed on 1 April, even if there are pay changes during the year. The only exception to this is if there is a pay change during the year that is backdated to 1 April (i.e. pay award).

Existing LGPS policy statement for Hampshire County Council

Appendix A

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 age 50 and 60, provided 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 charge for paying benefits early being affordable in each case.

·                    It will consent to pension benefits being paid under the flexible retirement policy to an employee over the age of 50 who requests this, provided their remuneration is reducing typically by 40 per cent through either a reduction in contractual hours or grade. In addition agreement must be obtained from The Executive Member for Policy and Resources, or the Chief Officer and the Director of Human Resources and the County Treasurer, whichever is appropriate under the policy, that it is in the Council's interest having regard to the requirements of the service, and that any Pension Fund charge for paying benefits early is affordable in each case. In exceptional circumstances the waiving of any reduction in benefits under the LGPS's `rule of 85' will also be considered.    

·                    It will base any redundancy payment due to you on your actual weekly rate of  pay (rather than the current statutory maximum of £310 per week) and on your years of continuous local authority service. The part of your redundancy payment that relates to earnings in excess of the statutory maximum can be used to buy additional service in the Local Government Pension Scheme. This option is only open to you if you request it before your employment ceases.

·                    If you are retired in the interests of the efficiency of the service it will consider buying you additional service in the Local Government Pension Scheme using an amount no greater than  the payment you would have received had you been made redundant.

·                    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.