Agenda item

Scheme and Regulatory Update

To receive an update from Kevin Taylor and to review

a. Exit Reforms – Scheme employer guide

b. Exit Reforms – Administering Authority guide

Minutes:

Kevin Taylor introduced the item and reminded members of the exit reforms and the £95k exit cap. The new regulations, which included the exit cap, came into effect from November 4. This meant that most employers in the Local Government Pension Scheme could not pay out exit payments in excess of £95,000 where the reason for leaving service was because of early retirement due to efficiency reasons or redundancy. At the same time, the current LGPS regulations state that any scheme member aged 55 or over who is made redundant or retired early for business efficiency reasons must receive immediately all accrued benefits to date without any early release reductions being applied. Therefore in these circumstances where the £95,000 cap was breached it was not currently possible to adhere to both the Exit Cap Regulations and the LGPS Regulations as they were in direct conflict with each other.

 

The Board was told that new compensation regulations were also due to come into effect, which would come with an £80,000 pay cap for calculating redundancy payments. Kevin Taylor said it was his understanding that employees who were made redundant and impacted by the change would normally have a choice in the way they took their exit payments, although they would no longer be entitled to take both the statutory redundancy payment and fully unreduced pensions benefits. Where the £95,000 is breached, scheme members would be given the opportunity to avoid a reduction to their pension benefits by self-funding any excess pension strain cost from their own resources. Alternatively they could choose to defer payment of their benefits. Employees voluntarily taking pension payments at 55 have a full actuarial value taken from them. Kevin Taylor stated his belief that all local government pension funds had been placed into an impossible position regarding making a decision on early pension payments if a case arose due to the conflicting legislation. The Local Government Association had issued guidance, but their advice was considered to be the ‘least worst’ option open to funds. The Board were reminded that employees with lengthy service on quite modest salaries could easily be impacted by the change.

 

Alan Cross stated that it did not appear that the government had coordinated the impact caused to pension funds by the introduction of the new cap. He also pointed out that the cap had been brought in before the consultation on all aspects of the proposals had closed. Kevin Taylor advised that multiple messages had been sent to affected scheme employers outlining the circumstances of the cap and seeking details of any redundancy cases currently in progress. To date only two issues had been raised, but these both fell below the £95,000 cap so there was no impact. However it was anticipated that further referrals would arise. The Board was told that admissions bodies that were members of the pension fund would not be affected by the changes. Overall it was anticipated that a lot of work would be required to implement the changes.

 

Nikki Craig asked if there was a policy over how the proposed changes were to be communicated. Kevin Taylor said he would raise this with the Head of Finance and Section 151 Officer. It was agreed that the issue should go to the Pension Fund Committee for consideration. Kevin Taylor said he was working on a paper that would go to the Pension Fund Committee in December.

 

Alan Cross said it would be sensible for the available options to be clearly written down in order to make the potential outcome of each clear to those impacted. He said it would be helpful if the matter could be resolved ahead of the end of March, as this was traditionally when management changes, which may cause redundancies, were implemented. Kevin Taylor said the guidance from the LGA that had been circulated to employers had been useful as it set out some of the options. He said he felt the LGA’s preferred option was to give individuals the option of deferring benefits, or paying out a full, reduced, pension. There was also a separate issue for employers in having to make cash payments to certain employees where the pension strain costs was less than their redundancy pay.

Supporting documents: