Meeting documents
Pension Fund Committee (DCC)
Monday 29 January 2007
Meeting: Pension Fund Committee (County Hall, Durham - Committee Room 2 - 29/01/2007 10:00:00 AM)
Item: A7 Draft Regulations for new look Local Government Pension Scheme
| Pension Fund Committee |  |
| Report of Stuart Crowe, County Treasurer |
Purpose of the Report
1 The purpose of the report is to inform Members of the recently-issued draft regulations that if implemented will introduce a ‘new-look’ Local Government Pension Scheme (LGPS) from 1 April 2008.
Background
2 Communities and Local Government (CLG) issued a consultation document on 30 June 2006 setting out four options for a new-look Local Government Pension Scheme. The stated intention was to ensure the Scheme can go forward on an affordable and sustainable basis.
3 The four basic options consulted upon were:
A) a slightly updated version of the current scheme
B) a new final salary scheme with a better accrual rate
C) a career average scheme
D) a hybrid scheme - a career average scheme with the option to pay more for benefits based on final salary
Durham County Council’s response to the consultation was to state that unless the members’ contribution rate was appropriately increased, option A was on balance our preferred option as it does not involve an additional burden on the taxpayer and provides benefits that are at an appropriate level and are readily understood.
4 CLG announced on 23 November 2006 that the ‘new-look’ LGPS would be very similar to option B from the consultation - that is a final salary scheme with a retirement age of 65, and accrual rate of 1/60th and no separate lump sum (although a lump sum would be available through commutation).
5 Draft regulations were issued on 22 December 2006 that if implemented will put in place the ‘new-look’ Scheme from 1 April 2008. The draft regulations and covering letter are enclosed at Appendix A. The closing date for comments on these regulations is 28 February 2007.
The draft benefits, membership and contributions regulations
6 The draft regulations set out the following LGPS benefit structure from 1 April 2008 onwards:
· Employee contribution rate set at 5.5% for the first £12,000 and 7.5% on amount over £12,000.
· Pension accruing at 1/60th final pay for each year of service when retiring at age 65.
· Earlier retirement possible from age 55 onwards (from age 50 onwards up until 31 March 2010 for employees in the Scheme before 1 April 2008). Employer consent is needed to retire before age 60.
· Three different tiers of ill-health benefits:
o Scheme members judged to be unable to perform local government employment duties but able immediately to undertake ‘gainful employment’ - accrued benefits only (unreduced for early payment)
o Scheme members judged unable to undertake gainful employment on leaving but likely to be able to do so before age 65 - accrued benefits plus augmentation of 25% of prospective service to age 65
o Scheme members judged unable to undertake gainful employment before age 65 - accrued benefits plus augmentation of 50% of prospective service to age 65.
· Ill-health enhancements to be no less favourable than under the current regulations.
· New definition of pensionable pay - better of pay over previous 12 months or highest 3-year average from the last 10 years (increased in line with price inflation).
· Option on drawing benefits to take 25% of the value of pension benefits as a lump sum.
· Lump sum death benefit of 3 times actual salary if member dies in service.
· Lump sum death benefit of 10 times pension (less any pension payments already made) if member dies while in receipt of a pension.
· Lump sum death benefit of 5 times deferred pension if member dies in deferment.
· Survivor benefits accruing at 1/160th for spouses, civil registered partners, co-habiting partners and children.
· A facility for employers to augment membership or annual pension.
· A facility for members to buy extra Scheme pension in steps of £250 a year up to a maximum of £5,000 a year.
· The continuing facility to have Scheme Additional Voluntary Contribution (AVC) providers.
· A cost-sharing mechanism to be established by 31 March 2009 - this will be a mechanism whereby certain future increases in pension costs will be shared between employer and members - for example a future improvement in longevity above current expectations could result in an increase in member contributions as well as an increase in employer rates.
7 The DCLG has stated that the arrangements in the current regulations which protect certain categories of member from the removal of the ‘rule of 85’ will continue. This means that anyone who meets the ‘rule of 85’ and reaches age 60 by 31 March 2016 will still be able to retire from age 60 on unreduced benefits. Anyone reaching age 60 between 1 April 2016 and 31 March 2020 will have a phased level of reduction applied to their post-31 March 2008 benefits if they retire before age 65. All other members will have any benefits earned after 31 March 2008 reduced if they take payment of them before age 65 (even if their age plus service when they draw their benefits equals 85 or more). The DCLG has confirmed that all Scheme members will earn benefits in the new-look Scheme at the 1/60th accrual rate - even if they benefit from protections against the removal of the ‘rule of 85’.
Comments on the draft benefits, membership and contributions regulations
8 The draft regulations are very similar to option B detailed in the earlier consultation. The main difference is that the spouses/dependants/partners pension is limited to an accrual rate of 1/160th. This is the same accrual rate as for spouses’ pensions in the current Scheme and means that spouses’ pensions will not benefit from the improved accrual rate given to members in the new-look Scheme. Other changes relate to the proposed three-tier ill-health arrangement - option B proposed a two-tier ill-health arrangement.
9 The detail of the regulations shows a change in how AVCs can be used in the new-look Scheme compared with the current Scheme. At present, since 6 April 2006 members have been able to take their AVC funds as additional tax-free cash on drawing their benefits (subject to the overall maximum cash limit), instead of having to use the AVC fund to buy additional pension. This provides useful flexibility for Scheme members and has encouraged many individuals to begin contributing to an AVC fund or to increase their existing contributions. Regulation 30(6) of the draft regulations stated that AVCs may only be used to provide benefits in the form of a lump sum if the entire pension benefit is being commuted for a lump sum (trivial commutation - only possible for small pensions). This is a complete reversal of the existing position and if implemented would not be popular with those members who have been encouraged to start paying AVCs in the expectation that they would boost their tax-free lump sum on leaving.
10 The proposed definition of final pay will require records of pay to be held over the previous 10 years. This means when the new-look Scheme comes into force on 1 April 2008 employers will need to have available pay records going back to 1 April 1998 - this could be problematic. The proposed method of indexing averages from previous years is not ideal - linking the increases to pension increases (which only happen every April) mean significantly differing results could occur depending on whether someone retired before or after April.
11 The new-look regulations allow employers to choose whether or not to give someone who leaves on redundancy or efficiency grounds access to their pension benefits and also whether or not to apply early retirement reductions to these benefits. This is in contrast to the current situation where anyone over age 50 leaving on redundancy or efficiency grounds is given immediate access to their pension benefits with no reduction applied for early payment. If this new approach is adopted the individual member should be able to decide whether or not to access their pension benefits on redundancy - particularly if those benefits are being reduced because of early payment.
12 Under the new-look regulations the lump sum payable on the death of a pensioner has increased from 5 times pension to 10 times pension (less any pension payments already received). The payment on commutation for serious ill-health is 5 times the pension value. This will leave those with serious ill-health with an important financial decision to make at a difficult time. Presumably if it is deemed appropriate to increase the payment on the death of a pensioner it is also appropriate to increase the payment on commutation for serious ill-health.
13 The new-look regulations would introduce a tiered contribution rate with Scheme members paying 5.5% contributions on earnings up to £12,000 and 7.5% contributions on earnings above this level. This is potentially a complex system to administer and would require significant development to payroll systems. Further guidance is also required on how the tiered contribution rate would operate in practice. For example, if someone is paid an annual salary of just over £12,000 but leaves part way through a year, will there be an adjustment made to their contributions as they will have paid a higher rate despite not having received over £12,000 in pay during the year?
Local Government Pension Scheme (Administration) Regulations 2007
14 CLG has also published outline details of proposed new Administration Regulations that will come into force from 1 April 2008 (see Appendix A, Annex B). The new Administration Regulations will include the following sections:
Pension Administration Strategy Documents
The Administration Regulations will grant administering authorities an enabling power to discuss, agree and publish local agreements with employers to be known as Pension Administration Strategy Documents. Guidance on the content and format of these documents will be provided at a later date but they are expected to include the following:
· Setting local performance targets/ benchmarks and to publish performance against them.
· Issuing of ‘improvement notices’ where the performance of individual employers persistently falls below agreed standards.
· Publication of annual performance reports.
· Recovery of administration costs from poorly performing employers.
· Duties and responsibilities of both administering authorities and Scheme employers in Scheme administration.
Governance
Pension Fund annual reports
Ill-health retirement guidance
New regulations will be issued setting out the process for dealing with an application for ill-health retirement including guidance on the procedures all the parties involved should follow.
15 Members are asked to authorise me to issue a response to the draft regulations on behalf of Durham County Council as the administering authority of the Fund. The response will highlight the issues raised in this paper. Where appropriate I will also consult with representatives from the HR Committee to produce a response on behalf of Durham County Council as a Scheme employer as well.
| Contact: Nick Orton Tel: 0191 383 4429 |
pen/rep/kno5
Local Government and Firefighters’ Pension Schemes
Zone 2/F7
Ashdown House
123 Victoria Street
London SW1E 6DE
Direct line: 020 7944 6015
Fax: 020 7944 6019
Web sites: www.communities.gov.uk
22 December 2006
Dear Colleague
The Local Government Pension Scheme (Benefits, Membership and Contributions) Regulations 2007 With Ministers’ agreement, I enclose draft regulations which propose a new-look benefit structure for the Local Government Pension Scheme (the LGPS) in England and Wales.
The Government’s overall objectives for the LGPS are set out in the Statement made to Parliament on 23 November by Phil Woolas MP, Minister for Local Government, which marked the start of the statutory consultation exercise, to introduce a regulatory framework to provide a new-look LGPS with effect from 1 April 2008. The closing date for comments is 28 February 2007.
Objectives for LGPS reform
The Government has undertaken to ensure that measures to reform the Scheme are affordable, viable and fair to the taxpayers who guarantee the Scheme’s statutory pension promise. Ministers have confirmed that it remains essential that the Scheme should also be as flexible and accessible as possible, for both employees and employers, so that it can provide a modern, equality-proofed range of defined benefits, both now and in the future.
It remains a significant objective also to achieve an equitable balance between the level of pension benefits provided by the scheme, and the actual cost of provision from all stakeholders’ points of view, including tax payers.
Accordingly, the Government’s intentions seek to maintain stability in the costs of the Scheme, and to ensure an equitable benefit/cost balance between all stakeholders and ensure that no additional costs are imposed on council tax payers.
Draft Regulatory Proposals for a new-look LGPS
The statutory consultation exercise on the Government’s proposed reforms of the Local Government Pension Scheme formally began on 23 November 2006. Within that timetable all consultees are able to consider the proposals. The publication of these draft regulations does not in any way affect the ability of stakeholders to discuss ways forward. No final decisions can or will be made until the consultation exercise is completed and responses to it have been given proper consideration by Ministers.
The enclosed draft regulations (at A) give effect to the 23 November statement and illustrate how the reforms will operate. Subject to the outcomes of the consultation exercise, the regulations will be brought forward for the necessary Parliamentary making and laying process. It remains Ministers’ intentions to have the new Scheme provisions in place for April 2007 and fully operational from 1 April 2008.
Since the initial announcement, the opportunity has been taken to refine and clarify a number of items within the consultation package and seen discussions among key stakeholders begin on others as part of the on-going consultation process.
Ministers believe that the consultation proposals represent a good deal for the membership which achieve the important objectives of affordability, viability and fairness to tax payers. The intention remains to ensure the Scheme’s long term sustainability for all existing Scheme members and those who will be attracted to join it.
Scope of the draft regulations
As now set out, the draft Regulations provide the following new-look LGPS benefit structure:-
1. Access to the Scheme for employees of bodies listed in the Administration Regulations
2. Members in post on 31 March 2008 who continue in membership will automatically have benefits accruing under the 2007 Regulations from 1 April 2008.
3. Definition of pensionable pay from which contributions are deducted (brought forward from the 1997 Regulations)
4. Setting of employee contribution rates at 5.5% on first £12,000 and 7.5% of excess over £12,000. (illustrations of how this impacts on different pay bands are as estimated below
| FTE Salary | Contribution Rate |
| £5,000 | 5.5% |
| £10,000 | 5.5% |
| £15,000 | 5.9% |
| £20,000 | 6.3% |
| £25,000 | 6.5% |
| £30,000 | 6.7% |
| £40,000 | 6.9% |
| £50,000 | 7.0% |
| £75,000 | 7.2% |
(ii) an earlier age either through individual choice or with agreement of employer, which includes facility flexible retirement
(iii) age 55 or later as a result of redundancy - with protection of age 50 for current members until 2010
(iv) departure on grounds of ill health, and for those Scheme members judged to be unable to perform local government employment duties but able immediately to undertake gainful employmentDuring the remainder of the consultation period, interested parties may wish to consider these elements on the basis that any adjustments will have a repercussive effect on the total cost of provision. Consultees’ views on the most appropriate way of defining “gainful employment” are invited. - accrued rights only;
for those unable to undertake gainful employment on cessation, but likely to be able to do so before normal retirement age - accrued rights and augmentation of 25% of prospective service to normal retirement age; and
for those unable to undertake gainful employment before normal retirement age - accrued rights and augmentation of 50% of prospective service to normal retirement age
Such enhancements on grounds of ill-health are to be no less favourable than under the 1997 Regulations.
6. These benefits under (5) will be calculated on a new definition of pensionable pay to be used in calculation of benefits permitting an average of three consecutive years in the last ten years of membership
7. Facility to take up to 25% of the capital value of pension rights at the point of a benefit crystallisation event.
8. Lump sum death benefit of three times actual salary if active member dies
9. Survivor benefits, accruing at 1/160th for spouses, civil register partners, co-habiting partners and children
10. Provision for calculating pre 2008 rights by reference to actual salary at date of leaving or retirement whichever is later
11. Provision to add benefits as calculated under 5 and 9, to be paid as one pension at the point of a benefit crystallisation event.
12. Rights relating to deferred members in terms of access to benefits as under 4(i), (ii) and (iv) above
13. Right to death benefit relating to both pre and post 2008 membership
14. Rights of pensioners to receive index linked pensions
15. The facility to pay post retirement death benefits
16. The capacity for employers to augment membership or annual pension
17. The facility for members to purchase extra Scheme pension in steps of £250 paper year up to a maximum of £5,000
18. The continuing facility to have Scheme AVC providers
20. Cost sharing mechanism to be established by 31 March 2009.
Transfer Arrangements
The protections provided in the extant Scheme Regulations, following the final removal of the rule of 85 with effect from 1 October 2006, are to be available in the new-look LGPS from 1 April 2008. All existing Scheme members who are not eligible for these protections beyond 31 March 2008 will automatically become members of the new-look Scheme on 1 April 2008. Their service up to, and including, 31 March 2008, at the 1/80 and 3/80 rate, will be banked. Eventually, these accrued rights will be calculated against actual final salary at the later date of leaving or retiring. From 1 April 2008 their new benefits in the new Scheme will accrue separately at the rate of 1/60th.
Consultees will be aware that a comprehensive range of protections were introduced into the existing LGPS with effect from 1 October 2006. These are affordable and legal and recognise the position of older Scheme members in particular. There are no plans to re-visit the decisions taken regarding these in the existing LGPS. It is proposed that for those existing members who retain rule of 85 protections from 1 April 2008 their accrual from that date will be on same terms as that available to all other Scheme members. The GAD advice first published in April 2005 about accrual beyond age 60 will continue to apply in the new Scheme.
In the department’s letter of 23 November, details were given of the total benchmark cost of future accruals for both existing and future members. Until the proposed benefit package was determined, and decisions taken on the approach to be taken regarding the switch from the current to the new pension arrangements (in particular for those covered by transitional protection), it was not possible to finalise transfer and transitional protection costs. However, this can now be confirmed as being some 0.2% of payroll, going forward from 1 April 2008. This amount is part of the savings achieved by the final removal of the rule of 85 from the LGPS.
Scheme Updates
The 23 November also announced the launch of Pension Changes, an information leaflet produced by Communities and Local Government, and a response forum both available to download from our website www.communities.gov.uk/lgps In the two weeks since the launch over 50 “notes” have been submitted to the site and there have been over 21,000 hits on the site. We will continue to manage this forum and post further developmental details, including some specific examples of comparative pension positions as between existing LGPS membership and the new-look proposal.
Policy Review Group
Proposals are also now being finalised to invite potential members to join the Group. Some initial principles regarding cost-sharing will need to be considered quite early in these discussions. Invitations will be sent out in the New Year.
The Local Government Pension Scheme (Administration) Regulations 2007
As the Minister also confirmed in the announcement given to Parliament on 23 November, we are consulting on a second statutory instrument.
The attached draft (at B) sets out the scope of these regulations and, in particular, describes the new elements that were carried forward from the work of the Scheme Administration Group (paragraph 16.5 of “Where Next?” refers).
In general terms, the 2007 Administration Regulations will comprise all those provisions of the extant 1997 Regulations, less those pertaining to the provisions on benefits and entitlements which now feature in the attached 2007 Benefit Regulations. In addition to the carry-over of existing provisions, the draft Administration Regulations include new sections on pension administration strategy documents; governance pension fund annual reports and ill-health retirement guidance. These elements are described in more detail in the attached annex.
At this stage, the draft SI contains only the new elements described in the attached annex, together with the provisions carried over from the extant 1997 Regulations that are necessary to put the new provisions in a proper context. Work is well under way in preparing a complete draft SI for consultation and this will be issued to all interested parties at the earliest possible opportunity. The closing date for comments on it will be 28 February 2007.
Next Steps
The new-look Scheme is programmed to be fully operational from 1 April 2008. To achieve this in a satisfactory and informed way, the Government’s timetable and programme of reform requires the new regulations to be in place for 1 April 2007.
Contacts
For enquiries on the content of this letter and the Ministerial Statement, please e-mail Charlotte Hine-Haycock Charlotte.Hine-Haycock@communities.gsi.gov.uk or Nicola Rochester Nicola.Rochester@communities.gsi.gov.uk or telephone 020 7944 6016 in the first instance. For enquiries on the proposed consultation exercise on new administration regulations please e-mail Margaret Dunleavy
Margaret.Dunleavy@communities.gsi.gov.uk or telephone 020 7944 6012 in the first instance.
Yours sincerely
Brian Town
Annex B
THE LOCAL GOVERNMENT PENSION SCHEME (ADMINISTRATION) REGULATIONS 2007
As the Minister confirmed in the announcement he gave to Parliament on 23 November, the intention is to come forward with two separate statutory instruments. The Local Government Pension Scheme (Benefits, Membership and Contributions) Regulations 2007 and The Local Government Pension Scheme (Administration) Regulations 2007. This note sets out the scope of the latter set of regulations and, in particular, describes the new elements that were carried forward by the Scheme Administration working group (paragraph 16.5 of “Where Next?” refers).
In general terms, the new Administration Regulations will comprise all those provisions of the extant 1997 Regulations, less those pertaining to the provisions on benefits and entitlements which now feature in the 2007 Benefit Regulations. In addition to the carry-over of existing provisions, the new Administration Regulations include new sections on Pension Administration Strategy documents; Governance; Pension Fund annual reports and ill-health retirement guidance. These are described in more detail below.
Pension Administration Strategy documents
The working group on scheme administration recommended that existing local agreements between administering authorities and their participating employers on administrative issues should be strengthened to ensure that all statutory requirements and locally agreed targets were complied with. In addition, steps should be taken to ensure that all scheme employers were able to communicate effectively with their administering authority and to have the necessary expertise and knowledge to perform effectively their statutory duties. Although the working group discussed the merits of centrally prescribed rules, Ministers have taken the view that local solutions to local problems, which are bound to vary from one authority to another, is the better way forward. The new regulations therefore grant administering authorities an enabling power to discuss, agree and publish local agreements, referred to in the regulations as “Pension Administration Strategy” documents. The intention is to allow individual administering authorities flexibility in the preparation of local agreements within a very broad regulatory framework. The new regulations therefore intend to set out, in general terms, the areas that a local agreement may include. Guidance to be issued at a later date by Communities will set this out in more detail, but in the meantime, these new regulations are intended to allow the following to feature as part of the new Pension Administration Strategy documents :-
· establishment of local focal points within scheme employers;
· setting local performance targets/benchmarks, and to publish performance against them;
· the issue of “improvement notices” where performance of individual employers persistently falls below agreed or statutory standards;
· publication of annual performance reports;
· recovery of administration costs from poorly performing employers, and
· duties and responsibilities of both administering authorities and scheme employers in scheme administration
To allow for innovative local solutions, the new regulations will allow an administering authority to introduce any other local measure, provided that it has consulted widely on the proposal with all scheme employers and other interested parties as it sees fit. For example, an administering authority may wish to include in their Pension Strategy document, the requirement that all scheme employers must send a standard joining letter to all new employees explaining their status in the scheme.
Under the new regulations, an administering authority may recover from any individual scheme employer, a contribution to offset costs they incur as a result of inefficiencies or the poor performance of individual employers. It is hoped that this power is used only as a matter of last resort after all other practical steps to remedy the poor performance has been exhausted. It is also important that the circumstances in which this power may be applied are clearly explained in the Pension Administration Strategy document itself. New regulations will provide important safeguards by requiring the administering authority to give written notice of any such recovery and for the Secretary of State to reach a determination in any case where the amount to be recovered is disputed. In reaching any such determination, the Secretary of State would hear representations from both parties to the dispute and would take into account all the relevant evidence, in particular, the terms and conditions of the local Pension Administration Strategy document.
Governance
Administering authorities are already required under regulation 73A of the 1997 regulations to prepare, publish and maintain statements of their local policy on governance arrangements. New regulations replicate this provision in the 2007 Regulations but, as confirmed by the Minister in his speech to the LAPFF on 30 November, a new provision has been added to require authorities to publish details of the extent to which they comply with a set of best practice principles on governance to be issued at a later date by the department, in conjunction with CIPFA. New regulations refer. There is also a requirement for authorities to give their reasons in cases where they differ from the best practice guidance. Under new regulations, the first statement must be published by 1 October 2007.
Pension Fund Annual Report
Earlier in the year, the Audit Commission proposed new measures to strengthen the pension fund audit process. Those discussions are still continuing, but early agreement was reached on the need to introduce consistency, both in terms of the content and coverage of annual pension fund reports, as a means of meeting the Commission’s concerns. It is accepted that the a clear majority of administering authorities already produce annual reports of a very high standard but the purpose of new regulations featured in the 2007 regulations is to (a) require such reports to be published by all administering authorities in England and Wales and (b) to introduce a level of consistency in their content and coverage. The new regulation sets out the items to be included in the annual report and is refered to by the new regulations to guidance on the preparation and publication of the report that the department will issue as soon as possible after the regulations have been made.
Ill-Health Pension Guidance
New regulations will replicate the “first instance decision” provisions of the 1997 Regulations. In particular, your attention is drawn to new regulations which specifically provide that in making any first instance decision regarding entitlement to an ill-health retirement pension, both the scheme employer and the independent registered medical practitioner, shall have regard to guidance issued by the Secretary of State.
Although guidance issued by the Employers’ Organisation in 2002 (Management of Ill-Health Handbook) has helped to improve the way in which ill-health retirement cases are processed, there is evidence to suggest that the manual is not being applied either by all LGPS employers and administering authorities, or consistently by those that are making use of it. In discussions with LGPS practitioners, ALAMA and those responsible for the independent certification of ill-health retirement cases, it is clear that there is a need for a shorter, more concise set of guidance that is geared primarily to the processes laid down in the regulations, supported by pro-forma documentation that all parties involved in the process will be expected to use. The aim will be to ensure greater consistency in the decision making process and application of the regulations governing the award of ill-health retirement pensions, as well as providing local authority managers and ALAMA with a means of auditing the validity and quality of decisions.
Communities and Local Government
Local Government & Firefighters’ Pension Schemes Division
December 2006
2007 No. 0000
PENSIONS, ENGLAND AND WALES
The Local Government Pension Scheme (Benefits, Membership and Contributions) Regulations 2007
Laid before Parliament xxth xx 2007
Coming into force - - 1st April 2008
In accordance with section 7(5) of that Act, the Secretary of State has consulted (a) such associations of local authorities as appeared to her to be concerned; (b) the local authorities with whom consultation appeared to her to be desirable; and (c) such representatives of other persons likely to be affected by the Regulations as appeared to her to be appropriate.
The Secretary of State makes the following Regulations:
Citation, commencement, interpretation and application
1. -(1) These Regulations may be cited as the Local Government Pension Scheme (Benefits, Membership and Contributions) Regulations 2007.
(2) These Regulations apply in relation to England and Wales(() The Secretary of State’s functions under section 7 of the Superannuation Act 1972 in so far as they were exercisable in relation to Scotland were devolved to Scottish Ministers by section 63 of the Scotland Act 1998 (1998 c. 46) and article 2 of, and Schedule 1 to, the Scotland Act 1998 (Transfer of Functions to Scottish Ministers etc) Order 1999 (S.I. 1999/1750).).
(3) These Regulations shall come into force on 1st April 2008.
(4) In these Regulations-
“the 1986 Regulations” means the Local Government Superannuation Regulations 1986(() S.I. 1986/24; amended by other instruments listed in Schedule M5 to the Local Government Pension Scheme Regulations 1995 which revoke all the 1986 Regulations except for Parts K and L. Part K was amended by S.I. 1995/1497.);
“the 1995 Regulations” means the Local Government Pension Scheme Regulations 1995(() S.I. 1995/1019.);
“the 1997 Regulations” means the Local Government Pension Scheme Regulations 1997(() S.I. 1997/1612.);
“the 1997 Scheme” means the occupational pension scheme constituted by the 1997 Regulations;
“the Administration Regulations” means the Local Government Pension Scheme (Administration) Regulations 2007(() S.I.2007/XXXX..);
“part-time employee” means an employee whose contract of employment provides-
(b) who is neither a whole-time employee nor a variable-time employee;
“the Scheme” means the Local Government Pension Scheme 2008 constituted by these Regulations, the Administration Regulations and the Transitional Regulations;
“the Transitional Regulations” means the Local Government Pension Scheme (Transitional Provisions) Regulations 2007(() S.I. 2007/XXXX.)
“variable-time employee” means an employee whose contract of employment provides that he is such an employee for the Scheme and-
(d) whose duties only have to be performed on an occasional basis; and
“whole-time employee” means an employee whose contract of employment provides-
(f) that his contractual hours are not less than the number of contractual hours for a person employed in that employment on a whole-time basis.
Active members
2. -(1) An employee of a body listed in Part 1 of the Local Government Pension Scheme (Administration) Regulations 2007 is an active member of the Scheme unless he has elected otherwise in accordance with regulation XX of those Regulations.
(2) An active member of the 1997 Scheme is an active member of the Scheme for as long as he continues in Local Government Pension Scheme employment.
Contributions payable by active members
3. -(1) Each active member shall make contributions to the Scheme at the standard contribution rate on his pay in each employment in which he is an active member.
(2) Subject to paragraph (3), the standard contribution rate is 5.5% on the first £12,000 of his pensionable pay and 7.5% on any amount by which his pensionable pay exceeds that sum.
(3) Where a member is a part-time employee, his contributions shall be calculated by multiplying the contributions he would have paid had he been a full-time employee (calculated in accordance with paragraph (2)) by the proportion that the number of his weekly hours bears to the number of weekly hours that he would have worked had he been a full-time employee.
Meaning of “pay”
4. -(1) An employee’s pay is the total of-
(a) all the salary, wages, fees and other payments paid to him for his own use in respect of his employment; and
(b) any other payment or benefit specified in his contract of employment as being a pensionable emolument.
(2) But an employee’s pay does not include-
(a) payments for non-contractual overtime;
(b) any travelling, subsistence or other allowance paid in respect of expenses incurred in relation to the employment;
(c) any payment in consideration of loss of holidays;
(d) any payment in lieu of notice to terminate his contract of employment;
(e) any payment as an inducement not to terminate his employment before the payment is made;
(f) any amount treated as money value to the employee of the provision of a motor vehicle or any amount paid in lieu of such provision;
(g) in the case of an employee or former employee of the Commission for New Towns, any payment made under any scheme relating to the termination of the employment of employees by the Commission in respect of the completion before a specified date of specified functions; or
(h) a payment made in consequence of a School Achievement Award under the scheme established by the Secretary of State known as the School Achievement Award Scheme.
(3) Where-
(a) a member’s contribution under regulation C2 or C3 of the 1986 regulations for a period including 31st December 1992 was based on pay which for the 1986 regulations as then in force included an amount representing the money value to him of the provision of a motor vehicle or an amount in lieu of such provision and immediately before 1st April 1998 his remuneration for the 1995 regulations included such an amount, or
(b) immediately before 1st April 1998 his remuneration for the 1995 regulations included an amount in lieu of the provision of a motor vehicle as referred to in paragraph 7(2)(b) of Schedule C2 to the 1995 regulations,
then his pay includes such an amount.
(4) But paragraph (2)(f) shall cease to apply if-
(a) he leaves employment with the employing authority who were employing him on-
(i) 31st December 1992; or
(ii) where appropriate under the provisions of paragraph 7 of Schedule C2 to the 1995 regulations, on 2nd May 1995;
(iii) otherwise than as a result of a transfer to another Scheme employer which is beyond his control; or
(b) he is neither provided with a motor vehicle nor receives an amount representing the money value to him of the provision of such a vehicle.
(5) No sum may be taken into account in calculating pay unless income tax liability has been determined on it.
Benefits
5. -(1) Membership of the Scheme only entitles the member to benefits under these Regulations if-
(a) his total membership is at least three months; or
(b) a transfer value is credited to him.
(2) But paragraph (1) does not apply to benefits in respect of a member under regulation 15 (death grants: active members), regulation 19 (survivor benefits: active members), or regulation 23 (children’s pensions).
Calculations
6. -(1) The amount of any benefit payable as a result of a person’s membership is generally calculated by multiplying his final pay by the appropriate multiplier.
(2) Unless another multiplier is indicated, the appropriate multiplier for a pension is the member’s total membership/60.
Final pay
7. -(1) A member’s final pay for an employment is his pay for as much of the final pay period as he is entitled to count as active membership in local government employment.
(2) A member’s final pay period is the year ending with the day on which he stops being an active member.
(3) In the case of part-time employment, the final pay is the pay that would have been paid for a single comparable whole-time employment.
(4) Any reduction or suspension of a member’s pay during the final pay period because of his absence from work owing to illness or injury must be disregarded.
(5) If a member’s final pay period includes reserve forces service leave, his final pay is-
(a) in a case where he has paid contributions under regulation XX of the Administration Regulations, the amount it would have been if his reserve forces pay were pay received in his former local government employment, or
(b) otherwise, the amount it would have been if he had continued to be employed in his former employment during the period of that leave.
(6) For the purposes of these regulations, a member’s final pay for any period of maternity, paternity or adoption absence during the final pay period in respect of which he pays or is treated as paying contributions is the pay he would have received had he not been absent.
(7) If a member is absent from work for any other reason during his final pay period, he is only to be treated for these regulations as having received the pay he would otherwise have received if he has made the appropriate contributions under regulation XX of the Administration Regulations for the period he is absent.
(8) If a member is only entitled to count part of the year specified in paragraph (2) as a period of active membership in relation to the employment which he ceases to hold, his final pay is his pay during that part multiplied by 365 and divided by the number of days in that part.
(9) Final pay does not include any pension in payment.
(10) But a member may elect to have his final pay calculated as the average of his annual pay in any three consecutive years-
(a) in the period of ten years ending with the last day he was an active member; and
(b) ending with a day of which that last day is an anniversary .
(11) And the average referred to in paragraph (10) is increased as if it were a pension to which the Pensions (Increase) Act 1971 applies.
Retirement benefits
8. -(1) If a member who has attained his normal retirement age retires from a local government employment he is entitled to immediate payment of retirement pension without reduction.
(2) The normal retirement date (“NRD”) of a member is his 65th birthday.
Retirement after the normal retirement date
9. -(1) A member who, with the consent of his employing authority, remains in service after his 65th birthday is entitled to a pension when he retires from service.
(2) His pension rights accrued at that date, and any rights accruing between that date and the date of his retirement or his 75th birthday, whichever is earlier, shall be enhanced as shown in guidance issued by the Government Actuary.
(3) The pension is payable immediately on retirement.
(4) But they must begin to be paid not later than the day before the member’s 75th birthday even if he has not retired.
Flexible retirement
10. -(1) A member who has attained the age of 55 and who, with his employer’s consent, reduces the hours he works, or the grade in which he is employed, may elect in writing to the appropriate administering authority to receive all or part of his retirement benefits, and those benefits may be paid to him notwithstanding that he has not retired from that employment.
(2) If the payment of benefits referred to in paragraph (1) takes effect before the member’s 65th birthday, the benefits payable are reduced in accordance with guidance issued by the Government Actuary.
(3) But the employer may choose to waive, in whole or in part, any such reduction.
(4) Where the employer so chooses, it shall pay to the fund the cost incurred as a result of such waiver as calculated by the fund’s actuary.
(5) Any benefits paid following an election under paragraph (1) are not subject to abatement under regulation XX of the Administration Regulations in respect of any subsequent employment with the person who is his employer at the date of his election.
(6) In the case of a person who is a member on 31st March 2008, and who makes an election before 31st March 2010, paragraph (1) applies as if “aged 50” were substituted for “aged 55”.
Early leavers: inefficiency and redundancy
11. -(1) Where-
(a) a member is redundant; or
(b) his employing authority has decided that, on the grounds of his limited efficiency, it is in the employing authority’s interest that he should leave their employment; and
(c) in either case, the member has attained the age of 55,
the authority may determine, subject to paragraph (2), to pay him his retirement benefits immediately.
(2) Before making a determination under paragraph (1), an employing authority shall consider whether to reduce the member’s retirement benefits having regard to any guidance issued by the Government Actuary.
(3) In the case of a person who is a member on 31st March 2008, and who makes an election before 31st March 2010, paragraph (1) applies as if “aged 50” were substituted for “aged 55”.
Early leavers: ill-health
12. -(1) If an employing authority determines that a member who leaves local government employment on the grounds of ill-health has a reduced likelihood of obtaining gainful employment (whether in local government or otherwise) before his NRD, they shall pay him benefits under this regulation.
(2) If the authority determine that there is no reasonable prospect of his obtaining gainful employment before his NRD, his benefits are increased-
(a) as if the date on which he left local government employment were his NRD; and
(b) by adding to his reckonable service at that date 50% of the period between that date and his actual NRD.
(3) If the authority determine that, although he cannot obtain gainful employment within a reasonable period of leaving local government employment, but that it is likely that he will be able to obtain gainful employment before his NRD, his benefits are increased-
(a) as if the date on which he left local government employment were his NRD; and
(b) by adding to his reckonable service at that date 25% of the period between that date and his actual NRD.
(4) But if the period to be added under paragraph (2)(b) or (3)(b), as the case may be, is less than the period that would have been added had regulation 28 of the 1997 Regulations applied, then his benefits are increased by adding the latter period.
(5) If the authority determine that it is likely that, although he is unable to effectively perform his local government employment duties, he will nevertheless be able to obtain gainful employment within a reasonable period of leaving local government employment, he is treated as if the date on which he left local government employment were his NRD.
(6) Before making a determination under this regulation, an authority shall consider a report from a medical practitioner.
Election for lump sum in lieu of pension
13. -(1) A member in respect of whom a benefit crystallisation event occurs on or after 1st April 2008 may elect in writing to the appropriate administering authority before any benefits become payable to commute his pension, or a part thereof, at a rate of £12 for every £1 of annual pension entitlement surrendered up to a maximum of 25% of the capital value of his pension entitlement.
(2) In paragraph (1), the capital value of a member’s pension entitlement is the aggregate of the capital values of his entitlements under the Scheme and the 1997 Scheme.
(3) A member and any of his dependants shall not be entitled, under any provision of these regulations, to receive benefits the capital value of which exceeds his lifetime allowance increased, where applicable, by his primary protection or enhanced protection.
(4) In this regulation, “lifetime allowance”, “primary protection” and “enhanced protection” are to be construed in accordance with section 218 of, and Schedule 36 to, the Finance Act 2004(() 2004 c. 12.).
(5) Any calculation of the increased retirement grant payable as a result of an election under paragraph (1) shall be carried out in accordance with guidance issued by the Government Actuary.
Limit on total amount of benefits
14. -(1) A member and any dependent of his shall not be entitled, under any provision of these Regulations, to receive benefits the capital value of which exceeds his lifetime allowance increased, where applicable, by his primary protection or his enhanced protection.
(2) In this regulation, “lifetime allowance”, “primary protection” and “enhanced protection” are to be construed in accordance with section 218 of, and Schedule 36 to, the Finance Act 2004(() 2004 c. 12.).
(3) Any calculation of the capital value of a member’s benefits is to be carried out in accordance with guidance issued by the Government Actuary.
Death grants: active members
15. -(1) If an active member dies, a death grant is payable.
(2) The administering authority at their absolute discretion may make payments in respect of the death grant to or for the benefit of the member’s nominee or personal representatives, or any person appearing to the authority to have been his relative or dependant at any time.
(3) The death grant is his reckonable pay multiplied by 3.
(4) But in calculating death grant in respect of a part-time or variable-time employee, actual pay in part-time or variable-time employment is to be used.
(5) If the administering authority have not made payments under paragraph (1) equalling in aggregate the member’s death grant before the expiry of two years beginning with his death, they must pay an amount equal to the shortfall to the member’s personal representatives.
Elections for early payment of pension
16. -(1) If a member leaves a local government employment (or is treated for these regulations as if he had done so) before he is entitled to the immediate payment of retirement benefits (apart from this regulation), once he is aged 55 or more he may elect to receive payment of them immediately.
(2) An election made by a member aged less than 60 is ineffective without the consent of his employing authority or former employing authority (but see paragraph (6)).
(3) If the member elects, he is entitled to a pension payable immediately.
(4) His pension must be reduced by the amounts shown as appropriate in guidance issued by the Government Actuary.
(5) A member’s employing authority may determine on compassionate grounds that his retirement pension and grant should not be reduced under paragraph (4).
(6) Subject to paragraph (7), if a member who has left a local government employment before he is entitled to the immediate payment of retirement benefits (apart from this regulation) becomes permanently incapable of discharging efficiently the duties of that employment because of ill-health or infirmity of mind or body-
(a) he may elect to receive payment of the retirement benefits immediately, whatever his age, and
(b) paragraphs (2) and (4) do not apply.
(7) If a member does not elect for immediate payment under this regulation, he is entitled to receive a pension without reduction, payable from his NRD.
(8) In the case of a person who is a member on 31st March 2008, and who makes an election before 31st March 2010, paragraph (1) applies as if “aged 50” were substituted for “aged 55”.
Death grants: deferred members
17. -(1) If a deferred member dies, a death grant is payable.
(2) The administering authority at their absolute discretion may make payments in respect of the death grant to or for the benefit of the member’s nominee or personal representatives, or any person appearing to the authority to have been his relative or dependant at any time.
(3) The death grant is his retirement pension (aggregating his entitlements under the Scheme and the 1997 Scheme) multiplied by 5.
Death grants: pensioner members
18. -(1) If a deferred member dies, a death grant is payable.
(2) The administering authority at their absolute discretion may make payments in respect of the death grant to or for the benefit of the member’s nominee or personal representatives, or any person appearing to the authority to have been his relative or dependant at any time.
(3) The death grant is his pension multiplied by 10, but the amount so calculated is reduced by the amounts of any retirement pension paid to him.
Survivor benefits: active members
19. -(1) If a member dies leaving a surviving spouse, cohabiting partner or civil partner, that person is entitled to a pension.
(2) If the deceased’s total membership was at least three months, the pension is calculated by multiplying his total membership, augmented by any provision of these Regulations, by his final salary and divided by 160.
(3) If the deceased was an active member with a total membership of less than three months or a deferred member, the multiplier for the pension is the deceased’s total membership/160.
(4) But in the case of a surviving cohabiting partner or civil partner, only the deceased’s membership after 6th April 1988 is taken into account for calculating the pension.
(5) If there is more than one surviving spouse, they become jointly entitled under paragraph (1).
Survivor benefits: pensioners
20. -(1) If a pensioner member dies leaving a surviving spouse, cohabiting partner or civil partner, that person is entitled to a pension.
(2) The pension is calculated by multiplying his total membership by his final salary and divided by 160.
(3) But in the case of a surviving cohabiting partner or civil partner, only the deceased’s membership after 6th April 1988 is taken into account for calculating the pension.
(4) If there is more than one surviving spouse, they become jointly entitled under paragraph (1).
Survivor’s benefits: deferred members
21. -(1) If a deferred member dies leaving a surviving spouse, cohabiting partner or civil partner, that person is entitled to a pension.
(2) The pension is calculated by multiplying his total membership by his final salary and divided by 160.
(3) But in the case of a surviving cohabiting partner or civil partner, only the deceased’s membership after 6th April 1988 is taken into account for calculating the pension.
(4) If there is more than one surviving spouse, they become jointly entitled under paragraph (1).
Meaning of “eligible child”
22. -(1) The eligible child of a deceased member is-
(a) the deceased’s legitimate or adopted child, or
(b) a child who was wholly or mainly dependent on the deceased at the time of his death or, where the child is born after the member’s death, who would have been so dependent if he had been born before or on the date of the member’s death,
but does not include a child who was born on or after the first anniversary of the date of the deceased’s death.
(2) A person only counts as a child if-
(a) he is aged under 17,
(b) he is aged under 23 and since he became 17 he has been engaged continuously in full-time education or in training for a trade, profession or vocation, or
(c) he is physically or mentally handicapped and became so when a child within paragraph (a) or (b).
(3) If an appropriate administering authority wish, they may treat education or training as continuous despite a break.
Children’s pensions
23. -(1) If a member dies leaving one or more eligible children, they are entitled to a children’s pension.
(2) The pension is payable from the death.
(3) An eligible child ceases to be entitled to a pension when he ceases to be a child within regulation 22.
(4) If the deceased was an active member, the pension is the appropriate fraction of the pension to which he would have been entitled if on the date of death he had become entitled under regulation 12 (early leavers: ill-health).
(5) If the deceased was a deferred member, the pension is the appropriate fraction of the amount of the pension to which he would have been entitled if on the date of death he had become entitled under regulation 8 (retirement benefits).
(6) If the deceased was a pensioner member, the pension is the appropriate fraction of his retirement pension.
(7) The appropriate fractions are-
(a) where there is one eligible child, one-quarter,
(b) where there is more than one eligible child, one-half, which is apportioned among them.
Pension increases under the Pensions (Increase) Acts
24. Where a pension to which the Pensions (Increase) Act 1971 applies is payable out of an appropriate fund, any increase under that Act or the Pensions Increase Act 1974 must be paid from that fund.
Power of employing authority to increase total membership
25. -(1) An employing authority may resolve to increase the total membership of an active member.
(2) A member’s total additional membership (including additional membership in respect of different employments) must not exceed-
(a) 10 years; or
(b) the period by which the member’s total membership falls short of the total membership the member will have if he continues as an active member until he is 65,
whichever is the shortest.
Power of employing authority to award additional pension
26. -(1) An employing authority may resolve to award a person additional pension of £250 a year or multiples thereof.
(2) Additional pension may be paid in addition to any increase of total membership resolved to be made under regulation 25.
Election in respect of additional pension
27. A member may elect to pay additional contributions in order to be credited with additional pension of £250 a year or multiples thereof to a maximum of £5000.
Elections to pay AVCs
28. A member who has elected to pay contributions under regulation XX of the Administration Regulations (“AVCs”) in addition to any other contributions he may pay under these Regulations is entitled to additional benefits in accordance with regulations 29 and 30.
Death benefits: AVCs
29. -(1) If a member elects for any of his AVCs to be used to provide death benefits, the appropriate administering authority must make arrangements for those benefits to be provided under a pension policy with an AVC insurance company.
(2) The policy must provide for the appropriate administering authority to pay the company the same amounts as the AVCs to be so used within one month after the member’s usual pay day.
(3) The policy must reflect the restrictions on AVCs and the provisions which apply under these Regulations.
(4) In entering into the pension policy the administering authority must give effect to the member’s wishes about the benefits it provides, so far as is practicable.
(5) But the benefits must be money purchase benefits and their value reasonable considering the contributions paid.
Retirement benefits: AVCs
30. -(1) The appropriate administering authority must invest any AVCs which are not to be used to provide death benefits with an approved AVC body.
(2) When a member who has paid AVCs during his employment leaves his employment with the employer who was his employing authority when he elected under regulation 27 to pay them, the appropriate administering authority must use the accumulated value of the contributions invested under paragraph (1) for the provision of additional pension benefits under a pension policy at any time prior to the 75th birthday of the member.
(3) But if the member dies before the policy is entered into, the accumulated value is payable to his personal representatives.
(4) In entering into the pension policy the administering authority must give effect to the member’s wishes about the benefits it provides, so far as is practicable.
(5) The benefits must be money purchase benefits and their value reasonable considering the accumulated value.
(6) The AVCs may only be used to provide benefits in the form of a lump sum if-
(a) all the pension benefits payable to or in respect of the member under the Scheme are being commuted under regulation 31 (commutation of small pensions), and
(b) the annual rate referred to in that regulation is not exceeded by aggregating with them the additional pension benefits provided by the pension policy entered into under paragraph (2).
Commutation: small pensions
31. A lump sum which is a trivial commutation lump sum within the meaning of section 166 of the Finance Act 2004 or a trivial commutation lump sum death benefit within the meaning of section 168 of that Act may be paid in accordance with the rules relating to the payment of such benefits under the Finance Act 2004.
Commutation: exceptional ill-health
32. -(1) If, when a retirement pension first becomes payable to a member, the appropriate administering authority are satisfied that his life expectancy is less than one year, they may pay him a lump sum equal to five times the amount of his retirement pension.
(2) Such a payment discharges the authority’s liability for that pension and for any lump sum death grant calculated by reference to that pension under the Scheme.
Guidance on future costs
33. Administering and employing authorities shall have regard to guidance to be issued by the Secretary of State, before 31st March 2009, as to the manner in which the costs of the Scheme will be met after 31st March 2010.
Signed by authority of the Secretary of State
Parliamentary Under Secretary of State
Department for Communities and Local Government
(This note is not part of the Regulations)
These Regulations…