Agenda Item No
The Vale of Glamorgan Council
Cabinet Meeting: 30 June, 2014
Report of the Leader
Review of Local Government Pension Scheme (LGPS) Discretions
Purpose of the Report
1. To advise members of recent changes to the Local Government Pension Scheme and to enable the Council to determine its discretionary powers as an employing authority as required under the regulations.
1. That the policy on discretions is amended in line with the recommendations outlined at Appendix A to this report.
2. That the policies and necessary guidance are published in line with the regulations and the administering authority (City and County of Cardiff) be informed of the changes.
3. That Article 13.09 of the Constitution (Urgent Decision Procedure) be applied.
Reasons for the Recommendations
1. To set policies and guidance as required under the regulations.
2. To publish policies and inform the administering authority in line with the guidance.
3. To enable formal notification of the discretions adopted to be provided to the administering authority by 30th June.
2. Under the Local Government Pension Scheme, the Council as an employing authority is able to exercise a number of discretionary powers. Under the regulations it is necessary for the Council to have a written policy outlining how the Council will, in general, exercise certain of its discretionary powers. A review of policy on discretions is required since the new pension scheme came into force on 1st April 2014.
Employers are required to formulate, publish and keep under review a policy statement in relation to the exercise of discretions under the Local Government Pension Scheme (LGPS). The policy was last reviewed in 2008, when major changes were last made to LGPS. The policy was updated in 2010, when the minimum age for access to LGPS pension benefit was increased from age 55 to 60.
3. New pension regulations were introduced in 2013 and from 1st April 2014 the basis of the LGPS pension scheme changed from a Final Salary scheme to a Career Average Revalued Earnings (CARE) scheme. Under the CARE scheme, the pension earned in each scheme year from April 2014 is added to an individual's pension account and increased for inflation so that it retains its value. That part of an individual's pension relating to service prior to April 2014 will still be based on final salary, albeit with different rates accruing for employment post 2008.
4. The revisions to LGPS mean that there are some new areas where employers will need to exercise discretion. Policies adopted in respect of early retirement, flexible retirement and redundancy do not and may not commit the Council to automatic adoption of the terms, as each case needs to be considered on its own merit. There is an established process for assessing the business case for early retirement and redundancy within the policy.
5. The policy should be regarded as a framework and a broad statement of principles unless couched in absolute terms.
Relevant Issues and Options
6. Policies required under the 2013 regulations are as follows
· Additional Pension Contributions (APC)
Regulation 31 of the LGPS Regulations 2013 allows the employer to grant additional pension up to a maximum of £6,500. The 2008 scheme allowed additional pension of up to £5,000. The existing policy is not to allow additional pension as the full cost would fall on the employer. It is proposed that no change should be made to this policy.
· Voluntary Shared Cost APC
An employee may make a one-off contribution or regular additions contributions in order to buy a set amount of additional pension. The cost is determined having regard to the employee's age and amount of additional pension purchased. It is possible for an employer to contribute to the cost of additional pension on a voluntary basis. The Council makes a significant contribution to employee pensions within the standard scheme and it would be difficult to justify making voluntary contributions on cost grounds. It is, therefore, proposed that no shared cost APC should be introduced.
· Voluntary Retirement pre 60
It is possible for employees to retire early and access an LGPS pension at any age on or after their 55th birthday. The pension is normally reduced on an actuarial basis depending on how long before Normal Pension Age (NPA) - the employee is retiring. From April 2014 NPA is related to the State Pension Age for an individual. In the 2008 scheme, employer's consent was required if a person was under the age of 60. Under the 2014 scheme, employer's consent is no longer required.
A number of employees are protected from actuarial reductions by the 85 year rule -where age and service in full years add up to 85. Since the requirement for employer's consent has been removed for retirement between age 55 and 60, protection from actuarial reduction under the 85 year no longer applies automatically in such cases.
The employer now has the discretion to 'switch on' the 85 year rule and allow protection from actuarial reduction to apply. In such cases the employer would be required to meet pension strain costs relating to the payment of pension benefits early. Consequently, it is recommended that at present the discretion to 'switch on' the 85 year rule is not applied.
· Flexible retirement
Provision for flexible retirement has been included within LGPS since 2006, and the Council has an existing policy in this respect. It is proposed that flexible retirement will continue to be a matter for determination by the Early Retirement/ Redundancy Committee on the merits of the individual case.
· Waiving Actuarial Reductions
An employer has the power to waive actuarial reduction of LGPS benefits. This is a discretion that has previously been available but generally waiving of actuarial reductions has only been permitted on compassionate grounds. In cases of flexible retirement the employer has been able to waive part or all of the actuarial reduction on any grounds.
From April 2014, the position has been changed allowing waiver on any grounds but is complicated by the classification of employees qualifying under the 85 year rule, where some parts of the pension may only be waived on compassionate grounds.
It is proposed that the waiving of actuarial reductions will follow the existing policy and only be allowed on compassionate grounds as a result of the express permission of the Early Retirement/ Redundancy Committee when considering the merits of the individual case.
7. In addition to the new policies referred to under the 2013 regulations, the opportunity may be taken to review existing discretions. Aside from those already impacted on by the proposals outlined above the existing discretion for Leave of Absence without Pay is recommended for deletion as it is no longer applicable under the new regulations. It is not envisaged that any further changes are required at present.
8. The current discretions and proposed recommendations for change are set out at Appendix A. As the policy must be communicated to Cardiff Council as the pension administering authority within 3 months of its adoption (1st April 2014) it is proposed that Article 13.09 of the Constitution (Urgent Decision Procedure) be applied. The Chairman of Corporate Resources Scrutiny Committee has been consulted and is in agreement with this proposal.
Resource Implications (Financial and Employment)
9. In formulating and reviewing its polices the Authority must have regard to the extent to which the exercise of their discretionary powers unless properly limited could lead to serious loss of confidence in the public service and must be satisfied that the policy is workable, affordable and reasonable having regard to foreseeable costs.
Sustainability and Climate Change Implications
10. There are no climate change implications. The policy needs to be sustainable having regard to foreseeable costs.
Legal Implications (to Include Human Rights Implications)
11. This report and the subsequent recommendations comply with the requirements of the LGPS. The policies do not confer contractual rights and the employer reserves the right to change policy at any time.
Crime and Disorder Implications
Equal Opportunities Implications (to include Welsh Language issues)
13. The review takes account of equalities issues.
14. The review will assist the Council in developing and managing its workforce to enable it to deliver and maintain Council services to the highest possible standard.
Policy Framework and Budget
15. The report is a matter for executive decision by Cabinet.
Consultation (including Ward Member Consultation)
16. Consultation has been undertaken with the recognised Trades Unions. The Chairman of Corporate Resources Scrutiny Committee has been consulted and has given his agreement to the use of Article 13.09 (Urgent Decision Procedure).
Relevant Scrutiny Committee
17. Corporate Resources
Understanding Employer Discretions and Policies - Local Government Association
Alan Jenkins - Head of Finance
Head of Human Resources
Operational Manager Human Resources
Alan Jenkins - Head of Finance