ITEM PF14 PENSION FUND COMMITTEE – 25 MAY 2007 THE LOCAL GOVERNMENT PENSION SCHEME (BENEFITS, MEMBERSHIP AND CONTRIBUTIONS) REGULATIONS 2007 Report by the Head of Finance & Procurement Introduction 1. The Office of Communities and Local Government (CLG) issued the Benefits, Membership and Contribution Regulations on 4 April 2007, following the receipt of the consultation responses on 28 February 2007. 2. These regulations, confirming the retention of the final salary scheme for the new look Local Government Pension Scheme (LGPS), are part one of the three part regulations due. Parts two and three will deal with administration issues and transitional arrangements. 3. A report to this Committee in February 2007 set out the key issues as detailed in the draft regulations (shown at Annex) (download as .doc file) and this report details the changes to the actual regulations following the consultation responses. Regulatory Changes 4. The issued regulations are, mainly, the same as the consultation proposals, with the following exceptions: (a) References and provisions arising from reference to the 1986 and 1995 regulations have been removed. (b) Staff with contracts of less than 3 months will no longer be eligible for scheme membership. (c) Seven employee contribution bands replace the two included in the draft regulations. The actual band will be determined by the value of the pensionable pay in the previous financial year (although we have been advised this will be amended to whole time annual pensionable pay). The contribution rates range from 5.5%, for those with pensionable pay under £12,000 to 7.5% for those with pensionable pay in excess of £75,000. There are different arrangements for part time staff. Staff currently paying the rate of 5% will have their contributions increased on a phased basis after the 2010 actuarial valuation. (d) Leavers for reasons of redundancy or efficiency will be entitled to payment of immediate pension without reduction at age 55, although there will be protections for some current scheme members to age 50. (e) Ill Health provisions have been altered so that scheme members who are totally incapacitated will receive a service enhancement to their normal retirement date, and those with a lower level of incapacity will receive 25% of the service enhancement to their normal retirement date. (f) Although not included in the Regulations to date, we are informed the CLG intends to give scheme employers appropriate powers to pay a benefit for an interim period in instances where scheme members have been assessed as permanently incapable of carrying out their current job but medical assessment has indicated that alternative gainful employment could be obtained within a reasonable period of leaving. These payments would be subject to review because they could not continue if alternative employment is found. Costs will be charged directly to employer’s revenue accounts – not the pension fund. (g) Death grants for deferred members will be five times pension. (h) Death grants for pensioners will be ten times pension less pension already paid. Cost of These Proposals 5. The benchmark cost of these proposals is showing an average employee cost of 6.3%. It is also stating that the employer’s benchmark costings have been marginally reduced (by 0.1%) because of the changes to the ill-health provisions. This is based on general information provided by CLG and is not specific to the Oxfordshire Fund. Next Steps 6. Communities and Local Government have said that the Administration Regulations will be issued by end May 2007. 7. Transitional regulations are unlikely to be issued soon, but CLG are writing to Administering Authorities shortly to give guidance on the way forward. Administration Issues 8. With the administration regulations not due until the end of May 2007 and further information still needed about the transitional arrangements, we can, at this stage, only make provisional plans for the introduction of the new scheme. No timescales can be attached and it is not clear whether this will clash with the work needed for the triennial valuation therefore further stretching our resources. 9. Work to be undertaken includes: (a) Review all administration processes, design and implement new forms; (b) Implement new software; (c) Inform all scheme employers of changes, new administration processes, arrange for employers to update their policies as necessary; (d) Inform all scheme members of changes and what it means for them; (e) Run employee / employer workshops; (f) Seek Committee decisions where their discretionary decisions are impacted. 10. Generally it seems that administration processes will become more complex. Examples of this are: (a) That current scheme members will retain their benefits based on a 1/80 accrual, therefore from 1 April 2008 we will be required to carry out two benefit calculations; (b) The collection and reconciliation of members’ contributions will be less straightforward and more time consuming. Whilst this is an employer responsibility it falls to the administrators of the scheme to reconcile these and query variations; (c) Additional administrative processes to be implemented to record information for cohabitees. RECOMMENDATION 11. The Committee is RECOMMENDED to note the report. SUE SCANE Background
Papers: Contact Officer: Sally Fox, Pensions Services Manager, Tel: 01865 797111 May 2007
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