Meeting documents

Pension Fund Committee
Friday, 27 May 2005

PF270505-10

Division(s): N/A

Report by the Director for Resources

Introduction

On 1 April 2005, the Office of the Deputy Prime Minister (ODPM) issued draft Regulations for the Local Government Pension Scheme (LGPS), inviting comment by 31 May 2005. The effect of the new Regulations is to revoke the Regulations previously agreed, which came into effect on 1 April 2005. Those initial Regulations had the effect of raising the earliest age at which a pension was payable from 50 to 55 (except in the case of ill-health), and removing the so called 85 year rule, which allowed individuals to receive an unreduced pension if they retired before 65, and their service plus age equalled or exceeded 85, and, in the case of officers below the age of 60, they had their employer’s consent.

The ODPM letter followed a series of meetings between the Deputy Prime Minister and representatives of the local authority employers and trade unions. These meetings culminated in the Deputy Prime Minister announcing his intention to revoke the initial Regulations subject to statutory consultation, and the unions calling off strike action planned in response to the initial Regulations.

The Executive and the Pension Fund Committee (responsible for the Council’s pensions functions as the Employing Authority and the Administering Authority respectively), are invited to agree a response to this latest consultation, based on the draft contained at Annex 1 to this report.

Background and Proposed Response

The ODPM initially discussed the proposals to raise the earliest age for retirement and withdraw the 85 year rule in a discussion paper issued on 7 November 2003. This paper was debated by the Pension Fund Committee at its meeting on 21 November 2003. The Committee determined to respond to the ODPM supporting the proposals as presented in the discussion paper.

The ODPM subsequently issued draft Regulations based on the responses to the discussion paper, and these were subject to statutory consultation during the Spring of 2004. Some of the issues from the initial discussion paper were deferred and included in the subsequent Green Paper, but the proposals for the earliest retirement age and the 85 year rule were as initially proposed. The draft regulations were debated by the Pension Fund Committee at its May 2004 meeting. The Committee decided to offer no further comment to the ODPM. Final Regulations were laid before Parliament on 22 December 2004.

The ODPM’s main reasons for the implementation of the new Regulations were to simplify the Pension Scheme, reduce costs resulting from demographic changes and increased life expectancy, and switch the focus from retirement to staff retention. The proposals were in line with previous Government policy statements for all occupational pension schemes, and Inland Revenue proposals.

The Oxfordshire Pension Fund’s Actuary was able to take account the financial impact of the new Regulations in producing his 2004 Fund Valuation report. It is his estimate that the introduction of the Regulations has reduced the cost to the Pension Fund to the value of 1.8% of pensionable pay per year. For the County Council, this reduced the on-going budget pressure stemming from the pension liabilities by £1.8m per year.

It is the officers’ view that the LGPS is neither sustainable nor affordable in its present form, and a number of changes are necessary. The changes in the initial Regulations have been debated and supported, as have a number of further proposals included in the Green Paper. It is very difficult to envisage a future LGPS without the changes introduced by the initial Regulations, and there is no clear benefit in deferring the changes at a cost of £1.8m a year.

The ODPM’s latest consultation letter, which seeks views on revoking the initial Regulations, recognises that the revocation will have cost implications. The letter states that in the event of revocation, "New Regulations will need to ensure that the Local Government Pension is viable without the need for additional contributions from either the Government or the local authority employers." It makes no statement as to how this would be achieved.

It is difficult to comment on the merit of revoking the Regulations without knowing what the Government intend to do to finance the revocation. If there is to be no cost to either Government or employers, then the cost needs to fall to employees (which on our Actuary’s figures would suggest an increase in contribution from 6% to 7.8% of pay), or the costs of the scheme need to be reduced by a reduction in benefits, or there needs to be some combination of both. The ODPM have already made a number of suggestions in this area as part of the Green Paper. It is argued that given the need to ensure the long term affordability and sustainability of the LGPS, these changes are necessary in addition to those under the current Regulations, and cannot therefore act as a substitute for them if they are indeed to be withdrawn.

On the basis of the above, it is recommended that both the Executive and the Pension Fund Committee respond to the ODPM to oppose the introduction of the draft 2005 Regulations. A draft response is attached at Annex 1.

RECOMMENDATION

The Executive and the Committee are each RECOMMENDED to consider the suggested response set out in Annex 1 to the report, and subject to any amendments they may agree, authorise the submission of the response to the Office of the Deputy Prime Minister.

JOHN JACKSON
Director for Resources

Background Papers: Letter from ODPM dated 1 April 2005.

Contact Officers:
Sean Collins, Assistant Head of Finance. Tel: (01865) 815411
Sue Corrigan, County Human Resources Manager. Tel (01865) 810280