ITEM PF21
PENSION FUND COMMITTEE - 28 MAY 2008
REQUESTS TO BUY ADDITIONAL PENSION - MEDICAL REPORT
Report by the Assistant Chief Executive & Chief Finance Officer
Introduction
1. The Local Government Pension Scheme Benefits, Membership and Contributions) Regulations 2007 and the Local Government Pension Scheme ( Administration ) Regulations 2007 ( known as the Benefits and Administration regulations respectively) came into force 1 April 2008. The regulations give members of the scheme the opportuninty to pay additional regular contributions into the pension fund to buy extra pension benefit.
2. Oxfordshire County Council, as the administering authority, can decide whether it will need to have confirmation concerning the member’s general good health before accepting a request to buy additional pension.
3. This report considers these new arrangements and asks the Committee to decide whether to require members to provide a medical report before requesting to buy additional pension.
Additional Regular Contributions (ARCs)
4. The new regulations give scheme members the opportunity to buy additional pension in blocks of £250, up to a maximum of £5000. The member pays for the additional pension by regular contributions into the pension fund. The rate of the contributions is fixed by the Government’s Actuary Department (GAD) according to : - · The member’s age · The number of years s/he wants to pay the contributions, and · Whether the member wants to provide family benefits after their death.
5. Increasing the pension should be at the member’s own expense and not increase the pension fund liabilities. The new regulations do include a variety of measures to help reduce the cost to the fund such as:- · Regular review of the contribution rates by the GAD. New rates will be used from the April after any review even for current contracts. · Members can decide to increase pension only for themselves. · No effect to benefits where member decides to pay to increase their benefit only and dies in service. · Additional pension bought will not affect entitlement to any other benefit. · Additional pension bought will be reduced if members request their pension to be paid before age 65, even if contract is completed.
6. Where a member has to leave employment because of certified permanent ill health or dies in service when paying for additional family pension the contract arrangement will be deemed to be completed. This would place an additional cost on the pension fund.
7. Before agreeing to a member’s request to pay an ARC the administering authority could ask the member to produce a medical report and, if the member is not considered to be in reasonable good health, the request would be turned down. There is no requirement for the report to refer to a particular job, it is only that the member is in reasonably good health.
8. The member has to pay to obtain the medical report themselves.
Previous Arrangements
9. A medical report confirming a member’s general good health was requested before the Fund accepted a request to buy additional membership, under the old arrangements before April 2008. However the additional membership bought was automatically used to increase both the member’s pension and also that of any of his/her dependants.
10. If a member had to leave on permanent ill health or died in service the whole of the additional period being bought was granted to the member at no additional cost to them. For some people this additional membership could also have changed the ill health assessment. There was no review mechanism for the contributions already in operation.
Financial and Staff Implications
11. The potential to increase the liability to the fund rests in circumstances where members will contract to buy additional pension and then retire on the grounds of ill-health. Also, where the member buys additional pension not only for themselves but to increase family benefits, then either leaves on permanent ill health or dies in service. Although the numbers of ill health retirements for the Oxfordshire fund have been low, we do not have a background experience yet for ill health under the new three tier system. Any potential increase of liability for the fund is not a prudent move.
RECOMMENDATION
12. The Pension Fund Committee is RECOMMENDED to
(a) resolve that a member must provide a medical report before requesting to buy additional pension; and
(b) delegate responsibility to the Pension Services Manager to determine in light of the medical report whether to accept the request.
SUE SCANE Assistant Chief Executive & Chief Finance Officer
Background papers: Nil
Contact Officer: Jenny Wylie Tel: 01865 797116
May 2008
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