Addressees attached

TBJ Crossley	ANNEX 2
Head of Local Government Pensions Division
2/G9
Ashdown House
123 Victoria Street
LONDON
SW1E 6DE

Direct line: 0207 944 5971 
Fax: 0207 944 6019
GTN: 3533

Web site: www.odpm.gov.uk
E-mail responses: paul.kirk@odpm.gov.uk

Our Ref: LGR 102/12/4

7 November 2003

Local Government Pension Scheme
Phase 2 Policy Proposals Discussion Paper

1.	With the agreement of Ministers, I enclose for your comments a policy discussion paper.  It sets out proposals that will form the basis of future amendments to the Local Government Pension Scheme (LGPS) in England and Wales to take effect from 1 April 2005.  The proposals were foreshadowed in the Department’s letter of 23 July which set out an initial two phase Strategy to amend the existing Scheme prior to any further decisions about the longer term.

2.	Several of the propositions in the discussion paper need to be introduced to the LGPS to reflect Government policy.  A key task of this exercise is to seek views on the best ways to implement the required changes and how to ensure that transitional arrangements are fair and balanced in relation to existing Scheme members’ accrued rights.  Consultees will need to have regard to emerging policy and legislative/regulatory proposals from the Department of Work and Pensions and the Inland Revenue during the period of consultation for this document.

Background
3.	The Strategy proposals’ announcement included a two phase programme of regulatory amendments.  The steps to implement the first phase were announced on 30 September 2003.  As a prelude to the second element of that programme, this policy discussion paper is timetabled to provide all LGPS interested parties with a clear picture of the principal changes currently envisaged for the Scheme, to take regulatory effect from April 2005.  The necessary statutory consultation exercise to achieve that date is presently earmarked to begin in Spring 2004.

Policy Discussion Paper
4.	The policy discussion paper now enclosed is intended to take forward a series of amendments to the existing LGPS regulatory framework which collectively reflect the following:-

•	recent pension policy changes to apply to all occupational pension schemes as set out in the White Paper, Simplicity, security and choice:  Working and Saving for retirement – Action on occupational pensions (cm 5835);

•	Inland Revenue proposals for change as trailed in that Department’s consultation paper,  Simplifying the taxation of pensions: increasing choice and flexibility for all, published in December  2002; and

•	several propositions which have emerged from responses to previous discussion papers circulated as part of the current Stocktake of the LGPS.

5.	
This exercise is not a statutory consultation; rather, the views of LGPS stakeholders are being sought on several important proposed changes to the current Scheme’s regulatory framework.  Responses to the exercise will be carefully considered in preparing of draft amending regulations which will implement the second phase of the strategy.

6.	In taking the Scheme forward the Department is conscious of the need to connect a number of different strands, internal and external, which are not all moving at the same pace.  A positive and effective timetabling of changes is integral both to the issues to be taken into account by authorities as part of the 31 March 2004 valuation exercise, and to inform key decisions facing Ministers about the future evolution of the Scheme.

Responses
7.	Responses to this letter, and any initial queries, should be directed to Paul Kirk, Local Government Pensions Division, ODPM, Zone 2/F8, Ashdown House, 123 Victoria Street, London, SW1E 6DE (telephone: 020 7944 6014) no later please than 12 January 2004.  Electronic responses can be sent to the e-mail address given above.

T B J CROSSLEY 

The Chief Executive of:
County Councils (England)
District Councils (England)
County and County Borough Councils in Wales
London Borough Councils
South Yorkshire Pensions Authority
Tameside Metropolitan Borough Council
Wirral Metropolitan Borough Council
Bradford Metropolitan City Council
South Tyneside Metropolitan Borough Council 
Wolverhampton City Council
London Pensions Fund Authority
Environment Agency

Town Clerk, City of London Corporation
Clerk, South Yorkshire PTA
Clerk, West Midlands PTA 

The Secretaries of:		
Local Government Association
 	LGPC
SOCPO
SOLACE
ALACE
CIPFA
New Towns Pension Fund

Trades Union Congress
UNISON
TGWU
GMB
Audit Commission
ACA
UCEA

Other Government Departments:
		GAD
		DOE (NI)
		SPPA

Local Government Pension Scheme
Phase 2 Policy Proposals Discussion Paper

Background
1.	The Department’s letter of 23 July promised a policy discussion paper would be circulated to LGPS interests for their comments as part of the implementation of Phase 2 of the Strategy announcement.  Comments received on this paper will be carefully considered and, subject to Ministers’ Agreement, be translated into draft amending regulations for statutory consultation in early 2004 and take effect, in part, from 1 April 2005.  Certain provisions will come into effect on 6 April 2005 to be commensurate with changes to overriding legislation.

Policy Context
2.	It is simply not the case that the LGPS can remain as it is.  The influence for change which has emerged from the current Stocktake exercise, the Government’s proposals announced in the recent Pensions White Paper, the Inland Revenue’s consultation paper and the ever-changing social and political context of pensions, in both the public and private sectors, makes some change in the LGPS inevitable. 

3.	If the LGPS is to retain its status as a funded, final salary public service pension scheme it must –
•	be able, through all its stakeholders, to positively adapt to ongoing changes in local government and its broader workforce framework;
•	respond constructively to emerging pension and related policy developments;
•	remain fully focused on the advantages and responsibilities arising from its statutory basis; and essentially
•	remain both affordable and sustainable taking account of all its stakeholders: Scheme members, employers and tax payers.

Strategy
4.	In July, Ministers announced a phased programme of wide-ranging policy-based, regulatory amendments to the current LGPS framework.

5.	Phase 1 involves taking forward a number of regulatory amendments to the current Scheme regulations.  A statutory consultation exercise on those changes began on 30 September 2003.  Subject to a consideration of the responses to that package and Ministers’ agreement, the amendments will come into effect on 1 April 2004.  It is Ministers’ intention also, as part of the current consultation package to introduce a Funding Strategy Statement requirement in the Scheme with effect from 1 April 2004 and for the Statement be in place and fully operational by 31 March 2005.

6.	Phase 2 of the programme, of which this paper is an integral part, will not only progress the elements of Phase 1 but will, more significantly, reflect in the LGPS the policy changes required for occupational pension schemes generally. These changes are set out in the Government’s White Paper, Simplicity, security and choice: Working and saving for retirement – Action on occupational pensions (Cm 5835) and foreshadowed also in the Inland Revenue’s consultation paper, Simplifying the taxation of pensions: increasing choice and flexibility for all.  In addition, this paper includes a number of changes to the LGPS framework which stem from representations made to the Department as contributions to the current Stocktake exercise. 

Longer Term Perspective
7.	The inevitability of change within the current LGPS statutory framework has been mentioned above.  There is a parallel inevitability about the whole pension context in both the public and private sectors and particularly for occupational pension schemes.

8.	The Strategy announcement of July last is a key step to update the existing LGPS framework so that, with effect from 2005, several key steps will have been taken to ensure that Ministers’ intentions for the current Scheme are achieved. 

9.	Ministers, given their stewardship responsibilities, have frequently stated their wish to see the LGPS remain a funded, final salary, public service pension scheme.  However, to achieve this, the LGPS must be regulated on the basis of fairness and affordability, and be proportionate in terms of the balance between the benefits which are provided for its members and the costs which are incurred by its providers.

10.	The Strategy implementation phases have been designed to ensure that the LGPS will be compliant with recently announced Government policy for occupational pension schemes and strive towards that balance.  At the same time, the Strategy provides a regulatory platform to take forward the longer term development of the Scheme towards the latter stages of the current decade.

11.	In 2004, on the completion of the Stocktake’s second stage, Ministers will be well placed to consider how best to bring together all the findings of that exercise.  A consultation package later in that year is planned to discuss the Scheme’s future, against the background of the Government’s White Paper proposals to allow schemes the freedom to amend members’ accrued rights, provided that the actuarial equivalent value of those rights is maintained at the point of change.  The significance of these proposals is that one opinion might see LGPS accrued rights transferred to an actuarially equivalent new scheme, from a future date.  

12.	Subject to Ministers’ wishes, proposals might then be developed, in conjunction with all stakeholders, to provide a new single regime designed to meet the needs of both the current and future local government workforce.  Such an approach could facilitate significant simplification of the current Scheme and, at the same time, provide a single benefit regime, free of historical complexity and multiple tiers of complex date-dependent rights.

Proposals for Change to the Current LGPS Framework
13.	This discussion paper sets out those changes to the current Scheme which are intended to be included in the second phase amendment package, designed to come into effect, for the most part, in 2005.  

14.	The changes currently envisaged include:-
•	the removal of the ‘85 year rule’ provisions for all new Scheme members;
•	propositions for the equitable phasing out of the ‘85 year rule’ for existing members;
•	increasing the earliest age at which LGPS benefits may be paid, other than on the grounds of ill-health, from 50 to 55;
•	the introduction of flexible retirement and incentivisation methods to encourage Scheme members to remain in employment;
•	to further streamline LGPS IDRP provisions in line with the amendments likely to emerge from a forthcoming Pensions Bill;
•	further simplification changes to the Scheme’s regulatory framework; and
•	a thorough assessment of the merits and demerits of options to increase the present level of employee contributions from pay to the Scheme.

15.	The above list sets out the principal areas of potential change which Ministers, in their 23 July announcement, saw as appropriate and which, subject to the outcome of this exercise and subsequent statutory consultation processes next Spring, would take effect within the current LGPS framework from April 2005.  Paragraphs 51-59 outline some other issues on which the views of consultees are also invited.

16.	Each area of change is discussed below against the background, where appropriate, of Government policy and within a LGPS context of change.  All references are to regulations in the extant Scheme regulations – the Local Government Pension Scheme Regulations 1997 as amended.   Consultees are invited to comment on the questions raised and on the overall thrust of the package of measures which, collectively, are aimed at introducing several immediate, beneficial and cost effective changes to the Scheme, as well as providing a stronger basis for any future, longer term reforms.

Removal of the ’85 year rule’ for new members
17.	Chapter 4 of the White Paper, Simplicity, security and choice; Working and saving for retirement: Action on occupational pensions (Cm 5835), sets out the Government’s intention to raise the normal pension age in public service pension schemes to 65.  The Government indicated its intention to proceed with this proposal through reviews of public service pension schemes and in consultation with employers and employer representatives.  The White Paper also indicated that by no later than 2006, all new staff in public sector pension schemes will join on the new conditions.  

18.	At present the LGPS already has a normal retirement age of 65 for members who joined the Scheme after 31 March 1998.  However, certain other members have a normal retirement date between age 60 and 65.  Further, regulation 31 provides that members can retire before attaining age 65 with unreduced benefits provided that their age and length of membership satisfy what is commonly known as the “85 year rule”.

19.	Therefore, to align the LGPS with the Government’s policy proposals, amendments to the current regulations are required.  These could be drafted to provide that no person who, in any relevant employment, becomes an active member of the Scheme after the date of the amendment will be entitled to the payment of unreduced LGPS benefits in relation to that period of membership before age 65.  Where benefits are paid early due to retirement on grounds of ill-health or, subject to consultation, redundancy, they will continue to be paid on an unreduced basis.

20.	The Government’s proposals require amendments to public service schemes, such as the LGPS, to apply to all new staff by no later than 2006.  However, given the views of several LGPS stakeholders – including the Employers’ Organisation for Local Government in its response to the Retirement Benefit Package Options Discussion Paper (published by the Department on 9 September 2002) – it is currently proposed to introduce this change with effect from 6 April 2005.

Phasing of the ‘85 year rule’ for existing members
21.	The effect of the Government’s proposals, as described above, is that future public service pension benefits will not be paid before age 65, unless actuarially reduced, other than to those whose employment ceases on grounds of ill-health or, subject to the consideration of responses to this paper, redundancy.  The Government has, however, indicated that all pension rights, accrued from past service, will be fully protected. 

22.	The majority of respondents to the Department’s October 2002 Retirement Benefit Package Options Discussion Paper indicated support for the Government’s proposal to increase the retirement age of public service pension schemes to 65 with no unreduced benefits normally payable before that age.  Further, a number of respondees, including the Employers’ Organisation for Local Government, requested that regulatory changes to give effect to this are implemented as soon as practicable.

23.	This discussion paper, therefore, seeks consultees’ views on the best means to implement the necessary changes and, in particular, how the higher pension age should apply to the future service of existing staff, and how to ensure that any transitional arrangements are equitable.

24.	The Department presently envisages amendments, to be introduced with effect from 1 April 2005, to provide that any benefits arising from membership after that date would be actuarially reduced, if paid before age 65.  One possible approach could be to introduce a provision to pay LGPS benefits at the age at which the member would currently satisfy the rule of 85.  Where such benefits are brought into payment, those arising from membership prior to 6 April 2005 would be paid unreduced, but benefits arising from membership after that date would be actuarially reduced to reflect the fact that they are being brought into payment before age 65. 

25.	For example: a member has 20 years membership at the date the amendments come into effect and attains age 50 on 31 March 2005.  He continues to accrue post 6 April 2005 membership for a further 10 years, until he attains age 60 on 31 March 2015.  As he would have met the requirements of the rule of 85 on 31 March 2015 his benefits could be paid at that age if he so elects.  Of his 30 years membership of the Scheme 20 years were accrued before 6 April 2005 and a further 10 years accrued after that date.  Accordingly his LGPS pension would be calculated on the basis on 20/80ths of his final pay + 10/80ths of his final pay reduced by the amount shown in guidance issued by the Government Actuary.  The reduction applied to the 10/80ths reflects the fact that the benefits arising from the 10 years accrued after 6 April 2005 are being paid 5 years before the member attains age 65.  

26.	Further, consideration could be given to enabling a member to elect for the early payment of pre 1 April 2005 benefits at the age they would currently satisfy the rule of 85.  Benefits arising from membership after 6 April 2005 could be, at the same time, deferred until the member attains age 65.

27.	Interested parties may wish to comment on such and approach and/or to suggest alternative means of introducing the necessary Scheme changes.

Increasing the earliest age at which LGPS benefits may be paid, other than on the grounds of ill-health, from 50 to 55
28.	Chapter 5 of the Inland Revenue’s consultation paper ‘Simplifying the taxation of pensions: increasing choice and flexibility for all’ indicated that, as part of the reform of tax rules for pensions, the Government intends to increase the minimum age at which tax privileged pension benefits can be drawn – the minimum benefit age – from 50 to 55 in 2010.  It stated that there is a good case for leaving it up to each pension scheme to make its own choices about how any necessary adjustments to its rules are to be made.   It also stated that, alternatively, the tax rules could prescribe a phased rise in the minimum benefit age from implementation to 2010.  The White Paper reiterated that the Government will increase the earliest age from which a pension may be taken from age 50 to age 55 by 2010.

29.	Regulation 31 of the LGPS regulations currently provides that a member may elect to receive benefits from age 50, albeit that an election is ineffectual without the employer’s consent if he elects before attaining age 60.  Further, regulation 26 provides that where a member, who is aged 50 or more, retires from a local government employment, and his employing authority certify that the reason for his retirement was his redundancy, LGPS benefits are payable immediately.

30.	Amendments are, therefore, required to increase the earliest age at which LGPS benefits can be paid, other than on grounds of ill-health, from age 50 to 55.  Whilst the Government has indicated that Schemes will be required to comply with these changes by 2010, a number of respondees to the Department’s October 2002 Retirement Benefit Package Options discussion paper, including the Employers’ Organisation for Local Government, indicated that they consider the changes should be implemented in the LGPS at the earliest opportunity.

31.	The Department believes that an amendment along these lines, to come into effect on 1 April 2005, would be beneficial to the Scheme and its stakeholders.

Flexible retirement and incentivisation methods to assist retain Scheme members in employment
32.	In the Pensions White Paper the Government confirmed its intention to take forward proposals to extend the choice to scheme members about how and when they retire.  Although the proposals primarily enable people to ease the transition from work to retirement, they also allow people the choice to continue in work for as long as they are capable and willing to do so.  Inland Revenue will shortly publish their plans and will include proposals to offer employees who would like to carry on working for the same employer the opportunity to do so, while drawing on their occupational pension.

33.	A twin track approach is currently proposed.  Firstly, age discrimination legislation will be introduced by 2006 to prevent discrimination on age grounds, although its precise scope and content is subject to current consultation (the Department of Trade and Industry, Equality and Diversity: Age Matters, July 2003).  In the meantime, the Government intends to promote further business benefits of age-positive employment practices to employers.  Further flexibility will be achieved by relaxing current tax law to allow employees to continue in work whilst drawing on their occupational pension scheme.  Again, the scope and content of the specific proposal will be available when the Inland Revenue’s paper is published later in the year.  Consultees are asked to consider them carefully.

34.	In general terms, the ultimate changes regarding flexible retirement will also impact significantly on the LGPS Ill-Health Retirement Review which, from the outset, established as one of its major aims, the facility for employers to retain a healthy workforce and, wherever possible, to explore other alternatives to ill-health retirement.  The proposals on flexible retirement will give employers this increased choice and a more effective range of tools to help retain their workforce in suitable employments.

35.	Currently Regulation 20(4A) provides that when a member’s LGPS benefits become payable where he has remained in employment after his 65th birthday, those benefits are actuarially increased for each day payment was deferred by.  At present, where a member attains age 65 he can no longer continue to count additional membership (exceptions are currently made for specific persons).  It seems appropriate to allow members to continue to contribute to the Scheme at any age.  Where a member remains in employment past age 65, consideration could to be given to the introduction of an appropriate improved accrual rate and it is believed that the forthcoming age discrimination legislation will allow for such an approach.

36.	It is envisaged that the introduction of flexible retirement provisions in the LGPS will provide for employer discretions to assist in the on-going management of staff.  Advantages are seen in the introduction of provisions for LGPS employers to allow members aged 55 or over to draw some or all of their accrued pension benefits whilst remaining in full or part time employment.  The purpose of such an amendment would be to allow members to take a gradual approach to retirement where such an approach will support the business needs of the relevant employer, rather than all interests having to cope with the current ‘cliff edge’ experience.  It should be possible to provide Scheme members with appropriate financial support to enable them to reduce their hours, or to transfer to a less onerous employment.  The regulations could provide that such payments may only be made where there is a reduction in the hours and/or pay or, alternatively, such matters could be left for each employer to determine locally in a policy statement specifically provided for such events.  Subject to the precise provisions of Inland Revenue’s forthcoming proposals, members will be able to rejoin the LGPS in their new employment and will therefore accrue further pension benefits.  Scheme employers could be required to formulate a policy as to how they will exercise this function and, subject to that, members would be able to make a request to their employer.

37.	Views are invited, therefore, on the potential new options as follows:-
•	Members who have attained age 65 and remain in relevant employment could be allowed to continue to accrue LGPS membership at an enhanced rate regardless of their total membership; or
•	Such members’ LGPS benefits may be put into payment at age 65 and if they remain in relevant employment they may rejoin the Scheme and accrue further LGPS pension rights.
•	Members who have attained age 55 and meet any qualifying requirements (e.g. reduction in pay or hours / local policy statement criteria) may elect for payment of accrued LGPS benefits.  Dependent upon Inland Revenue amendments to the tax regime, this could allow payment of LGPS retirement and pension or just payment of the retirement grant.   Where benefits are brought into payment early under such provisions they would be actuarially reduced to reflect this fact; and 
•	Such members would be allowed to continue in relevant employment with the Scheme Employer whilst drawing their accrued LGPS benefits and may also be allowed to rejoin the Scheme and accrue further membership.

Further streamline the phase one amendments to the LGPS IDRP provisions inline with the amendments to be made under the forthcoming Pensions Bill
38.	In its White Paper, the Government announced plans to rationalise the rules governing the way occupational schemes communicate with members; to streamline the procedure for dealing with disputes between trustees, managers and scheme members or beneficiaries, and to clarify the existing jurisdiction of the Pensions Ombudsman so that cases of maladministration by an occupational or personal pension scheme fall clearly within his remit.  It is possible that simplified arrangements for IDRP will feature in a forthcoming Pensions Bill with the expectation that new arrangements could come into force in 2005, or 2006.

39.	Since they were introduced in April 1997, the Internal Dispute Resolution Procedure (IDRP) provisions of the Scheme have been reviewed several times.  In 2002, the Department embarked on a series of consultation papers on different aspects of these arrangements but, following the publication of Alan Pickering’s report “A Simpler Way to Better Pensions – An Independent Report” published in July 2002, the decision was taken to suspend action until after the Government had reached a conclusion on the recommendation to simplify the present arrangements.

40.	In the meantime, and in light of the responses to the Department’s own internal review in 2002, it is intended that amending regulations should come into force early in 2004 to streamline the present LGPS arrangements within the confines already laid down by the Pensions Act 1995.  On this basis, there is no option other than to retain the existing two stage process in the short-term but there is nothing in the primary or secondary legislation that would prevent local government becoming responsible for both stages.  This would place the LGPS in the position already intended by the Pensions Act 1995 with the consideration and determination of both Stage 1 and 2 cases being the responsibility of the sponsoring body itself, with no external referral.  The transfer of Stage 2 from the Department to local government would also ease the transition to the simplified, single stage process envisaged by the Government’ Pensions Green Paper.

41.	Detailed proposals for amendments in 2005 will need to be developed to ensure the LGPS is aligned with legislative changes in the forthcoming Pensions Bill.  In the meantime, consultees may wish to comment on the matters raised above.

Simplification changes to the Scheme’s provisions
42.	The Secretary of State for Work and Pensions, Andrew Smith, announced on 11 June that, in response to representations from the pensions industry, the Government will implement a new simplified regime for taxing pensions from April 2005.  The detail of the new regime will be announced later this year.  The Inland Revenue indicated in their consultation paper that all pension schemes can look ahead to the prospect of a common set of taxation rules for all members in the future.  The Government intends that the new regime will be legislated in 2004, but will carry an effective date for all the changes of 6 April 2005. 

43.	The proposals to simplify the tax regime are generally well known to interested parties.  The Department will incorporate amendments to the LGPS regulatory framework to reflect the new rules as soon as possible.  Draft amending regulations, to be issued in Spring 2004, will identify the necessary changes well in advance of them coming into effect in 2005.  It is envisaged that the amendments will provide further significant simplifications in the regulatory framework and will enable the majority of members to contribute more freely, on a voluntary basis, to provide additional pension benefits and for providers to use simpler regulations. 

Employees’ Contribution Rate
44.	Currently in the LGPS, the employee contribution rate is 6% of pensionable pay, although certain Scheme members pay 5% because of transitional arrangements for manual workers who were members of the Scheme prior to 1997.

45.	
As part of the inexorable increase over the past decade, and more, in pension scheme costs, the Employers’ Organisation, individual local authority LGPS employers and professional bodies have identified a case for employees to pay more for their pension benefits and so contribute more towards the costs of their provision.  Key drivers in this argument are the recent decline in the value of equities and revised actuarial assumptions for improved longevity, as well as increasingly adverse press coverage when comparisons are made with recent experiences in private sector occupational schemes.

46.	Historical analysis by an independent actuarial practice, specialising in the LGPS, has shown that although most members now contribute at 6% of pay, their share of the cost has fallen to around 30%.  They comment that contributions would have to rise to between 7% and 8% of pay to give the same share of the cost as achieved in 1926.  Actuarial estimates submitted during the Stocktake process indicate that the average employer contribution for future LGPS provision is some 12% and the 2001 actuarial valuation exercise produced an average figure of 13% in England and Wales.  

47.	In response to numerous discussions and seminars with interested parties and comments made on the October 2002 Stocktake discussion paper on retirement benefit package options for the future, a range of possible scenarios have been put to the Department.  The range also allows for several permutations – in brief, they are:
•	increase the employee contribution rate for new Scheme members only by 1% of pensionable pay to reflect particularly the increased longevity of this new group of members;
•	increase the employee contribution rate for all Scheme members by an additional 1% of pensionable pay to reflect the increased longevity of members and the past service costs;
•	increase the employee contribution rate for all members by 2% to restore the balance of costs, based upon a 40:60 balance between employee and employer, that was extant when the Scheme commenced and to meet other cost-inducing factors normally met by employers;
•	amend the benefits package to restore the balance of costs between employees and employers or, in changing it by means of specific improvements, to add in much sought after items, for example, pensions for partners or improved death in service terms; and
•	introduce a more flexible and salary linked contribution tariff so that, for example, full time employees earning a prescribed salary, or above, would pay 6% plus a further amount.  Proposals in the Stocktake exercise have involved lower contributions for lower benefits.

48.	There are other aspects to consider at a more local level in taking into account aspects of equity, affordability and fairness.  Is there, for example, scope for a more localised approach to pension cost provision with employers in the local authority sector having powers to vary employee contributions, within a tariff framework, given prescribed circumstances?

49.	In these options, and others, there are merits and demerits.  Consultees are asked to carefully consider each of the options, as well as the principle of such a step to be set against other policies, already endorsed by the Government, the Employers’ Organisation for Local Government and the TUC, to maximise Scheme take-up as part of an emerging policy to develop the attractiveness of the Scheme, especially among new employees but also to improve membership levels generally.

50.	Consultees, in preparing their responses, will no doubt wish to consider carefully the current context surrounding pension provision in the public sector and to take account of the concerns being expressed, in some quarters, about employers’ present and future affordability of pension provision.  It is important, therefore, when weighing up issues of affordability and potential cost transference in the balance of each schemes’ provision, to itemise the specific employer and other costs of each public service pension scheme in order to identify the real impact each has on employers and then tax payers.

Partners Benefits
51.	Currently the LGPS provides survivor benefits on the death of a scheme member to a married spouse and dependant children.  Government policy on extending the range of qualifying survivors to include unmarried partners is that such benefits may be provided if the general membership want them and are prepared to meet the additional costs (set out in Cm 4179 A new contract for welfare: Partnership in Pensions, dated December 1998).

52.	The Department considered proposals to provide partners’ pensions in the LGPS which were submitted jointly by the Employers’ Organisation and the Trade Unions in 2001/2.  The Department invited the parties to develop the proposals in a way that would better fit Government policy that the additional costs should be borne by the membership, and take them forward in the Stocktake Review.  The issue has been initially addressed in the Retirement Benefit Package Options Discussion Paper.

53.	Separately, the Government has recently consulted on proposals to create a new legal status of civil registered partner for same sex partners who register under a new scheme, giving them specific rights and responsibilities (“Civil Partnership: A framework for the legal recognition of same-sex couples” published by the Department of Trade and Industry, dated 30 June 2003). One of the rights proposed on the death of a registered partner would be the right to claim survivor benefits, including a pension, in the same way as married partners.  Any resultant over-riding national legislation would need to be reflected in the LGPS.  These proposals do not extend to opposite sex unmarried partners, for whom the option of marriage and therefore to have their relationship acknowledged by law is available, and to whom existing Government policy, as outlined above, continues to apply.

Redundancy
54.	The Employers’ Organisation for Local Government have made representations to the Department that, alongside changes to the minimum benefit and normal retirement ages within the LGPS, consideration be given to amending the redundancy provisions of the Scheme.  They have requested that consideration be now given to provide that no automatic payment of unreduced LGPS benefits arises where a member who has attained age 55 retires from employment on redundancy grounds.  Rather, they consider that benefits payable on redundancy grounds prior to age 65 should be payable at the employee’s choice and subject to actuarial reduction, with the option for the employer to waive or reduce the actuarial reduction.  Amendments could require that the cost of waiving any reduction would be met by a capital payment to the fund by the relevant employer.  

55.	Regulation 26 currently provides that where a member who is aged 50, or more, retires from a local government employment and his employing authority certify that the reason for his retirement was his redundancy, unreduced LGPS benefits are payable immediately.  Government policy is that future public service pension benefits should not normally become payable before age 65, unless they are actuarially reduced.

56.	Consultees are invited to comment on the proposition that the Scheme should now be amended to provide that LGPS benefits arising from future membership of the Scheme will not be automatically paid unreduced where employment ceases on grounds of redundancy and prior to the member attaining age 65, unless the relevant employer determines that the reduction be waived.

57.	Consultees may also wish to consider whether a locally determined approach to policy on the waiving of actuarial reductions is preferred.  The regulations could, for example, introduce a requirement for each employer to produce a policy statement concerning their exercise of any discretion to waive an actuarial reduction where benefits become payable on redundancy grounds.  Alternatively, guidelines could be produced, either by the Department or other authoritative body, which employers would be required to have regard to in considering whether to waive an actuarial reduction.

58.	In this context views are also invited on the scope of any desired changes to the Local Government (Early Termination of Employment)(Discretionary Compensation) Regulations 2000.

Discretionary Payments
59.	The scope of the Stocktake exercise did not include any specific examination of the provisions contained in the Local Government (Early Termination of Employment) (Discretionary Compensation) Regulations 2000.  In due course it will be necessary to ensure that any changes to the LGPS which impact on these provisions are taken into account.  A number of issues discussed above and other external influences now highlight the need for interested parties to comment further, as necessary, on any desired changes to the 1996 Regulations.  Interested parties views would be welcomed.

Local Government Pensions Division
Office of the Deputy Prime Minister

November 2003