Meeting documents

Return to Agenda

ITEM CA8

CABINET – 17 OCTOBER 2006

REVISED POLICIES ON REDUNDANCY COMPENSATION AND RETIREMENT

Report by Director for Resources and the Director for Children, Young People & Families

Introduction

1. The Employment Equality (Age) Regulations 2006 came into effect on 1 October 2006. The detailed impact of these Regulations on redundancy and retirement are explored in the following report.
2. A review of the Council’s policies on retirement was last considered by the Informal Cabinet in September 2005. Following this the Teachers’ Premature Retirement Scheme was revised. However, no progress has been made in revising the Green Book retirement policy due to the unresolved national negotiations concerning changes to the Local Government Pension Scheme (LGPS) Regulations which have caused Unison to refuse to discuss the matter locally.
3. The Council currently has the following policies in place, all of which will require revision following the outcome of this report and/or to incorporate other changes to LGPS Regulations:

4. This report deals firstly with the implications of the Age Regulations and the forthcoming Local Government (Early Termination of Employment) (Discretionary Compensation) Regulations 2006 on the Council’s redundancy compensation payments scheme. It then goes on to consider separately the consequences for the Council’s two policies on retirement which interact with the redundancy payment scheme and draws attention to the need to review the existing policies.

  Redundancy Compensation for those not Eligible for a Pension Payment.

Background

5. On 1 October 2006 the Employment Equality (Age) Regulations 2006 came into force, making it unlawful to discriminate at work on the grounds of age without justification. In addition the Local Government (Early Termination of Employment) (Discretionary Compensation) Regulations 2006 were due to come into force at the same time, although they have only been published in draft form for consultation so far. The latter will lay down new rules about how local authorities can calculate redundancy payments. It is necessary to review our current redundancy compensation policy to ensure that the Council complies with the new Age Regulations and it is sensible in doing this to take the requirements of the draft Local Government Regulations into account.
6. Currently the Council enhances redundancy compensation under the existing Regulations to employees who are made redundant but cannot access their pension immediately i.e. those aged below 50, those aged 50+ who are not members of the LGPS or Teachers Pension Scheme (TPS) and those who are members but do not have sufficient service to receive a pension. This redundancy scheme gives compensation of up to 66 weeks’ actual pay. The current method of calculation of compensation uses multipliers which are more generous to older employees than younger ones. Since it is unlikely that this difference could be justified objectively, calculating compensation by this method will no longer be legal after October 2006 because it will be discriminatory on the grounds of age.

The Effect of the New Regulations on Redundancy Compensation

7. In summary, the new (Draft) Local Government (Early Termination of Employment) (Discretionary Compensation) Regulations 2006 set the parameters for redundancy compensation as follows:

• Local authorities can continue to pay redundancy compensation based on the actual weekly salary rather than the statutory minimum (as now).
• The current age limits for payment of redundancy compensation are removed (At present, service below age 18 is disregarded and redundancy is not payable at all after age 65).
• Local authorities can pay a one-off lump sum of up to 104 weeks’ pay (inclusive of any redundancy payment).

8. The Council’s current redundancy scheme for those not eligible for a pension cannot continue, however, the new Employment Equality (Age) Regulations 2006 (reg. 33), do provide a possible alternative formula for the payment of enhanced redundancy payments which would be lawful. This is based on the following:

• the calculation must be based on the statutory redundancy payment;
• actual pay may be used in place of the statutory maximum;
• the employer can then multiply the number of weeks’ service by the same multiplier for each age group (The employer can then go on to multiply the total amount from this calculation by another multiplier).
• alternatively the employer can multiply the cash amount rather than the number of weeks’ service – again by the same multiplier for each age group.

Proposed Redundancy Payment Scheme

9. It is proposed that the Council adopts a new redundancy pay formula which complies with the new regulations and is also in line with the following principles. The scheme should:

• be affordable;
• reward those with longer service, as far as is possible within the new regulations;
• be simple to understand;
• allow for redundancies to be achieved from volunteers where advantageous;
• maintain Oxfordshire’s standing as a good and fair employer.

10. In line with these principles, the Council is recommended to adopt the Statutory Formula for calculating the number of weeks’ pay awarded as redundancy compensation, based on actual pay rather than the statutory maximum, as at present. The Council could take advantage of the LGPS Regulations and adopt a multiplier to enhance this statutory scheme by multiplying the statutory number of weeks pay across all ages. This would be in line with all of the principles in Paragraph 9. The costs of a range of possible different multipliers are shown at Annex 1 (download as .doc file) and do not vary greatly from the current costs, although, members should note that costs are based on the previous year’s range of volunteers and it is likely that by changing the compensation the range of volunteers would also change, so the comparison cannot be a direct one.
11. The effects of the different possible multipliers would vary for different age groups as shown in Annex 2 (download as .doc file). The advantageous weighting for older workers is removed so avoiding unfair discrimination. This may encourage younger groups to volunteer more often - which is generally lower cost. Conversely, any new scheme will be less advantageous for the older workers whose payments used to be amplified under the old scheme. The indicative comparative impacts of different multipliers in Annex 2 (download as .doc file) show that a multiplier of three is the best safeguard for the interests of those with longer service at the point of redundancy. Lower multipliers have a variable but, in some cases significant, negative impact on those individuals with longer service. Annex 1 (download as .doc file shows that a multiplier of three would have an additional cost to the Council in the order of up to £7,200 p.a. whereas a multiplier of 2 would save slightly under £21,000 p.a.

Compensation for Redundant Employees who are Eligible to Receive an Immediate Payment of Pension under the LGPS (Green Book Employees).

Background

12. The Council will also need to consider the implications of the new Regulations on employees who are made redundant and who are also eligible for an immediate payment of pension under the Local Government Pension Scheme Regulations. The current 1997 Regulations have been the subject of controversial revision which has given rise to disputes and withdrawal of the Regulations issued in 2005. This has led to a confused and difficult national situation which is still unresolved. Unison locally has refused to discuss changes to the Retirement Policy until the national situation has been resolved. This means that any changes to the Retirement Policy are unlikely to be accepted for consultation by Unison and will most likely be seen as a provocative act if introduced unilaterally.

The effect of the New Age and (Draft) LGPS Regulations

13. When an employee receives an early payment of pension due to redundancy they currently receive an added years enhancement plus compensation under the Statutory Redundancy Scheme based on actual pay. The more beneficial Oxfordshire Redundancy Scheme has never applied to this group, so there is no need to make changes due to the Age Regulations in this case. Similarly, there is no direct impact arising from the new Age Regulations on the current Retirement Policy because the Council has not introduced any age-related factors into its policy which do not directly mirror the LGPS Regulations. The LGPS Regulations, like all pension regulations, are exempt from any effect of the Age Regulations.
14. However, the draft forthcoming Local Government (Early Termination of Employment) (Discretionary Compensation) Regulations 2006 will involve a change to the Council’s powers to award added years. It seems likely that there will no longer be the power to give enhancement in the form of added years to those who take early retirement. The current policy will need to be amended in line with this once the Regulations are confirmed (Members should note that the current power to award augmented years to current employees during their Council service will continue to apply. The Council has previously chosen not to use this power and will need to confirm its stance once again in light of the changes in the revision of the Retirement Policy).
15. Instead of compensatory added years upon termination the Regulations will introduce the power to award up to 104 weeks’ pay instead. The Statutory Redundancy payment would come out of this 104 week allowance.
16. Members could, if they wish, in place of added years, bring the redundancy compensation for this pensionable group into line with that for those not receiving a pension by using a similar multiplier on the statutory redundancy compensation.
17. Alternatively, members may consider that the early payment of a pension plus the statutory redundancy compensation (based on actual pay) is sufficient. A less attractive early retirement package for older workers may lead to fewer volunteers among this group. This effect may cut overall costs, but is likely to lead to greater numbers of compulsory redundancies among mostly younger workers and consequentially employee relations will suffer and workforce planning issues will arise.

Compensation for Redundant Employees who are Eligible to Receive an Immediate Payment of Pension under the Teachers Pension Scheme.

Background

18. The current Premature Retirement Compensation Scheme for Teachers allows any teacher who is made redundant between the age of 50 and 57 years to receive an immediate payment of pension without enhancement plus a redundancy payment under the Statutory Redundancy Scheme (at actual salary levels). Oxfordshire has chosen to also award up to three added years to those who are over 57 years and who have more than 20 years’ service.
19. The latest revised scheme was agreed in October 2005 and has been in force since September 2005 and notice has been given to unions that it must be revised because of the Age Discrimination Regulations. The budget for early retirement compensation is centrally held in the Children, Young People & Families Directorate and currently totals £3.75m. This includes a sum of £750k which was added to the budget in 06/07. For the first time this year, schools have also been offered the opportunity to buy into an insurance scheme to help meet the lump sum costs of early retirement on grounds of efficiency (the central budget continues to meet the ongoing additional pension costs of these retirements). 71 schools have bought into the scheme this year and contributions from schools to the budget currently total £38k. Despite the additional provision put into the budget, the costs of redundancy early retirements in 06/07 have exceeded anticipated rates and the CYP&F Premature Retirement Compensation (PRC) budget is currently projected to overspend by a total of £358k. However, £287k of this sum is 05/06 overspend carried forward to this year, so the underlying pressure on the budget has been somewhat reduced in relation to last year’s very high levels. Nevertheless, in order to bring the budget under proper control in future, it is clear that some adjustments to current policy entitlements will need to be made.

The Effect of the New Age Regulations and the Costs of the Current Scheme

20. The current policy of awarding added years to the over 57’s upon redundancy will become unlawful in October 2006 as it is a local decision which does not have the protection of being a pension regulation. It would be lawful to allow added years to all employees over 50 who are made redundant as this possibility is enshrined in the Teachers Scheme Regulations, however, the costs of doing so would be prohibitive. The only alternative to bring the policy in line with the law is to cease to pay added years at all.
21. Instead of compensatory added years upon termination, the Council could use its discretionary power to bring the redundancy compensation for the pensionable group of redundant teachers over 50 into line with that for those not receiving a pension. This would be achieved by using a similar multiplier on the statutory compensation.
22. Alternatively, as in the case of Green Book employees, the Cabinet may consider that the early payment of a pension plus the statutory redundancy compensation (based on actual pay) is sufficient.
23. The removal of added years may benefit the financial position of the budget. In 2006 eight teachers were awarded added years and all of these were volunteers. If the facility is removed the effect may be the reduction of this figure, although it is impossible to tell to what extent. Up to £12,500 per annum and £37,500 in one-off lump sum payments may be saved in this way based on this year’s figures.
24. The imperative to control the costs of early retirement among teachers brings the need for a comprehensive review of policies relating to early retirement and this must now be undertaken.

Consultations and Further Reports

25. Changes to the compensation employees receive upon redundancy and retirement is highly sensitive and will require prompt consultations with relevant trade unions. The subject has been discussed generally at Teachers Joint Committee on 7 September 2006 and subsequent meetings and the outcome will be reported orally to the Cabinet meeting. Consultations with Unison will take place at Employees Joint Committee on the morning of 17 October 2006 and the outcome will be reported to the Cabinet.
26. Draft revised Retirement Policy and Premature Retirement Compensation Scheme for Teachers will need to be drawn up for consultation when this report has been considered. These will then come back to the Cabinet for approval in January 2007, following the completion of consultation.

Financial and Staff Implications

27. Staffing and financial implications are discussed within the main body of the text.

RECOMMENDATION

The Cabinet is RECOMMENDED, subject to the publication of the Local Government (Early Termination of Employment) (Discretionary Compensation) Regulations 2006), to:

1. adopt the Statutory Formula for calculating the number of weeks’ pay awarded as redundancy compensation for those employees who are not eligible for an immediate payment of pension, based on actual pay rather than the statutory maximum, as at present, and to decide what, if any, multiplier to apply to this across all ages.
2. withdraw the payment of added years compensation to employees who receive an early payment of pension under the Local Government Pension Scheme and the Teachers Pension Fund Regulations and to bring the payment of redundancy compensation in line with that made to redundant employees who are not eligible for an early pension.
3. ask officers, in consultation with the Cabinet Member for Change Management and the Cabinet Member for Schools Improvement, to undertake a review of the Retirement Policy and the Teachers’ Premature Retirement Scheme (including the consultation of relevant trade unions) and to report back to the Cabinet in January 2007.
4. ask officers to review the Redundancy Procedure in line with these changes and to consult trade unions before bringing a revised Procedure back to the Cabinet for approval.

JOHN JACKSON
Director for Resources

KEITH BARTLEY
Director for Children, Young People & Families

Background papers:
Employment Equality (Age) Regulations 2006.
Draft Local Government (Early Termination of Employment) (Discretionary Compensation) Regulations 2006.

Contact Officers: Sue Corrigan, County Human Resources Manager, Tel 01865 810280 John Vallis, Human Resources and Payroll Manager, Tel 01865 815770

 

October 2006

Return to TOP