ITEM PF18
PENSION FUND COMMITTEE – 13 DECEMBER 2007
ILL-HEALTH CONSULTATION PAPER
Report by Assistant Chief Executive & Chief Finance Officer
Introduction
1. The Department for Communities and Local Government has issued a consultation paper seeking comments on the proposed changes to the ill-health provisions set out in the Local Government Pension Scheme (Benefits, Membership and Contribution) Regulations 2007. This report seeks Committee approval for the proposed Administering Authority response.
Background
2. The Local Government Pension Scheme (Benefits, Membership and Contribution) Regulations 2007 laid before Parliament on 4 April 2007 replaced the current ill-health arrangements with a two tier ill-health provision. This change will be effective from 1 April 2008 as part of the new look scheme.
3. The new arrangements allow for payment of benefits, which are calculated with notional membership representing the period between the date of leaving and normal retirement (at age 65). The proportion of this notional period which can be used for the benefit payable depends on whether the employee is assessed as being able to obtain “gainful employment” before retirement age, after leaving his local government employment. Where there is no likelihood of ever working again, benefits are calculated using 100% of that notional period. Where there is a likelihood that gainful employment can be found after a reasonable period, benefits are calculated taking into account 25% of this notional period.
4. Under the Regulations, the employee must have at least two years’ scheme membership in order to qualify for these benefits. Under the current regulations, 3 months’ membership is needed for payment of benefits, although no enhancement is given until the employee has accrued five years’ scheme membership.
Proposed Changes
5. The consultation proposals would reduce the qualifying period for payment of benefits from two years to three months, in line with all other benefits payable under the scheme.
6. This consultation paper also seeks to change the Local Government Pension Scheme (Benefits, Membership and Contribution) Regulations 2007 to reflect the proper intention of the regulations by the introduction of a third tier within the ill-health provisions. Although earlier consultations suggested an unfunded tier, this proposal for a funded pension would ensure continuation of the national scheme.
7. Scheme employers would be given the power to award benefits to employees who have been judged, by an Occupational Health Practitioner, as being permanently incapable of their local government employment but to be capable of gainful employment within a reasonable period. Benefits payable would be based on actual membership without enhancement.
8. Under these proposals it would be the individual’s responsibility to notify the paying authority when they have obtained gainful employment so that pension payments can be suspended. It is not clear from the consultation document whether the paying authority is referring to the employer or administering authority. Nor does the consultation paper indicate whether there is the intention for a further review in the event that the individual’s circumstance should change again.
9. As administering authority, Oxfordshire County Council would be given powers to ask the recipient whether their circumstances have changed and, if gainful employment has been obtained, the authority would be able to suspend payment of the benefit. The consultation paper suggests that this would happen once benefits have been in payment for one year, but asks for comments on the period of time used. Members are asked to consider whether they think one year is a reasonable time.
10. A further amendment is proposed to the ill health procedures in this consultation and this is for certification from an independent occupational health practitioner to be sought before the early release of a deferred benefit on permanent ill health grounds.
Introduction of Protections
11. This consultation paper also introduces protections for staffs who are members of the scheme before 1 April 2008 and have reached the age of 45 before that date.
12. Should such a member be retired under tier one or tier two provisions then their payment will be based on the greater amount of benefits calculated under either the 2007 or 1997 ill-health regulations.
Financial and Staff Implications
13. The consultation paper reiterates Governmental policy that any proposals remain affordable and fair within the cost envelope of 19.5% of payroll for the revised new look LGPS, which is effective from 1 April 2008 and that the third tier of ill-health provision equates to some 0.1% of payroll.
14. Traditionally Oxfordshire has a low number of ill-health retirements; however there will still be a need for changes to software and additional work arising from the requirement for the administering authority to check circumstances of those in receipt of third tier benefits. We will also need to keep under review the additional resources involved in administering this new element of the scheme.
RECOMMENDATION
15. The Committee is RECOMMENDED to:
(a) support the introduction of a third tier of ill health benefits;
(b) determine whether they think that one year is a reasonable period for review;
(c) approve/make comment on the attached draft response (Annex 1) (download as .doc file).
SUE SCANE Assistant Chief Executive & Chief Finance Officer
Background papers: Local Government Pension Scheme (Benefits, Membership and Contribution) Regulations 2007 CLG Draft Proposals to amend Regulation 20 of LGPS (Benefits, Membership and Contribution) Regulations 2007
Contact Officer: Sally Fox, Pension Service Manager – Community Safety Tel: (01865) 797111
November 2007
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