ITEM PF17 PENSION FUND COMMITTEE – 23 FEBRUARY 2007 THE LOCAL GOVERNMENT PENSION SCHEME (BENEFITS, MEMBERSHIP AND CONTRIBUTIONS) REGULATIONS 2007 Report by the Head of Finance & Procurement Introduction 1. The Office of Communities and Local Government (CLG) issued draft regulations for consultation on 22 December 2006. The deadline for consultation responses is 28 February 2007. 2. These regulations, for the new look Local Government Pension Scheme (LGPS), are part one of the three part regulations due. Parts two and three will deal with administration issues and transitional arrangements. This report sets out the key issues and includes a draft response, which the Committee is asked to agree (amended as appropriate) for submission to the CLG. Proposed Changes 3. The main proposals within the benefit, membership and contribution regulations are: · The accrual rate for members will be 1/60th instead of the current 1/80th. · There is no automatic payment of a lump sum. Scheme members can take a lump sum by commutation of pension at a conversion rate of £1 pension to £12 of lump sum, within tax limits. · The accrual rate for dependents pensions will be 1/160th. · Tiered member contribution rates will be introduced, with deductions being made at the rate of 5.5% of pay up to £12,000 and 7.5% of pay above £12,000. It is estimated that this will average out, nationally, at 6.3%. The regulations are not clear on how this would be administered for part years, in the cases of multiple employments, in the case of part time employees and whether staff with a protected rate of 5% would retain that protection. ·
The 85-year rule will be
removed with 65 being the earliest age at which an unreduced pension can
be taken. This is subject to transitional protection for some members. · A three tier ill health pension is proposed based upon the authority determining that there is no reasonable prospect of the person obtaining gainful employment before his/her normal retirement date. There is no definition within the regulations of either reasonable prospects or gainful employment. Depending upon the assessment of whether the person will be able to obtain gainful employment prior to his/her normal retirement date then service enhancements will be credited at the rates of 0%, 25% and 50%. · Dependent pensions would be paid to co-habitees · Death in service lump sum to be increased to three times salary. Proposed Response to the Consultation 4. These proposals are essentially Option B, from the previous consultation exercise, but with some changes – 1/160 accrual rate for dependents pensions and the addition of tiered contribution rates. The ill-health pension has also been changed from two tiers to three tiers. 5. It is difficult to reply fully to this consultation in the absence of the administration regulations. On 01 February CLG did issue a further consultation paper regarding strategic administration issues and stating that a separate consultation on administration will be issued shortly. 6. The draft response is attached at Annex 1; this reflects the difficulty in giving a full response in the absence of the other regulations. It also highlights a number of apparent inconsistencies and areas where further clarification is needed. This response in consistent with responses made by other Administering Authorities. Cost of these Proposals 7. The actuarial assessment of these changes indicates that costs will increase by 0.7% of pensionable pay, as a result of these changes:
RECOMMENDATION 8. The Committee is RECOMMENDED to note the content of this report, and to agree subject to any amendments proposed, the draft response set out in Annex 1 (download as .doc file) for submission to CLG. SUE SCANE Background
Papers: Contact Officer: Sally Fox, Pensions Services Manager Tel: 01865 797111 February 2007
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