Meeting documents

Return to Agenda

ITEM PF20

PENSION FUND COMMITTEE – 25 FEBRUARY 2005

LOCAL GOVERNMENT PENSION SCHEME REGULATIONS (LGPS) – EARLY RETIREMENT COSTS

Report by Head of Finance & Procurement

1. Committee received a report in August 2004 from the Head of Finance that following the appointment of Hewitt, Bacon and Woodrow as fund actuaries, officers had sought their advice as to the continued appropriateness of the current calculation of the hidden costs of early retirement.
2. Hewitt, Bacon and Woodrow reported that the results produced by the current model are inconsistent with results they have produced. The differences reflect changes in current market conditions, and new assumptions, particularly in relation to the expected life of existing pensioners. Hewitt Bacon and Woodrow have stated that the current factors used to determine the hidden cost of early retirement need to increase by 35%.
3. Officers accepted this advice and wrote to all employers alerting them to this increase being introduced from 1 April 2005.
4. Committee accepted the recommendation to note the report and endorse the officers’ action.

Revised Advice

5. Hewitt, Bacon and Woodrow have now issued revised advice about the increase to be applied to the factors used in calculating early retirement costs. The reason for this revision to their previous advice is because: -

• The new regulations effective from April 2005 have inserted a paragraph referring to the additional contributions that administering authorities may charge to an employing authority to cover the cost of early retirements, in respect of redundancy and early payment of benefits with employer consent. This will formalise what has been reasonably common practice for some time.
• At the last Association of Consulting Actuaries (ACA) meeting this matter and the apparent benefit of all local authorities using a common approach for these calculations was discussed. The discussion was held in recognition of the fact that the current "standard" approach uses factors produced by the Government Actuary’s Department (GAD) which are collectively felt to be out of date

6. The ACA agreed that rather than waiting for any revision to the GAD factors they would recommend to their clients that the amounts calculated by the "standard" method should simply be uplifted by 25% with effect from 1 April 2005.
7. It is recognised that this approach is different to the uplifts previously advised, but the ACA feel that this is unavoidable if a common approach is to be agreed.

 

RECOMMENDATIONS

8. The Committee is RECOMMENDED to determine whether:

1. it wishes the factors used to be uplifted by 35%, from 1 April 2005, as previously advised; or
2. to accept the revised advice to uplift factors by 25%, as part of a move to a common national approach, from 1 April 2005.

SUE SCANE
Head of Finance & Procurement

Background Papers: Hewitt, Bacon and Woodrow Letter

Contact Officer: Sally Fox Tel: 01865 816080

February 2005

Return to TOP