ITEM PF13 Pension Fund Committee – 25 May 2007 The Local Government (Early Termination of employment) (Discretionary Compensation) (England and Wales) Regulations 2006 SI2914 Report by the Head of Finance & Procurement Introduction 1. This Statutory Instrument came into force on 29 November 2006 and provided retrospective cover from 1 October 2006. It replaced the previous arrangements which gave local authority employers powers to consider compensation payments to employees where employment is terminated early because of redundancy, interests of efficiency or in the rare circumstance where in a joint appointment the other holder of the appointment has left. Regulatory Changes 2. Compensation regulations no longer permit local government employers to make an award of compensatory added years – which were generally calculated although not funded in the same manner as benefits within the main Local Government Pension Scheme. Previously, an entitlement for consideration for an award only arose after 5 years of membership of the LGPS. 3. The new discretionary compensation regulations still give employers the power to consider making a single lump sum payment to an employee following early termination on redundancy or efficiency. The payment must not exceed 104 weeks pay, but does not have a minimum service qualification. The cost for this is borne by the employer and not the pension fund. 4. Although the effective date for these regulations was 29 November 2006 they did give transitional authority to employers until 31 March 2007, to enable the use of either the new or the old regulations where employee’s last day of service was before 1 April 2007. As in the previous regulations compensation may be made to an employee even if not a member of the LGPS. 5. The employer can use their discretion to calculate a compensation payment on whatever rate of pay – up to the employee’s actual week’s pay, and use their own definition of a qualifying period. The employer can determine the formula for payment within the limits mentioned above. However if the formula has been based on age and/ or length of service, the process settled on will have to be sufficiently robust to enable the employer to justify its policy objectively in the event of a claim of age discrimination made to an employment tribunal. 6. Compensation payments following redundancy may have an element of exemption from discrimination claims under the Age Regulations, because the government has kept the age and service criteria in the calculation of a statutory redundancy payment. 7. Employers are required to prepare, publish and keep under review their policies on compensation so that value for money and transparency principles can be demonstrated to local taxpayers and auditors. A copy of an employer’s current policy should be sent to the County, as the administering authority. Employer’s Alternative Discretionary Powers 8. The Committee may wish to note that scheme employers still have discretionary powers to use regulation 52 within the main LGPS regulations to ‘augment' or increase funded membership for scheme members. A pension ‘augmentation’ should only be made within the terms of an employer’s published policy statement. Some employers may be considering this route as an alternative to the compensation provisions. A compensation payment can only be made to someone who has not had membership augmented. 9. An employer’s resolution to augment membership, providing an increase to funded benefits is only effective if the employer agrees with the administering authority to the terms for repayment of the additional cost. 10. The repayment terms are either: · A single immediate lump sum payment. This is calculated following factors set by the Government’s Actuary Department. Payment should be made within one month of the employer granting the additional membership, although this Committee could agree to a longer term. or · Employer pays increased employer contributions under regulation 79 of the LGPS regulations to cover the cost of the service. Individual specific advice will be needed from the fund’s actuary. 11. This Committee may wish to consider whether repayments should be made immediately from the employer to the fund or whether the Committee should grant employers the opportunity to apply to Committee to decide the process of repayment each time a resolution is being considered by an employer within Oxfordshire’s fund. 12. The benefits of the single payment include · Uses published factors · More straightforward administration · Settlement is much quicker 13. The disadvantages of the single payment may be additional financial pressure for smaller bodies, although it is considered unlikely that they would consider making such an award. Administration 14. Pension Services continue to pay pensions enhanced by awards of additional membership made under previous compensation regulations. However they will not be involved in calculations and payments of compensation lump sum payments in the future. RECOMMENDATION 15. The Committee is RECOMMENDED to: (a) note the report; and (b) support the single payment option referred to in paragraph 10. SUE SCANE Background
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