Agenda item

The Technical Development Manager briefed the Committee on three issues.

Hutton Commission

As Members were aware, the present Government had appointed a Commission chaired by Lord Hutton to review public sector pensions. The Local Government Pension Scheme (LGPS) was included, even though it had been reformed by the previous Government in 2008. The Commission was due to publish its main report in March 2011, having published its interim report in October 2010. In his foreword to the Interim Report Lord Hutton stated that he had rejected “a race to the bottom” and hoped that reformed public service pensions could be seen as once again providing a benchmark for the private sector to aim towards. The Interim Report had speculated about the future structure of benefits and had indicated that increased contributions would be required, but had said that the low-paid should be protected. The Interim Report said that the LGPS was one of only two funded schemes in the public sector and would remain so. Benefits would remain linked to pay, but based on career average rather than final salary and with the pension age raised to match the state pension age. The Fair Deal for public sector workers transferred out of the public sector was under review; some of the employers in the Fund had thought this was too political to comment on in the consultation. A Member said that the Fund’s response to the consultation was a matter of policy and a draft response should have been circulated to members. The Technical Development Manager responded that consultation responses took the form of answers to specific questions posed by the Commission and that the replies had been put together by the Pensions Administration Team. The Head of Business, Finance and Pensions said that the questions had been answered from an administrative point of view, but promised that copies of the response would be circulated to Members.

Changes to Pensions Tax Regime

From April 2011 there would be changes to pensions tax relief. The maximum annual allowance for tax relief on pensions would be reduced from £250,000 to £50,000 and the lifetime allowance from £1.8m to £1.5m from 6 April 2012. For tax year 2011-2012 carry-forward would be available against excess contributions of an assumed annual allowance of £50,000 for the tax years 2008-09, 2009-10 and 2010-11. The capital conversion factor for annual allowance purposes would increase from 10:1 to 16:1 for accruals for active members effective from 6 April 2011. The Annual Allowance would not be applied in the year of death or in the case of lump sums paid where individuals are diagnosed with serious (terminal) ill health. The original proposals had been amended after consultation: the annual allowance had been raised from £30-35,000 to £50, 000 and the reduction of the lifetime allowance had been deferred for one year.

Equitable Life

Equitable Life had run into serious difficulties in 2000 and had been taken to court for reducing payments to policy holders. The new Government had agreed to pay total compensation to policy holders of £1.5bn against £4.3bn of estimated losses. Full compensation would be paid to individual policy holders up to a limit of £20m. A report was expected in January 2011 with compensation payments being made from April 2011. The Pensions Manager said that many pensioners in the Avon Pension Fund were affected because at one time Equitable Life was the only AVC provider available to them. Compensation would also be paid on behalf of deceased pensioners.

RESOLVED to note the information provided in the briefing.