Agenda item

The purpose of this report is to update the Board on the latest position concerning the Local Government Pension Scheme [LGPS] and any proposed regulatory matters that could affect scheme administration.   

The Technical & Compliance Advisor introduced this report to the Board, a summary is set out below.

HMT Public Sector Exit Payments Cap / MHCLG Consultation on Further Reform to Exit Payments

The government first consulted on plans to cap exit payments in the public sector in 2015 and subsequently launched a further consultation in April 2019.

·  A maximum exit payment of £95,000 which was to apply to a wide range of public sector employers, however, excluding some LGPS employers such as Universities and Colleges.

·  The cap was to include the value of any early retirement strain costs payable as a result of the exit.

In July 2020, the Government published its response to this consultation, confirming their intention to proceed with the implementation of the cap which remained set at £95,000 with no intention for this amount to be index linked going forward.

On 7 September 2020, MHCLG launch their own consultation on the changes

required to the LGPS regulations to accommodate the cap, but also proposals for further reforms to exit payments for the LGPS only, which are:-

·  The actual pay used in severance calculations will be limited to £80,000;

·  The maximum severance (including statutory redundancy pay) will be limited to 3 weeks’ pay per year of service or 15 months’ pay, whichever is the lower

·  The amount available for any strain cost will be reduced by the statutory

redundancy payment in all cases

On 15 October 2020, the regulations to implement the £95k cap, across the whole of the public sector, were signed and came into force on 4 November 2020. However, the LGPS amendment regulations required to implement the £95k cap are not likely to be implemented before 2021.

This leaves us in a position of legal uncertainty from the 4 November 2020 until such time as the LGPS amendment regulations come into force.  This is due to the discrepancy between the obligations on scheme employers under the £95k Cap Regulations to limit exit payments, including pension strain, to £95,000 and the requirement for administering authorities to pay a fully unreduced pension to a scheme member who is made redundant over the age of 55 under existing LGPS regulations.

In Oct 2020, a letter was sent from Luke Hall, the Local Government minister, to all LGPS administering authorities recommending a course of action to take in the interim period.  The Scheme Advisory Board also published its legal advice together with a commentary for LGPS administering authorities and scheme employers. APF are currently obtaining legal advice on the best course of action to take in the interim period and we have also been in talks with the Actuary regarding strain cost factors and await their formal recommendation on any changes required to the factors used to calculate pension strain.

The Chair asked if there were any governance issues for the Board to consider.

The Head of Business Finance & Pensions replied that each employer would have to set their own policies to take account of these changes and therefore the Fund would have to act on their interpretation. He added that he expected some claims to come forward and that the legal advice the Fund receives would be very important.

McCloud and Sargeant Court Case

This case concerns the transitional protections provided to older members of the judges and firefighter pension schemes following their reform in 2015 as part of the public sector pension scheme changes.

In July 2019, the Chief Secretary to the Treasury announced in a written statement that ‘the government believed that the difference in treatment will need to be remedied across all public sector schemes, including the LGPS’. This is likely to have a significant impact on the administration team.

In July 2020, MHCLG launched a consultation on amendments to the statutory

underpin which are designed to remove age discrimination from the LGPS. APF submitted a response to this consultation, which closed on 8 October 2020, and we await their response which is expected in early 2021.

In the meantime, APF will be looking to carry out a data collection exercise with their employers to ensure any additional hour change and service break data is available for members that will be covered by the changes, as this data will be required to apply the remedy once it has been decided.

LGPS SAB Cost Management Process

In September 2018 HM Treasury announced that as a result of scheme valuations all public service pension schemes, including the LGPS had breached the 2% cost cap floor which would lead to member benefits improvements. However, the SAB has its own cost management which allowed any changes to benefits to be taken into account before the HM Treasury process begins.

In January, the Government announced a pause in the cost cap process

due to uncertainty caused by the McCloud and Sargeant court ruling on elements of the 2014/15 scheme reforms and subsequently the SAB confirmed that they would also be pausing their own cost management process until the effects of the outcome of this case is clear.

Therefore, scheme changes were not put in place for 1 April 2019 and the LGPS

SAB Cost Management Process continues to be paused until the effects of the

outcome of the McCloud and Sargeant Judgement is clear. When this process resumes, if changes are still required, this will have a significant impact on the administration team.

On 16 July 2020, the Government announced that the cost control mechanism pause would now be lifted, for the unfunded public sector schemes, and the process restarted taking into account the costs of the McCloud remedy.  The SAB further agreed that the LGPS cost cap arrangement should also be un-paused but no action would be taken until the HMT direction, on how McCloud costs are to be considered, is published and the outcome of the LGPS McCloud consultation is known in early 2021.

The Chair asked how things were progressing with the provision of any new software regarding the proposed changes.

The Pensions Manager replied that they were in discussion with their software provider on this matter and that developments were moving in the right direction. He added that APF also administer the Fire Service Pension on behalf of Avon Fire & Rescue Service, with just under 1,000 members, and that this was likely to be a more complex exercise.

The Board RESOLVED to;

i)  Note the current position regarding the developments that could affect the administration of the fund

ii)  Note the response sent to the MHCLG consultation on ‘Removing Age Discrimination’.