E-Fundamentals. Amendment regulations special edition

Transcription

1 E-Fundamentals Amendment regulations special edition

2 THE LGPS AMENDMENT REGULATIONS 2018 Following the introduction of the new LGPS scheme back in 2014 a great many anomalies and discrepancies in the regulations were pointed out to DCLG (as was) - now the Ministry for Housing, Communities and Local Government (MHCLG). In 2016, the Department sought to address these via a consultation on proposed amendment regulations. After lengthy consideration of the responses they received in 2016, we now have the amendment regulations effective from May this year. A full breakdown of the regulations and detailed analysis of their effect is available in the LGE Bulletin 171, with a further commentary on some of the issues in Bulletin 172. A summary of the main points of both the regulations and the government s response to the consultation are given below. What s not in? FAIR DEAL The May 2016 consultation included draft regulations to introduce the principles of the Government s Fair Deal for Staff Pensions: staff transfers from central Government policy into local government. This would have provided that employees working in local government who had access to the LGPS and were compulsorily transferred to an independent provider would have continued access to the scheme in their new employment. The consultation outlined that the existing framework for the protection of pension rights for local government workers, via the Best Value Staff Transfers (Pensions) Direction 2007 ( the 2007 Direction ), would be replaced and the 2007 Direction would be revoked. Contractors would therefore no longer have the option of giving members access to a scheme certified as being broadly comparable to the LGPS. After analysing the responses received as part of the consultation, the government has decided not to amend the regulations in respect of Fair Deal at this time. They have expressed their commitment to Fair Deal and propose a separate consultation to reflect the range and complexity of the issued raised in the initial consultation. We await! Remember to consult with the Pensions Unit before you take any action regarding outsourcing or other commitment that could involve the transfer of your LGPS members. PUBLIC SECTOR EXIT PAYMENT CAPS There have been no further developments in respect of how the exit payment cap will be implemented for members of the LGPS and what impact it may have on their benefits; we await! Continue to watch out for any communication from either us or direct from MHCLG.

3 AVC FLEXIBILITIES Following the introduction of Freedom and Choice in 2015 which allowed people to access their money purchase pension pots in a more flexible manner, the government looked to extend this provision to the money purchase element of the LGPS, Additional Voluntary Contributions (AVCs). The government's proposal to introduce a new regulation to provide a wider range of options for with AVC arrangements is not proceeding. This is because it was considered that introducing these provisions directly into the 2013 Regulations would create substantial administrative complexities, largely due to the large number of AVC providers that exist in the LGPS. This means members will have to transfer AVCs out of the Scheme in order to take advantage of flexible access to those monies. REMOVAL OF AUTO-AGGREGATION Prior to April 2014, where an LGPS member changed posts, whether in the same or different Fund in England and Wales, they were entitled to deferred benefits in relation to the former post which remained deferred unless a positive election was made to combine these with the ongoing post. In April 2014, this way of operating was completely reversed, with record being automatically combined (or aggregated) unless the member made a positive election not to doo so within 12 months. Funds argued against this method on both practical and administrative grounds and a reversion to the earlier method was consulted upon. Proposals to reduce the circumstances when benefits from different periods of LGPS membership would be aggregated automatically will not be going ahead for the time being. This is because the government considers them inconsistent with Schedule 7 of the Public Service Pensions Act 2013, which requires final salary protection to be provided where a member re-joins a public service scheme within five years of leaving another. What is in? A LOT OF TECHNICAL AMENDMENTS These were required to align some definitions within the LGPS regulations more closely with those in the Public Sector Pensions Act 2013 and address a lot of previous drafting errors and inconsistencies as well. [For example, clarifying that on redundancy/efficiency only the benefits in relation to THAT employment are payable immediately where over 55!] These errors and omissions have, in practise, been ignored and the intention behind the new scheme provisions been applied by Funds and employers since BACKDATING OF ADMISSION AGREEMENTS The regulations have been amended to make it clear that where an admission agreement is executed between a body and the administering authority, that it can take effect before the date of execution. We have worked hard with our employers to ensure our admission agreement processes are smooth and enable everything to be in place to protect employees with all parties aiming for a set date. We do not, therefore, envisage this facility ever being used. Remember to consult with the Pensions Unit before you take any action regarding outsourcing or other commitment that could involve the transfer of your LGPS members.

4 ALIGNING PRE AND POST 2014 AVC CONTRACTS This is largely to correct some differences between contracts taken out pre and post April 2014 and to make administration of these simpler by removing the scenarios where the Fund would be left with Orphan AVCs. In summary: Clarification that all members can contribute up to 100% rather than 50% of available pay Members can not defer payment of AVCs when taking main benefits All can purchase scheme pension from deferred as well from active retirement Accrued funds can be paid by TPF at their discretion on death of member AVC pots auto-aggregate with main scheme benefits Retain the right to buy scheme membership in certain circumstances (pre 01 contracts) Ensure payroll do not limit AVC contributions to 50% if the member wishes to contribute more. NEW DISCRETION IN RESPECT OF ANOMALOUSLY LOW APP Many of you will remember from our pensionable pay training events (material available here) following the introduction of the 2014 scheme, that the prescriptive calculation of Assumed Pensionable Pay (APP) that would be used to calculate death grants and ill health pensions gave rise to (potentially) low or even zero figures. This was due to the fact that the period which could be used was restricted to the immediate 3 months prior, which in many cases could have been on nil pay. Although in practise, a pragmatic approach to this problem has been adopted where it has arisen, the amendment regulations now make it clear that employers have the discretion to apply a better APP based on the previous 12 month pay figures, rather than just the immediately preceding 3 months, where this is better reflective of what would have been earned. Update your discretion document (see below) and use this facility where appropriate. NEW DISCRETION IN RESPECT OF EXTENSION TO 12 MONTH LIMIT FOR PRE 2014 MEMBERSHIP BUYING CARE BENEFITS Similar in nature to other 12 month extension discretions you can exercise on inward transfers and aggregation, but there is still a loophole open for those who re-joined between 1 April 2014 and 15 May 2018 to have an open ended option! Update your discretion document (see below) and use this facility where appropriate.

5 ACCESS TO DEFERRED BENEFITS FROM AGE 55 FOR ALL! [WELL, SORT OF.] From the first issue of the LGPS 2013 regulations and the transitional regulations in relation to the earlier schemes, it was always understood to have been an oversight that pre 2014 leavers had not been granted the right of access to deferred benefits from age 55 without the need to first gain employer consent. MHCLG sought to address this in the amendment regulations but didn t quite deliver the policy intention. Access to deferred benefits (other than on ill health grounds): The position prior to the amendments: Pre 93 leavers age 60, as this would be their Normal Retirement Date (NRD) now 93 to 98 leavers NRD or could access from age to 2014 leavers from age 60 or from age 55 to 60 with employer consent Post 2014 leavers from age 55, no need for employer consent The position after the amendments: 98 to 2014 leavers from age 55 without employer consent But Pre 93 leavers Age 55 or age 60, nothing in between 93 to 98 leavers Age 55 or NRD, nothing else Meaning if their NRD is over 60, they can no longer have ANY early access if over 55! The issue has been acknowledged by MHCLG who are seeking to address this drafting error. However, their lawyers have said that in order to do so, a new set of amendment regulations will need to be issued after another consultation. We await! In the meantime, for leavers between April 1998 and April 2014, you now have new discretions to switch on the rule-of-85 in the same way as you currently do for post 2014 leavers as well as the facility to waive any reduction on compassionate grounds. You should update your discretionary policy statement accordingly (see below). PLEASE do not alert any pre April 2014 leavers to this facility at this time. We are drafting communications about the change for deferred members with a view to managing the envisaged additional work this will, undoubtedly, create. You will also need to update your discretion document accordingly (see below).

6 REVISIONS TO YOUR DISCRETIONARY POLICY STATEMENT The changes to the regulations mean that you should revise your policy statement to include the new provisions. Although the amendment allowing your switching on of the rule-of-85 for pre leavers hasn t been made a mandatory inclusion in your policy, we believe this is an oversight which the aforementioned amendment-to-the-amendment regulations should address. To assist, we have included the new discretions as an appendix for you to copy into your existing statement. The revised statement should then be forwarded to the Pensions Unit. Amend your existing policy to include the new provisions and return to the Pensions Unit If you have not compiled a policy statement, do so; not having the absolute minimum in place means you are in breach of a statutory duty! You should go to the employer website: Where you will find all the resources you need. CONTACT US If you have any queries regarding any of the items above, please contact us via to penemp.kier.co.uk or telephone

7 Appendix I New discretionary policy statement inclusions Mid In determining Assumed Pensionable Pay, whether in the employer s opinion, the outcome of using the prescribed calculation is materially lower than the actual level of pensionable pay the member would normally receive had they been at work. In these circumstances, the employer may substitute a higher level of pensionable pay than the APP value to reflect the level of pay the member would normally have received. In making such a determination, regard to the pensionable pay received by the member in the previous 12 months should be made. If the member has not received any pensionable pay in the previous 12 months, this does not prevent an employer from making a determination to substitute a higher level of pensionable pay. LGPS 2013 R21(5A to 5C) New discretion Where APP applies for a returning or acting returning officer (whose pensionable earnings are derived from fees), APP should be calculated as the annual average of the pensionable pay relating to those fees during the three years (or the average of the length of membership if this is less than 3 years) preceding the absence, ill health retirement or death.

8 High For leavers between 1 April 1998 and 31 March 2008, the scheme employer may, in respect of deferred members who choose to voluntarily draw their benefits on or after age 55 and prior to age 60, choose to: switch on the 85-year rule in full waive on the grounds of compassion any reduction for early payment. LGPS Transitional Regulations 2014 Schedule 2 New discretion High For leavers between 1 April 2008 and 31 March 2014, the scheme employer may, in respect of deferred members who choose to voluntarily draw their benefits on or after age 55 and prior to age 60, choose to: switch on the 85-year rule in full waive on the grounds of compassion any reduction for early payment. LGPS Transitional Regulations 2014 Schedule 2 New discretion Mid Members who joined the 2014 scheme before 14 May 2018 can elect to aggregate benefits that were solely built up prior to 1 April under regulation 10 (6) (i.e. where the transfer buys earned pension) at any time prior to leaving active membership of the scheme. Members who join the 2014 scheme on or after 14 May 2018 must make such an election within 12 months of rejoining the scheme (or such longer time as the scheme employer allows). LGPS Transitional Regulations 2014 Reg 10(6) and 10(6A) New discretion, but may be covered by existing wording in your policy statement