Agenda item

This report is a response to the Government’s consultation on proposals for a new look Local Government Pension Scheme which will come into effect from 1 April 2008. 

That the Director of Resources be given delegated authority to respond to the consultation supporting:

(i)         The continuation of a final salary pension scheme under Option A (paragraph 9 of report – effectively a continuation of the current Scheme);

(ii)        The increase in death benefit from 2 to 3 years pay;

(iii)       The introduction of cohabitees’ pensions;

(iv)       The increase in employee contribution rates to between 6-7%;

(v)        A single contribution rate for all employees;

(vi)       The review of ill health retirements;

(vii)      Option C – Treat all accrued service as a benefit payable on retirement under the terms of the current scheme.  Because these benefits have already been funded this is likely to prove cost neutral. 

(viii)     No extension to employer discretions;

(ix)       The overall context of early and flexible retirement;

(x)        The idea that future reviews of the employee contribution rate should only occur when fundamental changes to Scheme benefits are made.

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Members received a report which was a response to the Government’s consultation on proposals for a new look Local Government Pension Scheme which would come into effect from 1 April 2008. 

The government had produced four options for a new look Scheme, which were set out in paragraphs 7-13:

·  Option A – an update of the current final salary scheme, with additional changes;

·  Option B – a new final salary scheme with an improved accrual rate;

·  Option C – a new career-average scheme (either with an accrual rate of 1/54^th and revaluation on the basis of RPI, or with an accrual rate of 1/61^st and revaluation on the basis of RPI + 1.5%);

·  Option D – a new hybrid arrangement based on a career-average scheme with a final salary option.

The report also discussed possible changes to the Scheme relating to death benefits, cohabitees’ pensions, employee contribution rates, ill health retirements, early and flexible retirement and the scope of employers’ discretions.  Paragraph 24 set out the options that had been put forward on how to calculate the value of accrued benefits of existing members on retirement, following transfer to the new look Scheme:

·  Option A – give all existing members at 31 March 2008 an actuarially equivalent period of service in the new look Scheme, according to a formula to be provided by the Government Actuary’s Department;

·  Option B – give existing members more credit in the Scheme than they would receive under Option A;

·  Option C – treat all accrued service as a benefit payable on retirement under the terms of the current scheme.

Advice of the Advisory Panel

That the Executive Member be advised that the Director of Resources be given delegated authority to respond to the consultation supporting:

(i)         The continuation of a final salary pension scheme under Option A (paragraph 9 of report – effectively a continuation of the current Scheme);

(ii)        The increase in death benefit from 2 to 3 years pay;

(iii)       The introduction of cohabitees’ pensions;

(iv)       The increase in employee contribution rates to between 6-7%;

(v)        A single contribution rate for all employees;

(vi)       The review of ill health retirements;

(vii)      Option C – Treat all accrued service as a benefit payable on retirement under the terms of the current scheme.  Because these benefits have already been funded this is likely to prove cost neutral. 

(viii)     No extension to employer discretions;

(ix)       The overall context of early and flexible retirement;

(x)        The idea that future reviews of the employee contribution rate should only occur when fundamental changes to Scheme benefits are made.

Decision of the Executive Member

RESOLVED:That the advice of the Advisory Panel be accepted and endorsed.

REASON:(i) This is an important aid in the recruitment and retention of the workforce;

                        (ii) This is a beneficial improvement to the overall scheme and the increase in costs is likely to be negligible, given the low level of in-service deaths in York;

                        (iii) This is a significant equalities issue for those who choose not to marry or enter a civil partnership and the Council has always been supportive of its introduction;

(iv)        Although this is likely to be resisted by employees’ representatives it is important that the balance between employee and employer contribution rates be redressed.  If the LGPS is to be sustainable the taxpayer must be protected from the increased cost of pension provision due to increased longevity and the only way to do this is to ask the employee to contribute more;

                        (v) Tiered contribution rates are not supported on discrimination grounds and the divisive impact they would have;

                        (vi) Although there are some reservations about the operation of the revised arrangements in the consultation, the principal of two-tier ill health benefits is welcome because it should allow the Council to deal more efficiently with long-term sickness;

(vii)      This would treat all pensionable service accrued up to March 2008 as a benefit to be paid under the terms of the current Scheme.  This is a transparent and cost neutral option;

                        (viii) It is important that the Scheme remains standardised at a national level and there already exist within the Scheme a range of employer discretions which allow for local flexibility;

(ix)        This is an important tool in the management of change.  However, the Council, as the employer would wish to maintain some control over the exercise of flexible and early retirement and does not wish to see the employee alone being able to opt to act in this way;

(x) This is necessary to ensure that a stable cost sharing is maintained for all employers in the Scheme.