A report of the Strategic Director Finance, Governance and Support was presented to advise Members of the Board of changes proposed to the regulations governing the Local Government Pension Scheme (LGPS), as a consequence of the Scheme Advisory Boards cost management process.
The changes would result in an average increase to employer contributions in the LGPS of around 0.9% of pensionable pay. The exact amount would vary by employer, with those who employed mainly lower paid staff seeing an increase in employer costs of around 2.75% of pensionable pay.
The Future Service Cost mechanism operated by the Scheme Advisory Board had determined the future service cost for LGPS was 19% as against the target of 19.5%. In order to bring the cost back in line with target cost, the Scheme Advisory Board recommended the following changes to contributions and benefits:
Removal of the third tier of ill-health (assume it will be replaced by second tier ill-health).
A minimum death in service benefit of £75,000.
Enhanced early retirement reduction factors.
Employee contributions: A new 2.75% band at pay from £0 to £12,850, reduced rate of 4.4% (from 5.8%) for pay from £12,501 to £22,500, and an expansion of the top of the current 6.8% band from £45,200 to £53,500.
The Scheme Advisory Board had produced a draft consultation document, a copy of which was attached at Appendix A to the submitted report. This document set out the expected content of a more formal consultation.
The impact on employers would vary, depending on the profile of their scheme members. AON, the Pension Fund Actuary, had provided more detail on the proposals and a copy of that document was attached at Appendix B to the submitted report. The Actuary estimated the cost of employers as being 0.9% of pensionable pay on average but ranging up to 3.0% of pensionable pay. This additional cost would be taken into account as part of the next valuation in March 2019.
However, on 30 January 2019, the Scheme Advisory Board issued an email advising that the Government had announced a pause in the cost management process for public service pension schemes due to an ongoing unlawful discrimination appeal. If the Governments appeal was not successful, the potential cost of rectifying this had been estimated at £4 billion a year. While the risk existed and there was uncertainty about the value of all public service pension schemes liabilities, the Government had decided not to progress its cost management assessment. It was doubtful whether the Scheme Advisory Board would progress with its own cost management process to enable implementation of the changes by April 2019. It was highlighted that whether the Government wins its appeal or not, the cost to employers of providing the scheme looked likely to increase.
The Pension Fund Actuary would take into account any changes to the value of liabilities that result from the cost management process when preparing the 31 March 2019 actuarial valuation.
AGREED that the report was noted.