NILGOSC
Circular
06/2002 – September 2002
Draft
Local Government Pension Scheme Regulations (Northern Ireland) 2002
Under the
above draft Regulations which are due to be made this month with a likely
effective date of 1 January 2003 employers will be required to make, publish
and keep under review policy statements on how they will exercise discretion in
a number of areas of the pension scheme.
The attached
paper explains the various discretions in the regulations, which require
employers to make a policy together with an example of a Policy Statement. It
should be noted that this example is for illustration purposes only and that
each employer will have complete discretion to determine their own policies.
I hope you find the paper useful in
preparing your policy statements when the regulations are made.
Yours sincerely
D W Morrice
Secretary
1.1 Under Regulation 108 of the Draft Local Government Pension Scheme Regulations (Northern Ireland) 2002 employers will be required, after consultation with the NILGOS Committee, to make, publish and keep under review policy statements on how they will exercise discretion in a number of areas of the pension scheme.
1.2 The policy statements must be made within 3 months of the commencement date of the regulations and therefore employers should begin considering their policy statements now as under Section 75 of the Northern Ireland Act 1998 the policy statements may require to be impact assessed.
1.3 The discretions were introduced into the regulations to allow employers to tailor the scheme, at additional cost, to suit their own specific requirements with regard to attracting and appointing staff, to make the scheme more attractive to retain staff and to assist with the severance and redundancy retirement schemes they operate.
1.4 Employers in exercising their discretions are required by the regulations to have regard to the extent to which the exercise of the discretions could lead to a serious loss of confidence in the public service. They will be required therefore to determine reasonableness in relation to the exercise of discretions they make.
1.5 The statements produced by employers must satisfy the requirements of the regulations and discretions must not be fettered in any way.
1.6 The following guidelines have been produced to assist employers in determining their policy statements but it will be up to each employer to seek its own appropriate advice.
1.7 An example Policy Statement is shown in Appendix 1.
2.1 Employers may wish to include a section in their policy statement as an introduction to show members how their policy was formulated and how it will be exercised.
2.2 This section could state how the employer in formulating its policy statements considered that its discretionary powers must:
· be exercised reasonably
· not be used for ulterior motive
· be used with regard to all relevant factors (cost being balanced against the benefit for the Employer).
· be duly recorded when used.
2.3 The statements will also require to take into consideration the views of:
· the Fund Actuary, Hewitt Bacon & Woodrow.
· the NILGOS Committee
· the recognised trade unions.
· the Local Government Auditor.
· the sponsoring department if appropriate
3
Mandatory Discretions
3.1
Regulation 33 – To allow early retirement between ages
50 and 60.
3.1.1 From age 50, members of the Scheme will have the right to apply for early payment of their retirement benefits subject to the consent of the employer. Former employees who have deferred benefits for service after the commencement date of the regulations will also be able to apply to their employers for the early payment of their preserved benefits.
3.1.2 The cost of allowing members to take their benefits earlier than normal retirement age is considerable and will require to be paid by employers as a one off cost at the date of retirement similar to the current charge payable to the fund on redundancy retirements. On request by the employer, and with the agreement of the Committee and the Fund’s Actuary payment may be made by instalments over a reasonable period of time. The actuary has calculated that it will cost approximately Ł10 per Ł1 of pension for a member retiring 15years early at age 50.
3.1.3 The employee or deferred member will also suffer a cost for the early payment of benefits if his / her service and age when added together is less than 85 years. The cost is a percentage reduction to the lump sum and pension based on the number of years required to reach the 85-year rule target.
3.1.4 A policy statement for this discretion will require to consider:
· the particular circumstances surrounding and the merits of each case.
· the employer’s ability to meet the cost of granting such a request
· what demonstrable cost savings in excess of potential savings under any severance arrangement can be made.
3.1.5 The employer will also be allowed to waive, on compassionate grounds, the reduction in benefits applied on retirement where the rule of 85 is not satisfied. This discretion will also be available to employers for employees or deferred members retiring over age 60, who do not require their employer’s consent to retire, and who also do not satisfy the 85-year rule.
3.1.6 The additional cost to the Fund will be borne by employers as a one off actuarial cost or, on request by the employer and with the agreement of the Committee and Fund’s actuary, by instalments over a reasonable period of time.
3.1.7 Employers will require to consider what conditions, if any, will be considered as compassionate grounds to allow this reduction to be waived. e.g. to allow employees or former employees to retire to care for a sick spouse, parent, child or sibling, etc.
3.2
Regulation 54 - To grant additional years of service to
members who leave after age 50.
3.2.1 This discretion will allow employers to grant additional years of service to members who leave after age 50. Additional years cannot be awarded to employees retiring on ill health unless no enhancement is applicable. The additional period of membership awarded must not exceed the shortest of:
· the member’s total membership.
· 40 years minus the member’s total membership.
· potential membership from the date of leaving to age 65.
· 6 years 243 days.
3.2.2 The additional membership must be granted between one month before and six months after the date of leaving.
3.2.3 Additional membership cannot be awarded if the employer has opted to award compensation added years to an employee who is retired on redundancy or efficiency of the service.
3.2.4 Employers currently subject to the Discretionary Payments Regulations (due to be changed at the same time as the 2002 Regulations are introduced to the Early Termination Regulations) will require to decide on redundancy / efficiency cases whether to award membership under the Pension Scheme Regulations up to a maximum of 6 years 243 days or to award compensation added years up to a maximum of 10 added years under the Discretionary Payments Regulations.
3.2.5 A policy statement for this discretion will require to consider:
· the member’s personal circumstances
· the interests of the employer.
· the potential savings to be made by the exercise of this discretion
· other options that are available under the Discretionary Payments Regulations (if applicable) or any in house severance arrangements.
· the ability of the employer to meet the cost of granting such an award.
· will the policy apply to all employees or only those retired on redundancy or in the interests of efficiency.
3.2.6 The cost of awarding additional years of service is considerable and will require to be paid by employers as a one off cost at the date of retirement similar to the current charge payable to fund redundancy retirements. On request by the employer, and with the agreement of the Committee and the Fund’s Actuary, payment may be made by instalments over a reasonable period of time. The cost of awarding one added year to a 50 year old is estimated by the actuary to cost 30% of salary reducing to 22.5% for one added year at age 65.
3.3
Regulation 55 – To grant additional years of service to
new members.
3.3.1 This discretion will allow employers to grant additional years of service to new members.
3.3.2
The
service must be granted within 6 months of becoming a member. The member must be aged less than 59 when he
becomes a member. The resolution must
specify the additional period of membership.
3.3.3
Under
Schedule 4 of the Draft Regulations, the maximum addition is the shorter of the
period by which the members potential period of membership to age 65 (reduced
by the appropriate period for any retained benefits) falls short of 40 years,
and the members potential period of membership to age 65 (reduced by the
appropriate period for any retained benefits).
3.3.4
The
additional period will not be counted as part of the member’s total membership
if the member leaves employment before being entitled to an immediate pension.
3.3.5 Employers pay the cost of awarding additional years of service as a one off cost at the date of awarding the added years. The cost is similar to the current charge payable to the fund for redundancy retirements. On request by the employer, and with the agreement of the Committee and the Fund’s Actuary payment may be made by instalments over a reasonable period of time. The cost is estimated by the actuary as 30% of salary for each year awarded at age 50 and 22.5% at age 64.
3.3.6 A policy statement for this discretion will require to consider:
· the recruitment policy adopted by the employer.
· what exceptional circumstances, if any, would justify the awarding of additional service to a new employee.
· the ability of the employer to meet the cost of awarding service
3.4
Regulation 69 - To introduce a
Shared Cost AVC Arrangement
3.4.1
Employers
will be able to introduce a shared cost AVC arrangement (SCAVC) to allow
contributions to be paid to a member’s NILGOSC AVC arrangement. The resolution
must specify the conditions of eligibility, whether the SCAVC’s are to be used
to provide death benefits and if so, what proportion of them and what
percentage or amount of contributions the employer will pay.
3.4.2
Where
an employer agrees to enter into a SCAVC arrangement with a member, the onus is
on the Committee to ensure that the appropriate investment arrangements etc are
available. This will be done through the Scheme AVC provider Prudential.
3.4.3 The limit on the level of contributions paid by the employee is the Inland Revenue 15% maximum contribution level which includes the normal 6% contribution.
3.4.4
A
policy statement for this discretion will require to consider:
·
the
recruitment policy adopted by the employer.
·
what
circumstances, if any, would justify contributing to a SCAVC arrangement.
·
the
ability of the employer to meet the cost.
·
what
benefit will be covered e.g. whether the employer wishes to increase death in
service for members from the two years pensionable pay payable by the Fund up
to the Inland Revenue maximum of four years pensionable pay.
4. Other Discretions where a Policy is recommended
4.1 In addition to the
mandatory discretions detailed in section 3 employers may wish to publish their
policies on the following areas where they also require to exercise a
discretion but are not required under the Regulations to publish it.
4.2 Regulation 6 (9) (a) – Re-entry to the Scheme for previous
opters out
4.2.1 A person who has given more than one notification to opt out of the scheme may only reapply to rejoin the scheme if his / her employer consents.
4.2.2 It would be normal for employers to allow employees to rejoin the scheme but employers may wish to make a decision taking into account the medical history of the employee. There is no additional cost to the employers to exercise this discretion.
4.3
Regulation 14 – Contribution Waiver where service
exceeds 40 years.
4.3.1 If an active member has total membership of at least 40 years in local government service, excluding any transferred in service, then the employer can determine that the employee contributions be reduced or ceased entirely.
4.3.2 Members who joined the scheme before age 20 will accrue 40 years membership before age 60 (provided they have worked full time). 40 years is the maximum a member can accrue at age 60 so any service accrued in excess of 40 years is not counted. Members who joined the scheme before 1 June1989 (Class C Members) will be able to continue accruing service from age 60 up to a maximum of 45 years at age 65. Members who joined the scheme on or after 1 June 1989 will be restricted to a maximum of 40 years membership.
4.3.3 A policy statement for this discretion will require to consider:
·
will
contributions be waived entirely or reduced. If reduced what percentage
reduction will be applied.
·
for
how long will contributions be waived or reduced. For the period to age 60 when
service may again begin to accrue if the employee is a Class C member or to age
65 or retirement age if earlier.
·
although the 40 years membership is based on
contributing membership to the scheme, employers may wish to exercise their
discretion only for employees who have 40 years service in their employment.
4.3.4
The
cost to employers to exercise this discretion is to pay the contributions
waived or reduced for the employee.
5.
Conclusion
5.1
The
discretions are for employers to exercise as best suits their working practices
and own situation. What is suitable for one employer may not be suitable for
another and therefore there is no one fit solution for all employers. However
employers working in the same sector e.g. the Local Authorities or the
Education & Library Boards etc may wish to standardise their policies
because of the effect different policies will have on recruitment.
5.2
It
is hoped that the guidelines detailed in this report will assist employers in
preparing their policy statements but employers are free to adopt, adapt or
completely ignore any of the information given.
Policy Statement Example
Note
– This is an example of a Policy Statement and is for illustration purposes
only. Employers will have complete discretion to determine their own policies.
However if no discretion is being adopted it will be necessary to give a reason
such as the cost of implementation or a decision will be considered at a future
date.
1. Introduction
1.1
Under
the Local Government Pension Scheme Regulations (Northern Ireland) 2002, which
came into operation on xxxxxxxxxxxxxx, the ABC Employer is required to
publish and keep under review a Statement of its Policy on certain discretions,
which it can exercise under the Regulations.
1.2
In
formulating this Policy Statement the ABC Employer has ensured that its discretionary
powers:
·
have
been exercised reasonably
·
will
not be used for ulterior motive
·
will
be used with regard to all relevant factors
·
will
be duly recorded when used
1.3
The
Policy Statement has been prepared following consideration of the views of:
·
the
Fund Actuary, Hewitt Bacon & Woodrow
·
the
NIPSA Trade Union
·
the
Local Government Auditor, if appropriate
·
the
Department of the Environment, and
·
the
Employing Authorities in the Scheme.
·
The
NILGOS Committee
1.4
In
applying this Policy Statement the ABC Employer confirms that its
discretions will be applied reasonably and will and will not be fettered and
will be used when necessary to assist in attracting and retaining staff and in
paying staff to leave.
Policy
Statements
2.1 Regulation 33 – Employee’s and Former
Employee’s request to retire early
2.1.1 From age 50, employees who are members of the Pension Scheme and former employees with deferred benefits for membership after xxxxxxxxxxx have the right to apply for early payment of their benefits subject to the consent of the ABC Employer.
2.1.2 If the employee’s or former employee’s
age and membership (in whole years) is less than 85 reduced benefits are
payable. This is known as the “85 Year Rule”.
2.1.3 Employees or former employees who are aged 60 or over do not require the ABC Employer’s consent to retire early but reduced benefits will be paid where the 85 year rule is not met.
2.1.4 The ABC
Employer can on compassionate grounds waive the reduction in benefits where
the 85-year rule is not satisfied.
2.2 Policy
2.2.1 Each request from existing staff members will be judged equally
on its own merits and this discretion may only be exercised when the cost of
the early retirement can be funded by the cost saving of release within a (STATE NUMBER OF YEARS) year period. Early payment of benefits for former
employees will not be considered unless in exceptional circumstances on
compassionate grounds.
2.2.2
Each request on
compassionate grounds for the early payment of benefits and / or request to
waive the reduction in benefits where the 85-year rule is not satisfied will be
considered on its own merits regardless of cost. Before exercising this
discretion the ABC Employer will require:
·
full details of the exceptional
circumstances.
·
details of all employments held
since leaving theABC Employer and details of pensions deferred or in payment
and any other benefits or income
payable.
·
medical reports, if appropriate,
to support a case of retirement to look after an elderly or infirm spouse,
child, parent, sibling or other dependant.
·
Confirmation in financial
hardship cases that the hardship would not be better assisted by the Department
of Social Services and the effect the payment of scheme benefits would have on
the receipt of any state benefits the member is entitled to.
2.3 Regulation 54 – To grant additional service to members who
leave after age 50
2.3.1 The ABC Employer has power to increase Scheme membership for members who leave employment aged 50 or over. The additional period of membership awarded must not exceed the shortest of:
· the member’s total membership.
· 40 years minus the member’s total membership.
· potential membership from the date of leaving to age 65.
· 6 years 243 days.
2.4 Policy
2.4.1 This discretion will only be exercised in
cases of retirement on redundancy or in the interests of efficiency of the
service in accordance with the ABC Employer’s agreed severance package.
2.5 Regulation 55 – To grant additional years of service to new members
2.5.1 This discretion allows the ABC Employer to grant additional years of service to new members. The additional service must be granted within 6 months of becoming a scheme member and the member must be aged less than 59 when joining the scheme.
2.5.2 The service granted must not exceed the maximum allowed by the Inland Revenue after taking account of any period for any retained benefits in any other pension arrangement and will be the shorter of:
· the period by which the members potential period of membership to age 65 falls short of 40 years
· the member’s potential period of membership to age 65.
2.5.3 The additional period granted will not count as part of the member’s total membership if the member leaves before being entitled to an immediate pension
2.6 Policy
2.6.1 The application of this discretion
will only be exercised in rare and exceptional circumstances when it is deemed
absolutely necessary as an inducement to attract and retain a new employee who
has specialist skills and experience required by the ABC Employer.
2.7 Regulation
69 – To introduce a Shared Cost AVC Arrangement
2.7.1 The ABC Employer may establish and maintain a Shared Cost Additional Voluntary Contribution Scheme (SCAVC) to provide a top up pension or death in service cover for employees. Who can join, how much the ABC Employer and employees will jointly pay and the benefits provided must be considered.
2.8 Policy
2.8.1
This discretion will only be exercised to ensure all employees are
eligible for a death in service grant up to the Inland Revenue maximum of 4
years pensionable pay. Two years cover is currently provided under the main
Pension Scheme benefits and the ABC Employer will contribute X% (INSERT
PERCENTAGE TO BE PAID) of the cost for any employee who takes out an SCAVC
arrangement with the in house provider Prudential to provide further death in
service cover of 2 years pensionable pay.
2.9
Regulation 6 (9) (a) – Re-entry to the Scheme for members who
have opted out
2.9.1 The ABC Employer has the discretion to allow a member who has opted–out of the Scheme more than once to re-join the Pension Scheme.
2.10
Policy
2.10.1 The ABC Employer will make an individual decision taking into account the medical history of the individual to allow employees who have opted out of the scheme more than once to rejoin.
2.11
Regulation 14 – Contribution Waiver where Scheme
Membership exceeds 40 years
2.11.1 The ABC Employer has the discretion to reduce or waive an employee’s standard contribution once the employee has completed 40 years Scheme membership in local government employment excluding any transferred in service.
2.12
Policy
2.12.1 This discretion will
be exercised for employees who complete 40 years employment with the ABC
Employer and their contributions will be waived from the date 40 years service
is attained until the employee reaches age 60.
3. Implementation
3.1 The Policy Statement was approved by the ABC Employer on xxxxxxxxxxxxxx and each discretion will be subject to review in (INSERT NUMBER) years time.