NILGOSC
Circular
08/2006 – November 2006
To: Salaries and
Wages Officer
All Employing Authorities
Dear Colleague
Explanation of
Discretionary Payments Regulations and Award of Membership under Local
Government Pension Scheme Regulations (
1. Summary
1.1
Employers
wishing to award additional membership to employees as compensation for being
retired on the grounds of redundancy or efficiency can currently do so under
two different sets of statutory regulations.
1.2
The
Local Government Pension Scheme Regulations (Northern Ireland) 2002 {LGPS
(NI)}, which are administered by the NILGOS Committee, allow employers under
regulation 54 to award additional membership of up to 6 years 243 days to any
active scheme member.
1.3
The
Local Government (Early Termination of Employment) (Discretionary Compensation)
Regulations (Northern Ireland) 2003 (the Discretionary Compensation
Regulations) currently allow employers subject to the regulations i.e. those
employers listed in Schedule 3 of the Regulations (see list in Appendix 1) the
discretion to award up to 10 compensation added years to all employees over age
50 retired on redundancy or efficiency and not just to those who are members of
the pension scheme. The Department of the Environment has, however, issued
draft regulations for consultation, which will, if introduced, remove this
facility. The Discretionary Compensation Regulations are administered by the
employers and not by the NILGOS Committee.
2 Introduction
2.1 The Committee has received a number of queries concerning the
proposed removal of the facility to award compensation added years under the
Draft Local Government (Early Termination of Employment) (Discretionary
Compensation) Regulations (Northern Ireland) 2006. The Draft Discretionary
Compensation Regulations were issued by the Department of the Environment for
consultation on 24 August 2006. The consultation period ended on 29 September
2006 and the amending regulations are awaited.
2.2
Employers
should be aware that they will still be able to award up to 6 years 243 days
under regulation 54 of the LGPS (NI) Regulations (provided their discretionary
policies allow it).
2.3
There
are also different funding arrangements to finance an award under the
Discretionary Compensation Regulations and an award under Regulation 54 of the
LGPS (NI).
2.4
This
circular will hopefully clarify the position with the two different
regulations.
3. Background
– Current Discretionary Compensation Regulations
3.1
Under
the Local Government (Early Termination of Employment) (Discretionary
Compensation) Regulations (Northern Ireland) 2003, only those employers
listed in Schedule 3 of the Regulations (see Appendix 1) may award
“compensation” to employees whose employment is terminated on the grounds of:
·
Redundancy;
·
In the
interests of the efficient service of the employer’s functions, or
·
In the
case of a joint appointment, because the other holder of the appointment has
left it.
3.2
The
compensation benefits that can be awarded at the employers’ discretion are:
1.
An increased statutory redundancy payment based on an
employee’s actual week’s pay instead of the weekly statutory limit of £290.00,
and
2.
Either a discretionary one off lump sum payment of up
to 66 week’s pay, based on a service and age related formula (if under age 50
must have at least 2 years qualifying employment service),
Or, for eligible employees aged 50 or over and under 65 with 5 years
service, compensation added years up to a maximum of 10 years.
3.3 Employers must have in
place a Policy Statement
specifying the extent to which it will exercise its discretion under the
Discretionary Compensation Regulations.
3.4 The compensation added
years is awarded on top of the early payment of the LGPS (NI) retirement
benefits paid on the grounds of redundancy or efficiency under Regulation 28 of
the LGPS (NI) Regulations 2002.
4. Proposed Changes to the Discretionary
Compensation Regulations
4.1
The
Discretionary Compensation Regulations are being amended because the Government
believes it is necessary to revoke the existing regulations and replace them
with new regulations to comply with the age-related provisions of the European
Employment Directive, which were implemented through the Employment Equality
(Age) Regulations, which came into operation on 1 October 2006.
4.2
However
an additional two months to 1 December 2006 has been allowed by the Treasury to
enable Pension Schemes to adjust to the age discrimination rules. It is the
Government’s view that the age and length of service related formula that
governs the amount of lump sum compensation payment that may be paid to
eligible employees upon the termination of their employment on the grounds of
redundancy or efficiency would be discriminatory under the Employment Equality
(Age) Regulations and it does not believe it is appropriate to objectively
justify the potential discrimination.
4.3
The
draft Discretionary Compensation Regulations which are likely to be made within
the next 2 months will:
·
Retain
the discretionary power to waive the weekly pay ceiling on statutory redundancy
payments to enable redundancy to be calculated on the actual week’s pay, and
will
·
Provide
the discretionary power to award a one off lump sum payment of up to two years’
pay (104 weeks) (if any statutory redundancy payment is also payable the
maximum, inclusive of the statutory redundancy payment payable will still be
104 weeks), but will
·
Remove
the discretionary power to award up to 10 compensation added years
4.4
Compensation
added years will therefore no longer be able to be awarded under the
Discretionary Compensation Regulations.
4.5
However,
additional membership up to a maximum of 6 years 243 days can still be awarded
through the provisions of Regulation 54 of the LGPS (NI) Regulations provided
the employee is a member of the LGPS (NI) (see section 5 below).
4.6
However
an employee cannot receive an award of both additional membership under
regulation 54 of the LGPS (NI) Regulations and a discretionary award up to 104
weeks under the Discretionary Compensation Regulations.
4.7
There
will also no longer be a requirement for an employee to have 2 years service to
qualify for a payment under the new Discretionary Compensation Regulations.
4.8
Employers
will continue to be required to maintain and publish a policy specifying the
extent to which they will exercise their discretion under the new Discretionary
Compensation Regulations.
4.9 Consultation on the draft changes ended
on 29 September 2006 but the proposed changes have not yet been made. Similar
amendments were issued in
5.
Background
– Awarding Additional Membership under the LGPS (NI)
5.1 The
Local Government Pension Scheme Regulations (Northern Ireland) 2002 which came
into operation with effect from 1 February 2003 introduced regulation 54, which
at that time permitted all employing authorities to increase total
membership only of members leaving employment at or after age 50. Following an amendment effective from 1 June
2005 all employing authorities are now able, at their discretion and at
additional cost payable to the Fund:
·
To
award additional membership up to a maximum of 6 years 243 days to any active
member to augment the employee’s benefits.
5.2
The
change from 1 June 2005 enables all employers to award additional membership to
any member while that member is an active member. Employers must, under
regulation 108, make, publish and keep under review a policy statement on the
circumstances under which they will exercise their discretion under Regulation
54. Most employers’ current policy does not provide for the awarding of
additional membership on redundancy/efficiency because they had the facility to
award compensation added years under the Discretionary Compensation
Regulations. Now that the discretion to award compensation added years is
proposed to be withdrawn, employers may chose to amend their policy statement
for their discretion under Regulation 54 to enable an award of up to 6 years
243 days to be made to a member on being retired on redundancy or efficiency of
the service.
5.3
It
should be noted that under Regulation 54 employers can award up to 6 years 243
days to any active member of any age and not just those over age 50 as is the
case in the Discretionary Compensation Regulations and therefore this
regulation is not considered age discriminatory. However any award of
additional membership to an active member under age 50 who is made redundant
will not come in to immediate payment but will be used to increase the value of
the preserved benefits awarded to the member on being made redundant and will
come into payment at the member’s normal retirement age, usually age 65.
5.4
Employers
may wish to award additional membership to scheme members as an inducement to
join their employment, as an inducement to prevent them leaving employment or
as an award for exceptional service. Employers are free to decide in what
circumstances they will award additional membership, which will require to be
published in their policy statement. However additional membership cannot be
awarded under Regulation 54 to employees retiring on ill health unless no
enhancement is applicable i.e. member has less than 5 years service.
5.5
The
additional period of membership which can be awarded under Regulation 54 must
not exceed the shortest of:
·
potential
membership from the date of leaving to age 65, or
·
6
years 243 days.
5.6
Additional
membership cannot be awarded if the employer has opted to award compensation
under the Discretionary Compensation Regulations to an employee who is retired
on redundancy or efficiency of the service. Employers can therefore use
regulation 54 as an alternative to the Discretionary Payments Regulations.
Statutory redundancy, if applicable, calculated on the member’s weekly pay,
will still be payable.
6. Funding
6.1 The funding of the award of up to 6
years 243 days under regulation 54 and the current provision to award up to 10
added years under the Discretionary Compensation Regulations are different and
are explained as follows:
6.2
Regulation
54
6.2.1
The
cost of funding the award of additional membership under regulation 54 of the
LGPS (NI) Regulations is a single payment calculated by the Scheme Actuary,
which is paid to the Fund within one month of the date the award is made.
6.2.2
The
amount charged is in addition to the actuarial cost required to fund any early
payment of retirement benefits on the grounds of redundancy / efficiency under
Regulation 28 of the LGPS (NI) Regulations 2002.
6.2.3
Under
Regulation 80 employers can request the Committee to agree to the payment of these
costs (plus interest for delaying payment) by instalments over a period not
exceeding 5 years or such longer period as the Committee allows.
6.3
Discretionary
Compensation Regulations
6.3.1
If the
proposed amendments are made the cost of funding the award of up to 104 weeks
will be met by employers as a one off payment made to the employee being
retired.
6.3.2
If the
employee being retired is over 50 then immediate payment
of his/her pension scheme benefits under regulation 28 will be made. The
employer will require to pay to the Committee the
actuarial cost of funding the early payment of these benefits before the
employee’s normal retirement date.
6.3.3
Under
the current Discretionary Compensation Regulations the award of
additional membership up to 10 added years for employees retired on redundancy
or efficiency requires employers to pay the compensation lump sum, calculated
on the compensation added years awarded, direct to the employee being
retired.
6.3.4
The
Committee may be asked by the Employer to act as the paying agent to pay the
Discretionary Compensation Pension on behalf of the employer. The monthly cost
of the compensation pension together with the Committee’s administration charge
for acting as the employers’ paying agent (currently an initial £33 set up fee
and £3.60 per month) is charged monthly to the employers. Employers therefore
meet the ongoing monthly costs until the member and any surviving spouse dies.
Children’s pensions would also be payable to any eligible children on the death
of the member.
6.3.5 The
employers are also required to pay to the fund the one off actuarial cost to
fund the early payment of the retirement benefits on the grounds of redundancy
/ efficiency under Regulation 28 of the LGPS (NI) Regulations 2002.
7. Regulation 130 – An explanation
7.1 The
Local Government Pension Scheme Regulations (
7.2 As
the augmentation option under Regulation 54 had not existed prior to 1 April
2003 regulation 130 now gives employers the opportunity to have all
compensation added years awarded under the Discretionary Compensation
Regulations to their employees retired on redundancy / efficiency for which
they are paying monthly to the Committee the cost of the pension and the
Committee’s administration fee, to be transferred to Scheme membership under
Regulation 54. An actuarial cost is calculated based on the age of the
pensioner in receipt of the pension and the value of the pension in payment at
the date of transfer. This clears the ongoing monthly funding charge and the Fund
becomes liable for the cost of paying the future pension liability.
7.3
To
date, 7 employers have taken advantage of the regulation and bought out some,
or all, of their liability to fund compensation pensions by paying the
actuarial cost to the Fund to transfer the liability. It is likely that this
regulation will be removed in due course and any employers considering
transferring any compensation liability costs it currently has should contact
the Committee for an estimate of the actuarial cost.
8. Committee’s Involvement
8.1
The
Committee is not responsible for administering the Discretionary Compensation
Regulations, which have existed since 1983 and its only current function is, if
requested to do so, act as the paying agent for the employers who have awarded
compensation added years. In virtually all cases of employers awarding
compensation benefits the Committee is asked to be the paying agent. At 30
September 2006 the Committee acted as the paying agent for 2,551 compensation
payments, which are recharged monthly to the appropriate employer together with
the administration charge for this service. If the discretion to award
compensation added years is removed the Committee will no longer be required as
a paying agent for employers but will continue to act as the paying agent for
the current compensation pensions in payment.
8.2 The award of additional membership under regulation 54 is
also at the discretion of each employer as provided for in its policy statement
and once an employer has made and funded an award under this regulation the
Committee’s involvement is to pay the pension when the member retires.
D
Secretary
SCHEDULE 3
EMPLOYERS SUBJECT TO THE COMPENSATION
REGULATIONS
A district council;
Northern Ireland Local Government Officers' Superannuation Committee;
Northern Ireland Housing Executive;
An Education and Library Board;
Fire Authority for Northern Ireland;
Local Government Staff Commission;
Staff Commission for Education and Library Boards;
University of Ulster, except that these regulations apply only to a person who
was employed immediately before 1st October 1984 by the Governors of the Ulster
Polytechnic;
The governing body of a college of education as defined in Article 2(2) of the
Education and Libraries (Northern Ireland) Order 1986;
The Management Board of a training school set up under the provisions of
section 138 of the Children and Young Persons Act (Northern Ireland) 1968;
Probation Board for Northern Ireland;
Northern Ireland Fishery Harbour Authority;
The governing body of an institution of further education within the meaning of
the Further Education (Northern Ireland) Order 1997;
Laganside Corporation;
The Board of Governors of -
(a)
a grammar school within the meaning of the Education and Libraries (Northern
Ireland) Order 1986 which is a voluntary school within the meaning of that
Order; or
(b) a grant maintained integrated school within the meaning of Article 65(3) of
the Education Reform (Northern Ireland) Order 1989;
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