The Local Government Pension Scheme Regulations

1. All employers who participate in the Local Government Pension Scheme (“LGPS”) are required to formulate a discretions policy in accordance with Regulation 66 of The Local Government Pension Scheme (Administration) Regulations 2008, and Regulation 60 of the Local Government Pension Scheme Regulations 2013. The policy must be published and kept under review. A copy of the employer’s published policy statement must be sent to the Pension Fund administering authority. Pension funds participating in the LGPS are currently sending reminders to employers where they have not yet submitted a policy that they are in breach of the regulations.

2. There are a number of discretions in the current regulations, together with several more which remain in force from the previous regulations. However, there is only a handful where there is a requirement for the employer to have a written policy statement and these are set out below.

3. The other discretions which do not need a written policy can be dealt with as and when they are required although it may be useful for you as the employer to formulate a policy document which includes each discretion.

4. Each employing authority must prepare a written statement of its policy in relation to the exercise of its functions under the regulations set out below:

12 Power of employer to increase total membership of active members

This allows employers to grant additional membership to employees

16 Shared Cost Additional Pension

This allows employees to opt to “make up” contributions in respect of an unpaid period of authorised leave of absence (including maternity/paternity/child related)

17 &; TP15 Shared Cost AVC arrangement

Similar to 16. above

18 Flexible retirement

Employee over 55 can take pension and keep working on reduced hours/status

30 Choice of early payment of pension

This allows former employees to take their pension early

31 Power of employer to grant additional pension

An employer can choose to grant additional pension including on redundancy or business efficiency.

TP Sch 2 Power to ‘switch on’ the rule of 85.

This relates to combined age and service. The employer can choose to allow an employee to voluntarily retire after age 55 and before age 60

5. Any amendments to the policy must be sent to the administering authority within one month of the amendment.

Points to note:
Exercising discretionary powers comes at a price. A decision to add pension or disregard a reduction on pension for early payment leads to increased cost to the employer. Under the regulations an employer is required to formulate policies that do not lead to loss of confidence in public service. It follows, therefore, that these policies should be affordable.

An employer can obtain an estimate of the strain cost applicable to an exercise of discretion from the relevant administering authority before making a decision about whether to apply a particular discretion or not. This is only an option if you have stated in your policy that you may allow a discretionary benefit or that you will make a decision on a case by case basis.

Care should be taken when constructing a discretionary policy to make sure that it does not fetter the employer’s discretion (i.e. remove employer power to make further decisions).

The employer should set out the criteria upon which the discretion will be based. The discretions policy which you submit does not have to include details of the criteria but it is recommended for a separate policy to be formulated so that the employer and employee both know what is expected.

Constructing a policy in this way helps to satisfy the requirements of the ‘no loss of confidence’ clause in the appropriate regulations.

One approach is for the policy to state that each case will be treated fairly based on its circumstances and merits and, if relevant to the discretion in question, up to a maximum of ‘XX’ being awarded.

The second type of approach is for an employer to adopt standard policies (e.g., all redundancy payments being based on an actual week’s pay where this exceeds the statutory week’s pay for redundancy payments).

It should be made plain in the policy statement that the policy confers no contractual rights and that the employer retains the right to change the policy at any time. Decisions will be based on the version of the policy in force at the time an event takes place.

In preparing, or reviewing and making revisions to its statement, an employer must be satisfied that the policy is workable, affordable and reasonable having regard to foreseeable costs.

In drafting any policy, employers should have regard to relevant anti-discrimination laws, (e.g. age discrimination) whether it is on an ‘each case on its merits’ policy, one that applies a standard approach, or even one that uses either approach depending on the circumstances.