On 1 October 2008 the new Local Government Pension Scheme (LGPS) will have been in place for six months. One of the most debated aspects of the new LGPS has been the operation of the three-tier ill-health pension benefit.
Practitioners have raised a number of concerns in relation to:
- the role of the scheme employer
- the role of the registered medical practitioner
- the requirement for scheme employers to review third-tier benefits after 18 months, and consider if ongoing payment remains appropriate
- the Secretary of State's delay in issuing the final form statutory guidance to which scheme employers and registered medical practitioners "must have regard" when carrying out their functions and making determinations.
For ill-health determinations made from 1 October 2008, the transitional provisions will cease to apply. In light of the continuing concerns surrounding the operation of the LGPS ill-health pension, it would be prudent for scheme employers to now review the procedures and decision-making processes they apply in relation to ill-health pensions.
Scheme employers should ensure that their procedures comply with all of the new requirements and that their decision making processes are sufficiently robust to withstand successful challenge.
A summary of the three-tiered ill-health benefit is set out below.
If a scheme employer determines:
- to terminate a member's employment because an ill-health condition renders him "permanently incapable" of discharging efficiently the duties of his current employment; and
- the member has at least a reduced likelihood of obtaining "gainful employment" before his normal retirement age,
the member will be entitled to an LGPS ill-health pension.
"Permanently incapable" is defined as meaning that the member will, more likely than not, be incapable until, at the earliest, his 65th birthday.
"Gainful employment" is defined as "paid employment for not less than 30 hours per week for a period of not less than 12 months".
If a scheme employer determines that there is "no reasonable prospect" of the member obtaining "gainful employment" before he reaches his normal retirement age, the member's ill-health pension will be based on:
- his accrued membership; and
- 100% prospective service to age 65.
If a scheme employer determines that although the member cannot obtain "gainful employment" within three years of leaving employment, and it is "likely" that he will be able to obtain gainful employment before his normal retirement age, the member's pension will be based on:
- his accrued membership; and
- 25% of prospective membership to age 65.
If a scheme employer determines that it is "likely" that a member will be able to obtain any "gainful employment" within three years of leaving his employment, the member's pension will be:
- the pension the member would have received if the date on which the member left employment was his normal retirement date; unless,
- the scheme employer discontinues the payment of the pension in accordance with the relevant requirements.
Role of a scheme employer
The new three-tier arrangement provides scheme employers with a significantly increased role when compared to the previous regime. Scheme employers now have a number of decisions to make when determining the level of ill-health pension payable to a member, if any.
Some of these decisions may be complex and require a detailed consideration of a number of factors. To avoid such decisions being the subject of successful challenge, scheme employers must ensure that they have in place appropriate comprehensive procedures and robust decision-making processes.
For example, it is imperative that a scheme employer completes all necessary medical processes and obtains all necessary advice from medical practitioners prior to the termination of a member's employment. Only by doing so can a scheme employer then reasonably decide whether or not to terminate a member's employment with a right to an ill-health pension.
Role of the medical practitioner
Medical practitioner's certificate
Before making a determination in respect of an ill-health pension award, a scheme employer must obtain a certificate from an independent registered medical practitioner qualified in occupational health. The certificate must state whether, in the medical practitioner's opinion:
- the member is "permanently incapable" of discharging efficiently the duties of his employment; and if so
- whether the member has a "reduced likelihood" of obtaining any "gainful employment" before reaching his normal retirement age.
The medical practitioner is providing an opinion, not a statement of fact. It is also important to note that a medical practitioner can only reasonably be asked to express an opinion on matters for which he is professionally qualified. He should not be asked to express an opinion on non-medical matters such as the availability of gainful employment in the relevant geographical area. It is worth noting that the Association of Local Authority Medical Advisers (ALAMA) has sought clarification from the Department of Communities and Local Government (DCLG) as to the matters ALAMA members can reasonably be expected to advise on.
Reliance on the certificate
The opinion of the medical practitioner expressed in the certificate is clearly a key factor in a scheme employer's deliberations. Nevertheless, scheme employers must take into account a number of factors before reaching any decision.
It is important to remember that medical practitioners do not make any material decisions in respect of ill-health pensions; all material decisions rest with the scheme employer.
Employer instructions to the medical practitioner
Scheme employers should ensure that when the appointed medical practitioner prepares his certificate he provides an opinion on all the matters required by the regulations. Scheme employers should therefore prepare a detailed letter of instruction to the medical practitioner detailing all the areas on which he is to comment and requiring that he has paid due regard to any relevant statutory guidance.
When making determinations prior to 1 October 2008 the transitional protections required a scheme employer to consider a member's entitlement under both the 1997 LGPS Regulations and the 2007 LGPS (Benefits) Regulations. Medical practitioners therefore had to complete a certificate including questions about whether the member would meet the ill-health definition in both the 1997 Regulations and the 2007 Regulations. Scheme employers should now revise their instruction letters to medical practitioners accordingly.
If a scheme employer makes a decision without obtaining a medical practitioner's certificate, or the decision is based on a certificate that does not address all the issues required by the Regulations, that decision will be vulnerable to member challenge.
Employer's review of third-tier benefits
A member can only be awarded a third-tier benefit if his scheme employer determines that it is likely that the member will obtain gainful employment within three years. The third tier benefit is essentially an interim benefit.
If a scheme employer awards a third-tier ill-health pension to a member, after the benefit has been in payment for 18 months the employer has a statutory duty to undertake a review as to whether it remains appropriate for the benefit to remain in payment.
Conduct of the review
The scheme employer should write to the relevant member to obtain details of the member's current employment status.
If the scheme employer determines that the member has returned to gainful employment within the 18 month period the employer should:
- discontinue the payment of the member's third-tier benefit; and #
- recover any payments made prior to discontinuance in respect of any period in which the member was in gainful employment.
If the scheme employer determines that the member has not returned to gainful employment within the 18 month period, the employer should obtain a further certificate from a medical practitioner in respect of the member.
If having considered all relevant factors, the scheme employer determines that:
- the member is capable of obtaining gainful employment and the employer can discontinue the member's benefits; or
- the member is not capable of obtaining gainful employment and the employer must continue to pay the payments until three years after the benefits first came into payment.
Up-lifting a third tier benefit
In certain circumstances a scheme employer can determine that a third–tier member can be provided with a second-tier pension.
An employer can consider such an up-lift at the 18 month review stage or at some subsequent date. Such an up-lift can even be considered after the third-tier benefit has ceased to be in payment.
The award of an up-lift can only be considered after a further "determination" by the scheme employer in accordance with the regulations. Before a determination can be made, the scheme employer must obtain and consider a further certificate from a medical practitioner.
Second-tier benefits will come into payment with effect from the date this "second determination" is made.
A three tier benefit, including one tier which is subject to subsequent ongoing employer review, increases both the number and the complexity of the decisions scheme employers will have to make in respect of LGPS ill-health pensions.
Ill-health pension decisions are necessarily emotive and have historically been an area of intense member scrutiny and challenge.
Combine these two factors with the continuing absence of final form statutory guidance and it is clear that scheme employers will need to take great care to ensure that:
- they meet all the requirements of the ill-health provisions of the new LGPS; and
- they reach decisions that are not susceptible to successful member challenge.
If they have not done so already, scheme employers should begin to review their existing policies, procedures and decision-making processes to ensure that they will remain fit for purpose after 1 October 2008. In particular:
- are decisions made by the right people with the necessary information in a timely manner?
- are scheme employers asking their appointed medical practitioners to advise on all necessary issues, and only to the extent that they are professionally qualified to do so?
- are decisions (and the deliberations leading to such decisions) appropriately documented?
If not, scheme employers will need to revise their practices.