The latest changes to the various sets of regulations which together form the Local Government Pension Scheme (LGPS) in England and Wales come into force on 1 October 2012. This speedbrief considers the main changes.
Auto Enrolment Changes
Please refer to our specific Speedbrief on these important changes.
The admission body requirements in the Administration Regulations have been amended. The main amendments are set out below.
Where a transferee admission body is performing the functions of a Scheme employer under more than one contract there must be a separate admission agreement for each contract.
From 1 October 2012 both transferee and community admission bodies must now carry out, to the satisfaction of the administering authority, an assessment, taking account of actuarial advice, of the level of risk arising on premature termination of the provision of service or assets provided by the body by reason of insolvency, winding up or liquidation. Where the level of risk identified by the assessment is such as to require it, the admission body shall enter into an indemnity or bond in an approved form with an authorised third party provider. This is a new requirement for community admission bodies. For transferee admission bodies under Regulation 2(a) the risk assessment must also be to the satisfaction of the Scheme employer (which currently carries out the risk assessment under the present regulations).
If, for any reason, it is not desirable for an admission body to enter into an indemnity or bond, the admission body may provide an alternative guarantee in a form satisfactory to the administering authority from:
- a person who funds the admission body in whole or in part;
- a person who owns, or controls the exercise of the functions of the admission body, for example a parent company; or
- the Secretary of State in the case of an admission body which is established by or under any enactment, and where that enactment enables the Secretary of State to make financial provision for that admission body.
The statutory requirements in Schedule 3 of the Administration Regulations as to the content of transferee admission agreements have now been extended to community admission agreements (with some minor changes).
These changes do not affect any admission agreements made in accordance with the Administration Regulations before 1 October 2012. However administering authorities will need to update their standard admission agreement precedents for community and transferee admission bodies in light of these changes and the auto-enrolment changes. Eversheds can assist LGPS funds in this work as we have updated our standard agreements in light of the changes. Administering authorities also now need to take a more active role in the risk assessment process.
Valuations for Exiting Scheme Employers
A new power has been introduced to provide for closing actuarial valuations to be undertaken and revised contributions charged when any employing authority ceases to be a Scheme employer. This general power replaces the previous power that applied only to admission bodies. However, we are seeking clarification on some drafting issues from the Department for Communities and Local Government.
Discretionary Policy Statements
The exercise of functions under Regulation 30A (Choice of payment of pension: pensioner member with deferred benefits) must be included in discretionary policy statements.
All employing authorities will need to amend their existing discretionary policy statements to include this new provision by 31st March 2013. Eversheds can assist employers in updating their statements.
Elected police and crime commissioners
Elected police and crime commissioners can now become members of the LGPS and are to be treated as employees of the police and crime commissioner. Any decisions they make in the capacity of employing authority which affect the benefits they or their predecessors are entitled to must be confirmed by the commissioner’s head of staff.
Annual Benefit Statements
The maximum amount (the annual allowance) by which a member’s pension benefits from all schemes can increase in any tax year was reduced to £50,000 with effect from April 2011. Pensions savings which exceed this allowance are subject to tax which may be met from the pension scheme. The Administration Regulations have been amended to require administering authorities to issue annual benefit statements which will show whether or not members have exceeded the annual allowance, and subsequent to that allow for the LGPS funds to pay the tax charge following a request from a member.
Where the tax charge is met by the LGPS fund any reduction in accrued rights will be carried out in line with guidance to be issued by the Secretary of State. This change is backdated to 6 April 2011.
Where an employing authority is required to contribute to more than one LGPS fund or merges with another employing authority in a different fund or moves its place of business to another geographical area, the Secretary of State can now consider an application for the substitution of one fund for another and issue a direction to this effect. The direction can include instructions as part of the substitution such as the assignment of liabilities from the former to the substituted fund.
This new power may prove useful in the increasing number of mergers in the further and higher education sectors that we are seeing, where the merger of institutions in different LGPS funds regularly raises issues.
Where a local authority maintained school converts to an Academy, the Administration Regulations have been clarified so that the appropriate LGPS fund is the one within whose local government area the Academy is located.
The Benefits Regulations have been clarified so that where a member who has benefits under the 1997 LGPS takes flexible retirement, he or she also has the choice whether to request to receive payment of benefits accrued under the 2008 LGPS.
Childrens’ and survivors’ pensions
The Benefits Regulations have been amended in respect of children’s pensions for active members to provide that the calculation of the pension takes into account any additional contributions made by the deceased member and that in the case of a member in part-time employment, no account is taken of any reduction in the member’s membership caused as a result of the condition that led to or contributed to the member’s death. Similar changes are also made for children's pensions and survivor benefits for deferred members.
Consent to early payment of deferred benefits
The Benefits Regulations have been amended so that the appropriate administering authority may consent to the early payment of pension for a deferred member or pensioner member with deferred benefits where the member’s former employing authority has ceased to be a Scheme employer.
The Benefits Regulations have been amended to enable a pensioner member with deferred benefits to access their retirement pension early provided an independent registered medical practitioner certifies that the member’s ill-health condition has deteriorated to the extent that the member is permanently incapable of working.
The Amending Regulations make some substantive changes to the various governing regulations for the LGPS. Eversheds is able to assist administering authorities and employers with the implementation of these changes.