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Local Government Pension Scheme (LGPS) Regulations update and guidance

User AvatarPosted by Sam Topham at 02/04/2019 16:51:57

The Local Government Pension Scheme (LGPS) (Miscellaneous Amendment) Regulations 2018

These regulations came into force on 10 January 2019 and brought in two significant changes which have been back-dated.  The first change is a technical amendment to deliver the policy intent for deferred members of the 1995 scheme to be able to access their benefits without their employer’s consent from age 55 and this is effective from 17 April 2018.  The Fund will be notifying deferred members of the 1995 scheme accordingly.

The second regulatory amendment is to provide survivors of registered civil partnerships or same-sex marriages with benefits that replicate the benefits provided to widows.  The regulation has effect from:

  • 5 December 2005 in respect of a surviving civil partner of a member; and
  • 13 March 2014 in respect of a surviving spouse of a same sex marriage with a member

The regulations also introduced a new power for the Secretary of State to issue statutory guidance to administering authorities on the administration and management of the LGPS.  The purpose of this power is to deliver greater standardisation of approach so that LGPS funds do not take different approaches in relation to sensitive areas such as eligibility for survivor benefits.

LGPS Advisory Board (SAB) Cost Management

SAB has undertaken a cost management process of the LGPS and the outcome is that the total scheme future service cost is 19% compared to the target total cost of 19.5%.  To return the total cost to 19.5%, SAB have made recommendations consisting of benefit improvements and employee contribution reductions to the Secretary of State for Ministry of Housing Communities and Local Government (MHCLG) and HM Treasury. 

Of interest to employers will be the recommendations:

  • to remove Tier 3 of Ill Health;
  • to set a minimum lump sum death in service benefit of £75,000 per member; and
  • to amend the employee contribution bands for 2019-20.

There will be a consultation shortly on these proposals and it is hoped to have the changes implemented by 1 April 2019.  Due to the short timescales, SAB have issued advice to administering authorities to begin preparations for the above changes including taking a view on advising their employers of the proposed contribution rates and the proposed change to ill health from 1 April 2019 so employers can make decisions in light of the proposals.

SAB have suggested to MHCLG that the consultation should be as short as is possible and that a letter of comfort should be issued as soon as is legally possible to allow administering authorities and software providers to anticipate the changes to regulations and employers to implement new contribution rates. 

As a result of the above, the Fund is using this bulletin to notify employers, and without pre-empting regulatory changes, that it may be prudent to put in place the necessary preparations to avoid changing bands on 1st April under current regulations then retrospectively making further changes to bands and rates resulting in contribution overpayments.   Doing so could enable employers to take immediate and full advantage of any letter of comfort issued prior to regulations in this area.  

The proposed employee bands for 2019-20 are as follows:

Band

Pensionable Pay from £

Pensionable Pay to £

Contribution rate

1

0

12,850

2.75%

2

12,851

22,500

4.4%

3

22,501

36,500

6.5%

4

36,501

53,500

6.8%

5

53,501

64,600

8.5%

6

64,601

91,500

9.9%

7

91,501

107,700

10.5%

8

107,701

161,500

11.4%

9

161,501

 

12.5%


Please note that the impact of the above changes on a scheme employer’s contribution rate will depend on a scheme employer’s membership profile, for example, employers with higher paid full time staff possibly seeing a smaller upward pressure on employer contributions and conversely those with a very large proportion of staff earning less than £12,000 potentially seeing a much higher upward pressure.

Revised Factors

MHCLG have issued revised factors for:

  • Non-club in transfers
  • Early retirements
  • Trivial commutations
  • Pension credits (where the debited member left the LGPS prior to 1 April 2014 or the transfer date is prior to 1 April 2014)
  • Pension debits (pre and post 2014)

These factors are effective from 8 January 2019 with the revised early retirement factors being beneficial to members (although more beneficial to some members than others).

For information the table of the revised factors is provided below.  Please note that the factors are the same regardless of gender.

No. of years paid early

Pension reduction

Lump sum reduction

0

0%

0%

1

5.1%

2.3%

2

9.9%

4.6%

3

14.3%

6.9%

4

18.4%

9.1%

5

22.2%

11.2%

6

25.7%

13.3%

7

29.0%

15.3%

8

32.1%

17.3%

9

35.0%

19.2%

10

37.7%

21.1%

11

41.6%

N/A

12

44.0%

N/A

13

46.3%

N/A

New Fair Deal Consultation

MHCLG have issued a consultation on the proposed amendments to the LGPS that are intended to implement the New Fair Deal Policy protecting the pension position of local government workers who are compulsorily transferred as part of an outsourcing arrangement.

Employers are urged to provide their comments on the consultation which can be found at

https://www.gov.uk/government/consultations/local-government-pension-scheme-fair-deal-strengthening-pension-protection

Please send your comments on the proposals by 4 April 2019, to 

Lgpensions@communities.gov.uk