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					FI/07/18 Investment & Pension Fund Committee 9 February 2007 LOCAL GOVERNMENT PENSION SCHEME (LGPS) – ADMINISTRATION Report of the Director of Finance, IT & Trading Please note that the following recommendations are subject to consideration and determination by the Committee before taking effect. Recommendations: that the Committee a) Note the report for information on the New-Look LGPS, b) Give approval for (i) the increase in staffing of the Pension Administration Team by the addition of one full time pension assistant, (ii) the purchase and installation of a new document imaging and workflow system, 1. The Proposed New-Look Pension Scheme for the LGPS a) Following a lengthy consultation process the Department for Communities & Local Government has circulated for comment by the 28th February 2007 draft regulations which propose a new-look benefit structure for The Local Government Pension Scheme (the LGPS) in England and Wales. b) At this stage the draft regulations are incomplete and we are told that we will receive the complete draft together with draft Administration Regulations at the earliest possible opportunity. The detail will be in the Administration Regulations and the complete draft will be required before the new regulations can be fully understood and introduced from 1st April 2007. They will take effect on the 1st April 2008 c) The new scheme remains a final salary scheme. The pension accrual rate is increased from 80ths to 60ths and pension scheme members will no longer receive an automatic lump sum but will have the option to elect to receive up to 25% of their benefits as a tax free lump sum by reducing their annual pension at a rate of 12:1. Dependents benefits are extended to include nominated co-habiting partners and the death grant for active members is increased to 3 times salary. A new three tier ill health retirement arrangement is introduced. d) Appendix 1 sets out a summary comparison of the main benefits under the current scheme and the new scheme. All active members in the current scheme at 31st March 2008 will automatically be transferred to the new scheme. Benefits accrued to 31st March 2008 will remain in the current scheme and will be linked to member’s final salary at their eventual date of leaving. e) The triennial fund valuation exercise is due as at 31st March 2007 for implementation on 1st April 2008. The valuation exercise will need to take account of the benefit structure and the cost of the changes featuring in the new-look scheme. I will keep the Committee apprised of these developments. 2. Pension Administration Issues a) Recent and numerous changes over the past 18 months to the LGPS regulations have put significant additional pressure on the pension administration team’s ability to manage all of its responsibilities. In particular, the change that provides an employee leaving their employment with less than 2 years pension scheme membership the opportunity to have deferred benefits

or transfer them, has resulted in the requirement to calculate a high number of deferred benefits. Previously employees with less than 2 years pension membership were given a refund of contributions. b) The pension administration team is required to comply with statutory timescales, which are being compromised and could therefore attract financial penalty. There is a growing backlog of cases requiring calculation. I request approval to appoint 1 full time member of staff at grade C (£14,142 - £15,825) with effect from 1st April 2007, provision for this post has been included in the 2007/08 pension administration budget. c) Benchmarking statistics for 2006 show that Devon has a low cost measurement per member of £14.65 when viewed against £22.80 for the average of all LGPS administrations (excluding London and metropolitan authorities which are substantially higher). The increase by 1 staff member would bring to 27.5 the total headcount employed in the administration of the Devon Fund LGPS. d) The pension administration team is seeking approval for the purchase and installation of an additional module to the existing pension AXISe system platform. The need for the AXISe Integrated Document Imaging has been identified to address the document storage and retrieval requirements of a modern busy pension administration office. It will also provide for workflow i.e. the paper is scanned at arrival and routes through the integrated system to the individual work desk. e) The benefit to the administration team will include: • • • • • • f) Improved efficiency by vastly reducing the time taken to retrieve documentation currently held in paper form or micro fiche Reduction in the office space required for document storage Improved document security Enable on-line at the desk access to all documents for an individual member Allow hierarchic document storage to store non-member documents To be fully integrated with the current AXISe system suite of task management, document production, pension record and benefit administration and pensioner payroll.

The cost to the Fund of installing the system is estimated to be £105,000 which includes the delivery, customisation, hardware cost and the initial licence fee from Heywood, the software provider of £58,000. Also included in the above cost is £6,000 for a 5 year service contract and £16,000 contingency costs for in house preparation of data records. Members may recall similar approvals given in 2002 which lead to the successful development and installation of the integrated in-house pension payroll system. The continued investment in integrated systems for the pension administration does offer future opportunity to Devon to be strategically placed in the agenda for partnership and across boundary working. The efficient cost of the Devon pension administration is mentioned at paragraph 2 (c) above. A provision for the cost of the development of an imaging workflow system has been included in the 2007/08 pension administration budget. The effect on the cost per member for 2007/08 is estimated to be an increase from £14.65 (April 06 figure) to £15.77 which compares favourably with the average for all administration authorities of £22.80.

g)

h)

John Mills Electoral Divisions: All

Local Government Act 1972 List of Background Papers Nil Contact for Enquiries: Rod Turner Tel No: (01392) 688210 Estuary House

Appendix 1 Local Government Pension Scheme - April 2008 New scheme proposals Current Scheme New Look April 2008 scheme
Minimum Retirement Age 50 Will rise to 55 from 2010 55 This is for new members joining the LGPS from 1 April 2008. This will apply to existing members from 2010 Unreduced retirement benefits

From age 65 or earlier depending on satisfying From age 65 the rule of 85. The 85 year rule does not apply to new members Protections under the removal of the 85 year joining the scheme from 1 October 2006 rule will continue to apply. Employee contributions 5% for pre 1998 protected manual workers. 5.5% on the first £12,000 of pensionable pay 6% for other members 7.5% on salary in excess of £12,000 Additional Voluntary Contributions (AVC) Maximum number of added years = 6 2/3rds Maximum of £5000 additional pension

External AVC contracts available External AVC contracts available Final Salary Definition (used to calculate benefits) Highest of • Pay in the final year • One of the previous 2 years pay Highest of • Pay in the final year • Revalued (RPI) average of the best 3 consecutive years’ pay in the last 10 years service Calculation of pension/cash benefits Pension = Service/60 X final salary Cash lump sum = no cash as standard

Pension = Service/80 X final salary Cash lump sum = Service/80 X 3 X final salary

Maximum tax free lump sum cash available 25% of the capital value of your benefits 25% of the capital value of your benefits

Current Scheme

New Look April 2008 scheme
Ill Health benefits

Must be deemed ‘permanently unable’ to perform duties. Additional service awarded depending on service already accrued. Total membership Less than 5 years 5 – 10 years 10 – 13 1/3 years 13 1/3 – 33 1/3 over 40 years

Three tier system 1. Unlikely to gain employment before retirement – 50% of prospective service is awarded. Total membership after 2. Unlikely to gain employment within a Increase awarded reasonable time after leaving local total membership only government but before retirement – 25% membership doubled of prospective service is awarded. increased to 20 years 3. Gainful employment is likely within a increased to 40 years reasonable time after leaving local government – no additional service is total membership only awarded, standard accrued benefits only. Death in Service benefits Lump Sum death grant of 3 X salary Survivor pension available to married spouse, registered civil partners and nominated cohabiting partners (including same sex couples). Death after Retirement Survivor pension available to married spouse, registered civil partner or nominated cohabiting partner (including same sex) Survivor pension = service/160 X salary of deceased member. Scope for balance of 10 years pension payments payable if death occurs in first 10 years, payable as a lump sum.

Lump Sum death grant of 2 X salary Survivor pension available to married spouse or registered civil partner.

Survivor pension available to married spouse or registered civil partner.

Survivor pension = service/160 X salary of deceased member. Balance of 5 years pension payments payable if death occurs within first 5 years, payable as a lump sum

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