GWENT POLICE AUTHORITY AUDIT & RESOURCES COMMITTEE Date: 14th February 2006 Item No: 6(d) Heading: Implementation of New Police Pension Scheme – Status Report Report Author: Chief Constable ___________________________________________________________________ SUMMARY The purpose of this report is to inform members of the actions necessary for the implementation of the new police officers’ pension scheme and related financing arrangements and for the introduction of the new national pension’s tax regime, together with a comment on progress. ___________________________________________________________________ RECOMMENDATION For information. BACKGROUND 1. In April 2006 a new pension scheme will be introduced for all new police officer recruits. The existing police officer pension scheme will operate in parallel for all police officers recruited up to 31st March 2006. Linking the two schemes is a composite financing scheme. 2. Police authorities are required to set up a Police Pension’s Account which will record all the income and expenditure in a financial year. Linking this account in the financial ledger, it is proposed to set up a separate Authority bank account to handle these transactions. 3. Under the new arrangements, most pension’s expenditure will be charged to the Pension’s Account, however, some expenditure, primarily in respect of injury awards (on top of medical retirement pensions), will be charged to the Authority’s Revenue Account. 4. From April, authorities will pay employer’s contributions into the Pension’s Account in addition to those from employees. The Home Office (HO) will also make a payment into the Pension’s Account in line with any projected deficit in the overall Account. 5. Arrangements will need to be made to undertake these transactions and to provide appropriate controls and management information. 6. In addition to the new police pension’s arrangements, HM Revenue and Customs (HMRC) is introducing new national tax arrangements for staff pensions (“A Day”). The main element of this is a limit on the overall value of an individual’s pension which can be paid without deduction of tax. If a person’s pension value exceeds a defined amount (£1.5m for 2006/07), then the excess is subject to tax. Individuals and HMRC need to be informed of this liability and arrangements need to be put in place for providing this information within required timeframes. PROPOSAL FOR CONSIDERATION BY COMMITTEE 7. Appendix 1 provides details of the action plan for addressing these issues. The key elements are: a) Set up a Police Pension’s Account on the ledger and open a related bank account. This will involve developing financial codes, the administrative arrangements for maintaining both the ledger and bank account and the financial procedures linked to the various transaction types. b) Amending payroll employee and employer contribution rates for all police officers and setting up payroll codes and processes for effecting payments into and out of the Pension’s Account. Also, setting up systems for reconciling transactions, producing management information and undertaking performance monitoring. c) Making arrangements with organisations which employ Seconded Officers for the payment of contributions by them into the Authority’s Pension’s Account, including procedures and controls. d) Confirming the current position regarding the payment of Injury Awards, in addition to medical retirement pensions, and making arrangements for identifying and paying future awards. e) Producing Comparative Benefits Statements for each police officer in order to help them decide whether to stay in the current pension scheme or elect to transfer to the new scheme. These do not have to be produced until December 2006 at the latest. f) With regard to “A Day”, the date for introduction of the new HMRC pension tax scheme, the calculation of Accrued Pensions Rights for officers who may be near or above the taxation threshold. 8. Work is underway to implement those arrangements required by 1st April 2006, as shown in the detailed action plan. 9. Production of the Comparative Benefits Statements will require the use of a computer software system. An initial option appraisal has been undertaken to consider the most appropriate way forward. This is in the process of being reviewed and finalised. Whilst the costs of the most appropriate solution have still to be finalised, provision has been included within the 2006/07 budget (£35,000 pa). Although this is an important issue, it is not critical for implementation by April 2006. Work is scheduled during the year for completion before the December 2006 deadline. STAFFING/PERSONAL IMPLICATIONS 10. The work is to be undertaken primarily by the Finance Department, however, this may require overtime working to achieve the necessary deadline. This is unquantifiable at the present time. FINANCIAL IMPLICATIONS 11. As stated in para 9 above. (The funding implications of the police officer pensions were reported to the Authority on 10th February 2006 as part of the 2006/07 budget report.) CONSULTATION 12. HR Department, Rhondda Cynon Taff and Torfaen County Borough Councils and the Police Federation. CONCLUSION 13. The necessary work is in train, primarily for completion by 1st April 2006, in line with the required deadlines. LEAD OFFICER 14. D Garwood, Head of Finance. BACKGROUND PAPERS 15. a) HO Guidance for police authorities on the financial arrangements for police officer pensions with effect from April 2006. b) HMRC guidance on the new pension tax arrangements. c) New Police Pension Scheme – guidance to police authorities – August 2005. d) The Pensions Regulator – Briefing No 3 – Pensions tax simplification.