Local Government Pension Scheme (Amendment) Regulations 2002

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Mr. Moss: I listened carefully to what the Minister said in response to the excellent question from my hon. Friend the Member for Epsom and Ewell. He used an example in Sussex where there is an admission of a considerable shortfall in the fund—largely down to ACT, although we will let that pass. What will be the impact on that fund and other similar funds of FRS 17? It is having a major impact on the private sector. It would be helpful for the Committee to know what impact the Minister envisages it having on the local government pension sector.

Dr. Whitehead: Again, the hon. Gentleman perhaps places more concern on the impact of FRS 17 than is necessary. Its main intention is to ensure that company local authority accounts truly reflect the extent to which pension benefits and future liabilities have been funded. The most significant change under FRS 17 will be that, for the first time, the accounts will need to record the full capitalised cost of pension benefits in the accounting period in which the liability first arose.

The proposals were put forward in the first instance by the Chartered Institute of Public Finance and Accountancy, which suggested a plan for implementation and agreeing firm proposals with the Accounting Standards Board. If the Accounting Standards Board agrees to CIPFA's proposals, the long-term liabilities arising from pension benefits will be included in an employer's balance sheet, but will then be transferred to a pensions reserve that will need to be balanced over the longer term. This solution, therefore, recognises the intention of FRS 17 to increase transparency in the way in which pension costs are financially reported, with which I am sure the hon. Gentleman will agree.

It also recognises the long-term nature of local government pension fund accounting and that in local government, unlike the private sector, the risk of bankruptcy is not a practical consideration. It will therefore have no implications for council tax. Transferring all liabilities to a pension reserve in the way that I have described will ensure that FRS17 is fiscally neutral in its effect.

The Chairman: Order. I must point out to the Committee that FRS17 is not germane to this order. Minister, I think that you have spoken enough about it. Can we return to the order?

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Dr. Whitehead: I would be delighted to do that. If the scheme is to be effective—and it affects so many people—it must be flexible, and up-to-date in order to reflect wider pensions law and policy, other statutory changes, Government policies for local government, development in those policies, and the delivery of local services. It must be regularly reviewed and fine-tuned when necessary. Therefore, its statutory framework must be subject to regular amendment.

I have mentioned that this order is part of a family of statutory instruments that regularly amend the scheme. Since the current scheme regulations came into force on 1 April 1998, 14 separate SIs have been laid before the House. The order is not an exception. It is, as the hon. Gentleman mentioned, a mundane and anodyne element of an ongoing process that continues to ensure that the scheme is up-to-date and flexible. The order is part of that process. The amendments are not in any way profound changes in the structure or the nature of the scheme. They grew mostly from the need to deal with requests from those responsible for the local management and administration of the scheme. Informal discussions with interested parties have taken place, followed by the required formal statutory consultation. All representations were carefully considered. None of the more than 600 bodies that were consulted about the regulations under discussion today expressed dissent. All respondents to the statutory consultation were supportive of the proposals.

Regulation 3 extends the scope of existing admission agreement arrangements. As I have mentioned, scheme employers are named in the regulations, but the regulations also permit local government pension scheme pension fund authorities to enter into admission agreements with other employers to allow their staff to have access to the scheme through a contractual arrangement. Typically, such admission agreement bodies will be those providing local authority related functions. They may be public service bodies, some of whose operations are interdependent with those of a scheme employer, or the local authority may provide a substantial part of the funding. Some of the bodies, where it has not proved possible to provide a concise definition, need to be approved by the Secretary of State.

Since January 2000, private sector contractors who win contracts to deliver local authority services can also enter into admission agreements that provide ongoing access to the scheme for staff transferring, and potentially, for any new staff. I repeat that for the elucidation of the hon. Member for Bath: potentially, for any new staff. The arrangements reflect the fact that the statutory functions remain the responsibility of the local authority, but they also help the authority deliver on its best value agenda, while providing a seamless transfer in pension terms for employees. Indeed, they provide the contractor with a ready-made pension scheme. This arrangement is also an important factor in supporting the long-term stability of the scheme. Maintaining high proportions of active contributors in the local government pension scheme, relative to retired members, helps to prevent

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premature maturing of the scheme. An imbalance of active members to pensioners could mean higher local authority employers' costs.

The amendment being discussed today extends the admission agreement provisions of the scheme by allowing, subject to the Secretary of State's approval, a body responsible for the outsourced functions of an employer who currently provides access via an admission agreement, to enter into their own admission agreement. By doing so, it provides for greater equality and consistency between scheme employers and admission body employers. It spreads the advantages of admission agreements a little further to the benefit of scheme members, employers and funds.

Mr. Moss: I thank the Minister for his explanation of regulation 3. May I press him to provide some further detail? When a private contractor takes over some of the functions of a local authority, and there is a transfer of local government employees to that private contractor to do that work, does their pension with local government cease at that point, or do they have to reapply and be readmitted under regulation 3? Will pension rights be protected in the event of a private contractor taking over, or will a reapplication be necessary?

Dr. Whitehead: The hon. Gentleman's question is hypothetical because, as I have already said, employers who are not local government employers but who undertake services that are in the ambit of local authorities, or who take over staff as a result of a partnership arrangement, may set up a scheme that is similar to the local government pension scheme or may apply for their staff to join such a scheme. As the hon. Member for Bath made clear, it is the Government's intention to have a seamless transfer without significant jolts. Different circumstances will arise according to employers' schemes. The notion of transfer will, according to the regulations, be seamless.

Mr. Foster: I am grateful to the hon. Member for North-East Cambridgeshire for touching on an area that I shall raise in more detail. Can the Minister confirm the clear phrase that was used by the Secretary of State in the letter of 26 March, to which I have already referred? He said that

    ''transferees will be offered either retention of the Local Government Pension Scheme . . . or a broadly comparable scheme.''

My interpretation of the word ''retention'' is that there will be a continuity of the individual's membership of a scheme, so that there will be no loss of benefits from coming out of the scheme and re-entering it. I think that the Minister interprets it in the same way, but it will be useful to get that on record.

Dr. Whitehead: The answer is yes. Regulation 5 of the 1997 regulations allows ongoing access with no break in service. The hon. Gentleman has helped to clarify that point.

Regulation 4 amends the meaning of pay on which members' contributions are calculated, and from which their pensions are derived, so as to exclude

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bonus payments made under the school achievement award scheme. That will ensure that non-teaching staff in the local government scheme are treated the same as teachers in the teachers' pension scheme.

Chris Grayling: Can the Minister clarify whether under pension legislation and regulation 4 those who are entitled to be members of the scheme have the right to opt out into personal pensions? If they have, will they have the right to elect to contribute part of the bonus payments into the personal scheme if they choose to do so?

Dr. Whitehead: Yes. My understanding is that they have the right to opt out, and to put their bonus payments into a pension scheme that they have entered. The purpose of regulation 4 is not to change that, but to ensure that non-teaching staff in the local government pension scheme and teaching staff in the teachers' scheme are treated in the same way.

Regulation 5 makes two minor amendments to the regulation that details how to calculate and enhance pensions that are payable when a member is forced to retire early on grounds of ill health. One is purely a drafting clarification; the other corrects an anomaly that could arise when calculating the enhancement due to a scheme member who has worked part time as well as full time. Before that, it has been possible to calculate the enhancement in such a way that the individual receives a lower pension than he would have done had he never worked part time; they therefore get a smaller pension for having worked longer. That is inequitable and discriminatory, which was not our policy or intention, so the amendment puts that right.

I have already covered the intention of regulation 6. To move on quickly, regulations 7, 9 and 11 are minor consequential amendments that follow on from previous scheme changes and clarify the meaning of the scheme's normal retirement age and what membership counts in calculating pensions.

Regulation 8 concerns rights that individuals can transfer from a non-local government pension scheme additional voluntary contributions scheme. AVCs can now be transferred into the appropriate local government pension scheme AVC scheme, which the local government pension scheme is obliged to offer. The amendment is linked to changes already made to the local government pension scheme AVC arrangements and, again, was specifically requested by local authority pension administrators.

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