Public Service Pensions Bill

Memorandum submitted by Local Government’s Association’s (LGA) (PSP 16)

Following the Local Government’s Association’s (LGA) oral evidence to the Public Service Pensions Bill Committee, the LGA would like to provide further evidence to the Committee as well as providing a more detailed response to certain questions asked during the session.

During the Committee’s evidence session, Committee members asked the LGA particular questions relating to whether the Bill reflects accurately the special position for the Local Government Pension Scheme (LGPS) and also relating to use of the word ‘closure’ in Clause 16 of the Bill.

BACKGROUND

The Local Government Association (LGA) and trade unions reached agreement on and submitted to government at the end of July a set of proposals covering the future governance and cost management of the LGPS. As outlined during our evidence session, the LGA, in agreement with the unions involved in the project, consider that certain areas of the Bill require clarification and amendment.

As noted during the LGA’s evidence the LGPS is a funded pension scheme with £145bn of assets in 89 local authority funds across England and Wales. The framework of the scheme is markedly different from other public service schemes and for example in clause 4 and 5 reference is made to a scheme manager and scheme boards at national level. For the LGPS the understanding was that these would be at a local level however this is not clearly reflected in the wording of the Bill. In addition the case was made for the LGPS to have a national scheme board however the Bill does not reference a national scheme board for the LGPS.

The LGA also require clarification to the potentially inappropriate use of the terms closure and closing in clause 16 of the Bill (and ‘old’ and ‘new’ in schedule 7) in the context of a funded scheme such as the LGPS. There is a need to ensure the wording used in clause 16 matches the intention of that clause.  

The following information includes the relevant amendments we would like to see in respect of the areas raised in these questions.

Clause 4 – Scheme Manager

This clause provides that scheme regulations must provide for a person to be responsible for managing or administering a public service pension scheme set up under Bill powers and any other statutory pension scheme connected to it.

The LGA would like to see the role of scheme manager for the LGPS directly referenced in this clause. This would improve the clarity of the clauses and improve cross referencing.

Clause 5 – Pension Board

This clause requires public service pension schemes that are set up under clause 1 to establish a pension board. The board’s role is to assist the scheme manager in securing the effective and efficient administration of the pension scheme and any statutory scheme connected with it.

The LGA wants to see this clause strengthened by clearly separating the role of scheme manager and scheme board. Separating the roles through this amendment should provide for more robust management of conflict of interest.

Amending the Bill in this way should also provide a primary legislative foundation for a national scheme board for the Local Government Pension Scheme to bring it in line with the other schemes, as well as providing a national focus for the scheme.

Clause 16 & Schedule 7 Closure of existing pension schemes and Final Salary Link

Clause 16 provides that existing schemes made under existing primary legislation should not except in circumstances described elsewhere in the Bill provide for further accrual of benefits.

In schedule 7, final salary scheme pension benefits accumulated up until the date that existing schemes close by virtue of either clause 16(1) or clause 28(2) are to be calculated in relation to the member’s final salary at the point they retire or otherwise leave pensionable service, not the point at which their final salary scheme was closed. This final salary link applies to all past service in final salary schemes prior to the closing date.

The LGA would like to see the removal of the unfortunate use of the words closure and closing from the Bill. This would remove any possibility of misunderstanding the correct intent of the clause. This is because the closure of a funded pension scheme has the potential for a variety of serious consequences on both scheme costs and governance arrangements such as crystallisation events, the splitting of funds and the impact on ceasing admission agreements which the LGA understand were not intended. These amendments do not change the meaning of the clause in any way.

November 2012

Prepared 21st November 2012