Select Committee on Merits of Statutory Instruments Nineteenth Report


Further information from the Department for Communities and Local Government

Consultation responses for the third tier of ill health provision.

Policy content and consultation responses

1.  Communities and Local Government (CLG) issued a consultation letter on 21 November 2007 for the terms of the 3rd tier to complete the ill health provision in the revised Local Government Pensions Scheme (LGPS) which would come into force on 1 April 2008. The letter was issued to all local authorities in England and Wales, fire and police authorities in England and Wales, the LGA and employer organisations, trades unions, occupational health practitioners, local authority actuaries and treasurers. Comments were invited by 14 January 2008. The letter follows extensive discussions with key stakeholders including the Policy Review Group.

2.  The consultation material follows the policy commitment by Ministers when the Local Government Pension Scheme (Benefits, Membership and Contribution) Regulations were laid in April 2007, to provide an ill health benefit for those who leave their local government employment because they were permanently incapable of their job but were medically judged capable of alternative gainful employment shortly after leaving. The provision could not exceed the cost envelope for the new Scheme agreed by the Government with the employers and trade unions.

3.  There were 136 responses to the consultation letter comprising 89 local authorities, 11 other employer interests and 31 from Trade Unions or their branches, and 5 others. 15 responses were in overall support of the framework and 58 opposed. 39 local authorities were concerned about increased costs and 14 local authorities preferred a one off payment. 17 local authorities wanted the test as 'capable of obtaining employment' rather than the member's ability to find a job. The preferred duration of the benefit from local authorities was 2 to 3 years and a lifetime pension was particularly sought by the trades unions.

4.  Ministers carefully considered all the responses and an assessment of them. Against this background, the final terms of the 3rd tier were subsequently developed with particular attention to employers' comments regarding costs and viability in relation to the cost envelope, and trades unions' comments concerning fairness to scheme members and the provision of an ill health pension.

Specific requests arising from the consultation

5.  Respondents sought clarity and definition for the terms 'quite soon after leaving employment', 'reasonable period of time' and 'gainful employment'. These terms have been defined in the Regulations.

6.  Employers, generally, would have preferred to retain a 2 tier system and, simply for administrative convenience, did not like the concept of a review but they were insistent that whatever was finally provided, its costs remain within the 0.1% available for this tier within the 19.5% overall payroll cost for the Scheme from April 2008. This has been achieved.

7.  Employers accepted that a 3rd tier was likely to be provided in the Local Government Pension Scheme (LGPS), but they wanted payments to cease if gainful employment was found. They also wanted an opportunity for a further medical opinion at the review, and the medical test to be one of being 'capable of gainful employment'. This has been provided.

8.  Employers considered a period of 3 years would be a 'reasonable period' to enable all treatment options to be completed. The definition of 'reasonable period' is key to determining the two lower levels of benefit. Employers also wanted to stop payments at the point that an IOHP [Independent Occupational Health Professional] confirms that the 3rd tier member is capable of gainful employment following a review. CLG has addressed and accepted the representations by the employers and have included these elements in the regulations.

9.  Trade Unions strongly favoured a lifelong mandatory pension from the LGPS. A mandatory pension has been provided for the 3rd tier but this cannot be for life as it would not be affordable within the available cost envelope.

10.  Trades Unions believe any review mechanism should permit the member to be transferred to the enhanced 2nd tier in justified cases and we have made provision for this event in the regulations.

11.  Trades unions specifically requested transitional protections to deal with those cases currently being considered and where there may have been some uncertainty as to the provisions that applied. Transitional protections, affordable within the agreed costs, are included in the Regulations.

Next steps

12.  In response to some general worries expressed by stakeholders about the implementation of the new provisions (which is the final element of the three tier ill health provisions), statutory guidance is being prepared by CLG in full consultation with the employers, trades unions and pension managers.

13.  An expert Ill Health Monitoring Group has been established to apply a continuous review of the effectiveness and implementation of the new ill health provisions. Its formation has been welcomed and the first meeting is scheduled for May. Membership is drawn from key national stakeholders.

24 April 2008

Further information from the Department for Communities and Local Government

Local Government Pension Scheme (Amendment) Regulations 2008

Q1: 15 responses to the consultation letter were in overall support of the framework and 58 opposed. Were all the 58 respondents who opposed the framework local authorities?

Q2: Employers would have preferred to retain a 2 tier system and did not like the concept of a review. Were these employers essentially the local authorities? And do the arrangements made by HMG and described at 6, 7 and 8 of DCLG's note mean that most or all of the 58 consultation respondents opposed to the framework are no longer opposed, but supportive?

Q3: Paragraphs 9, 10 and 11 of DCLG's note set out TU concerns and indicate what HMG has done in response. Have the TUs now indicated that they are content with these proposals?

1.  You have asked if all respondents who opposed the 3rd tier framework were local authorities; if the employers mentioned in the note were local authority employers and whether trades unions have now indicated that they are content with the proposals.

2.  We believe it is important to consider the responses in the context of how the 3rd tier evolved in the policy development of the entire ill health provisions for the new LGPS. 'Where next? Options for a new-look Local Government Pension Scheme in England and Wales' published in June 2006, set out options for tiered levels of ill health provision and the need to keep cases under review. This was consistent with the Government's aim of retaining people in the workforce up to their normal retirement age and possibly beyond, and the introduction of a facility to review levels of ill health retirement benefits during ill health retirement.

3.  However, it became apparent in discussions with stakeholders following that consultation exercise that trades unions were looking for an additional tier of provision, probably outside the LGPS regulations, as they did not, and still do not, agree to the test requiring the member to be permanently incapable of their current local authority employment. They continue to press for an 'Income Replacement Scheme' for those who are considered incapable of doing their current job, but who are not considered permanently incapable under the current definition. The Ill Health Monitoring Group will provide a forum to investigate this further.

4.  Employers chose not to support a review mechanism fearing it to be administratively resource intensive. This stance, however, risked threatening the tight cost constraints set by Ministers and the Local Government Association.

5.  It is for these reasons that the consultation letter received a measure of opposition from key stakeholders.

6.  In answer to your specific questions, out of the 410 local authorities who received the consultation letter, 48 responded opposing in principle or with provisos. This is less than 12% of all authorities. Trades unions and some educational establishments were opposed to particular aspects of the proposals, as our previous note explained.

7.  The 'employers' referred to in the previous note are the local authorities and their representative body, LGE. CLG has addressed key employer concerns to ensure that costs remain within the available cost envelope. The LGA and employers have, generally, welcomed this.

8.  Trades unions have welcomed the mandatory pension provision within the LGPS but, as mentioned above, still have concerns that a member has to be permanently incapable of their local government employment and have a reduced likelihood of obtaining gainful employment, before ill health retirement benefits are released.

6 May 2008

Memorandum by UNISON

Ill Health Retirement

1.  Regulation 13 of the Amendment Regulations amend Regulation 20 Early Leavers; Ill Health of the Local Government Pension Scheme (Benefits, Membership and Contributions) 2007 SI No.1166 ('the Benefit Regulations').

2.  Regulation 18 amends Regulation 31 Early Payment of Pension: Ill Health, of the Benefit Regulations.

3.  The intention was that from 1 April 2008 there would be three different benefit levels for those who qualify for ill health retirement. The Benefit Regulations set out the first two which are payable for life.

4.  No reasonable prospect of obtaining gainful employment before normal retirement age (65). Service increased by 100% of potential service to normal retirement age.

5.  Cannot obtain gainful employment obtain gainful employment within a reasonable time of leaving but likely to obtain gainful employment before normal retirement age. Service increased by 25% of potential service to normal retirement age.

6.  Level 3 was for those who could get gainful employment within a reasonable time of leaving and the intention was they would get a pension based on the benefits they had earned to date of leaving without any service enhancement. The CLG eventually decided this tier would be in the scheme. There was a consultation and then a delay in laying the Regulations. Level 3 was finally set out in the Amendment Regulations laid before Parliament on 16 April 2008 and coming into force on 7 May 2008.

Key concerns with the Amendment Regulations on Ill Health

Regulations as they stand are "unworkable"

7.  For anyone to be eligible for ill health retirement they must be permanently incapable of discharging efficiently the duties of their current employment due to ill health. This part of the definition has not changed from the old scheme. There is now an additional requirement before anyone can get ill health retirement. The member must 'have a reduced likelihood to obtaining any gainful employment before their normal retirement age'. Under the Regulations an Independent Occupational Health Practitioner (IHOP) must decide whether the member falls within the definition. The wording could be interpreted in at least 2 alternative ways.

8.  It could either mean that because the member is permanently incapable of their own job they have a reduced likelihood of obtaining gainful employment or it could mean that regardless of whether the member is permanently incapable of doing their job they could do some totally different job and therefore not qualify for any benefit at all.

9.  Gainful employment is defined as paid employment for not less than 30 hours in each week for a period of not less than 12 months. To date there is no clear or indeed agreed definition of what constitutes paid employment.

10.  It is difficult to see how an IHOP can make any decision under the Regulations as they stand. A lot of factors are non medical for example geographical location and when treatment is likely to be available.

11.  The same would apply to early payment of a pension for somebody who has already left service on ill health grounds. The IHOP would have to determine whether the member was capable of any gainful employment and if not whether the member would be capable of gainful employment within 3 years of an unspecified date.

A key amendment to the Regulations was not consulted on prior to the Regulations being laid

12.  The Amendment Regulations sets out how members will qualify for level 3 ill health retirement and how their benefits will be paid. Its intention was that somebody who qualified for ill health retirement but who could get gainful employment within a reasonable period of leaving service would get a lower level of benefit.

13.  Just before the Regulations were laid and well after the period of official consultation had ended CLG decided that the reasonable period would be 3 years and that without any further consultation decided that in any event the benefit would stop after 3 years regardless of whether the member was able to seek gainful employment or not.

The Amendment Regulations are wrong in principle

14.  Anyone judged as being able to do any gainful employment at the point of ill health retirement may not get any benefit at all and if they are regarded as being able to do any gainful employment within 3 years they will be put into level 3. Their pension will be reviewed after 18 months and in any event stopped after 3 years.

15.  The amendment regulation gives the employer apparently unlimited powers to make enquiries of the member and forces a review after 18 months. The option to review after that date is only discretionary and there is no automatic requirement to move the member to a higher level if they are still unable to do gainful employment when the level 3 pension stops.

16.  This goes far beyond the original policy intention of simply targeting benefits at the most ill. It will have penal effect on those whose jobs prospects collapse after they have to leave work on the grounds of permanent ill health and provide no safety net for those where the original decision that they can do any gainful employment within 3 years proves to be wrong.

17.  It is out of step with other Public Service Schemes. The Teachers Pension Scheme and the NHS Pension Scheme will pay a pension to those who are permanently incapable of doing their job when they leave for ill health reasons only the eligibility for the upper level being linked to ability to undertake gainful employment.

18.  As the Regulations stand they do not provide adequate transitional protection for those going through ill health retirement at the present time. It was agreed that the benefits of those who retire before the 1 October would be the better of the old scheme or the new scheme basis. Clearly, as they now have to satisfy the amended definition for ill health retirement the transitional protection is we believe far more limited than intended.

19.  It is potentially seriously detrimental to those who were contributing to the old scheme as at 1 April. Protection only applies to those who are 45 and over and again only those who qualify for the amended definition of ill health retirement and are unfit for any gainful employment for at least 3 years after leaving.

May 2008

Response by the Department for Communities and Local Government

Local Government Pension Scheme (Amendment) Regulations 2008

1.  You have sent Communities and Local Government (CLG) a copy of a paper sent to the House of Lords Merits Committee from Unison.

2.  You have invited CLG to respond to the points raised and, in particular, to Unison's contention that:

  • the regulations as they stand are unworkable;
  • a key element was not consulted on prior to the regulations being laid; and
  • the regulations are wrong in principle.

3.  We believe Unison's comments do not reflect that Unison were involved in the extensive discussions and consultations, ongoing since before 2006, that led to the new three tiered ill health provisions in the new look LGPS. A mandatory pension that Unison wanted for its members has been provided.

4.  Unison consider the test '…a reduced likelihood to obtaining gainful employment before their normal retirement age' [sic] to be unworkable and could be misconstrued. To qualify for one of the three tiered benefits, there is a dual condition, i.e., permanent incapacity to perform a local government employment and a reduced likelihood of obtaining gainful employment . We are of the view that an Independent Occupational Health Practitioner (IOHP) would not consider the second test if the first test is not satisfied. If the member has not left their local government employment on the grounds of permanent ill health, then any question about their capacity to undertake gainful employment falls.

5.  We do not see that the use of the words 'paid employment' in Regulation 20 (14) are unclear but consider that they have a normal and everyday meaning.

6.  We believe that the regulations make it clear that it is the medical question that the IOHP is being asked to judge, not employment factors in a geographical region, and this was a matter that medical practitioners were in clear agreement about.

7.  Unison are of the opinion that the term 'within three years' in the regulations was added well after the consultation period. The Consultation period closed on 14 January 2008, but as early as 3 March, informal guidance on ill health retirements in the new look scheme was published by CLG saying that based on the consultation responses, the balance of the argument was in favour of defining the term reasonable period as a set period of time and this was confirmed, subject to Ministers agreement, as three years when Pension Changes was published on 14 March. We consider that there has been a proper assessment of all the consultation responses and this permitted balanced judgements by early March.

7.  We also took account of legal advice which said that it would not be appropriate to leave this definition to statutory guidance. Consultation representations confirmed that the definition of three years was the right period to permit all treatment options to be considered. Having defined 'within' or 'not within' three years, it followed that the period of payment of the 3rd tier benefit should be consistent with the duration of the reasonable period i.e. three years.

8.  There is no intention for continuous review of a 3rd tier member and Regulation 20(6)(a) and (b) need to be read together.

9.  Unison incorrectly believe that the opportunity to revise the 3rd tier of ill health is a discretion. The purpose of para 11(a) is to provide for an uplift from 3rd tier to 2nd tier at the review and the term 'may' is a permissive term. If the condition justifies an uplift, the employer may make a Regulation 20 (3) determination.

10.  When the government accepted the recommendations made in HM-Treasury's report "Ill-Health Retirement in the Public Sector" published in 2000, public service pension schemes were permitted to comply with those recommendations within a general framework allowing local variation to reflect the different occupational and employment characteristics of each scheme. It is not surprising, therefore, that there is some variation in the provisions on ill-health retirement that public sector schemes have developed when implementing the 2000 report.

11.  Transitional protections have been included as we accepted that because the 3rd tier was not in place before 1 April 2008, there could have been some uncertainty about which provision applied for those cases currently being considered. Employers need to make determinations under the new look scheme because the 1st and 2nd tiers, to take effect from April 2008, and had been on the statute book since April 2007. But in the transitional period, the employer should assess benefits under both the Benefits Regulations as amended and the 1997 Regulations, and the greater of the two should be awarded.

12.  The Regulations are not wrong in principle. The complete set of ill health provisions will provide improved and better targeted benefits for those most in need of financial support at a time when they are incapable of performing their current job and have no, or a reduced, prospect of future employment before their normal retirement age. The new regime also recognises that those leaving employment because they cannot undertake their current local authority job but can do other work within a reasonable period, do need some financial support while seeking alternative work.

9 May 2008

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