The Scottish Public Pensions Agency has launched a consultation into a host of changes to the Local Government Pension Scheme in Scotland, covering early payment of pensions, survivor benefits and the cost cap.
The first aim is to amend regulations to “clarify the intention” of rules covering members who elect to take an early payment of their pension between the ages of 55 and 60.
Regulations published in 2019 made amendments providing that deferred members who left before April 1 2015 “can elect to receive payment of their benefits on or after age 55 without their former employer’s consent”, the SPPA explained.
“The amendments in 2019 took effect from June 1 2018. However, since making the regulations in 2019, we have been made aware that the amendments have not fully delivered the policy intent.”
Most respondents agreed that adopting these regulations would provide further discretion to determine the best outcomes for employers while protecting the fund
Scottish Public Pensions Agency
The proposed changes make clear that those electing to receive early payment must no longer be in the employment from which the benefits arose.
“If the member elects under the new route, the benefits become payable immediately and the requisite benefit rules under the Local Government Superannuation (Scotland) Regulations 1987 and under the Local Government Pension Scheme (Scotland) Regulations 1998 apply where the member left before April 1 2009,” the SPPA stated.
“The requisite benefit rules limit the amount by which the benefits can be reduced for early payment.”
The underpin
The second aim is to clarify the way in which the underpin, an additional protection put in place in the 2015 public sector reforms, is calculated.
The underpin was designed to ensure that members within 10 years of their normal minimum pension age in April 2012 would receive a pension “at least equal” to that they would have received had their scheme not been reformed in 2015.
However, it was discovered that some members who left the scheme were not receiving the correct level of benefits and, after an appeal from Scottish ministers, the SPPA is looking to introduce amendments that would allow administrators to recalculate those benefits.
The proposal is that the underpin “should take the actuarial increase/reduction into consideration, when comparing the two benefit options for the member on retirement”, the SPPA said.
Survivor benefits and ‘further flexibility’
Further amendments concern the provision of survivor benefits, with the aim being to have these account for the judgment in the Goodwin v Department for Education case by providing equal survivor benefits to same-sex couples, whether married or in civil partnerships.
The changes also concern male survivors of female members.
“Also, it is Scottish ministers’ intention that where a member died after March 31 2015 leaving behind a cohabiting partner who qualifies for survivor benefits, the survivor benefits should be based on all their membership (not just membership after April 5 1988) if the cohabiting partnership was entered into before the member left active membership of the scheme, putting such survivors in the same position as other types of survivor,” the SPPA said.
“We understand that the 2014 regulations do not deliver this intention. We are therefore also amending these regulations to deliver the policy intent. The amendment will have effect for deaths that occurred on or after April 1 2015.”
Acknowledging that many LGPS funds contain employers who will struggle to meet their obligations to the scheme, the amendments also aim to clarify rules around cessation liabilities for employers looking to exit the scheme.
“Most respondents agreed that adopting these regulations would provide further discretion to determine the best outcomes for employers while protecting the fund,” the SPPA explained.
“These regulations enable fund authorities and a scheme employer to agree to defer exit payments in a ‘deferred debt’ agreement. They provide the option for fund authorities to allow employers to spread exit payments over a period determined by the fund authority.”
They also allow a fund authority “to obtain a revision of the rates and adjustments certificate and revise an employer’s contribution rate in between valuations, where it appears that the amount of the employer liabilities has changed significantly or there has been a significant change in the ability of the scheme employer to meet their obligations since the last valuation, or where the employer has requested a review of their employer contributions and has undertaken to meet the costs of that review”, it said.
The cost cap
Finally, the consultation proposes amendments to the cost cap, following a calculating error identified by the Government Actuary’s Department.
Public sector schemes told to conclude 2016 valuations
The Government Actuary’s Department has agreed with HM Treasury that its amendments to the cost-control framework used in public sector schemes meet the government’s policy objectives, drawing a line under the troubled 2016 valuation process and allowing public sector schemes to complete these.
“The LGPS Scotland actuarial valuation, which was originally carried out for the purposes of setting the cost cap, had an effective date of March 31 2014. Those valuation calculations were based on updated standard mortality tables (‘the S2 tables’), which had been published shortly before the calculations were undertaken,” the SPPA explained.
“Upon revisiting the cost-cap calculation, GAD identified that these calculations had not incorporated mortality improvements in relation to the S2 tables in line with the assumptions set out in the 2014 valuation report.”
To correct this, the SPPA proposes changing the cost-cap figure from 15.5 per cent to 15.2 per cent, allowing the schemes’ 2017 valuations to be concluded in a way that takes the McCloud remedy into account.
The consultation closes on January 7.
