Employer pension discretion templates
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Local Government Pension Scheme, (LGPS), Regulations Policy statement on all eligible employees
Under Regulation 60 of the LGPS Regulations 2013, (as amended), each scheme employer must publish and keep under review a Statement of Policy to explain how it will apply certain discretions allowed under the Pensions Regulations.
This statement is applicable to all employees of [name of employer] who are eligible to be members of the LGPS.
There is a requirement to publish the following five policies
LGPS regulations - Regulation 31: Power of employer to award additional pension to an active member or ceasing within 6months to be an active member by reason of redundancy or business efficiency
An employer may decide to award a member additional pension up to a limit of £6822 per year* (2018/19 rates) payable from the same date as their pension is payable. You must resolve to award additional pension while the member is active. If the member has been made redundant or retired on efficiency grounds you must make this resolution within 6 months of them leaving.
Please note: The amount of additional pension that can be awarded will increase each April.
In your policy you must decide:
- if you will consider awarding additional pension to a member
- the circumstances in which you will consider awarding additional pension
Some employers use this regulation if at a members request the Employer will as an alternative to a compensation (redundancy) payment allow the member to receive an additional pension under this regulation.
Employers policy (example)
Where an employee of [name of employer] is dismissed on the grounds of redundancy and qualifies for a statutory redundancy payment they will award lump sum compensation under the Local Government (Early Termination of Employment) (Discretionary Compensation) (England and Wales) Regulations 2006. At the member's request, the employer will, as an alternative to this compensation payment, allow the member to receive additional annual pension which will be assessed having regard to the capital value of the lump sum compensation otherwise payable, and in accordance with factors supplied by the Fund Actuary.
At this time, [name of employer] will not normally use this power in any other circumstances.
LGPS Regulations 2013 - Regulation 16(2)(e) and 16(4)(d) : Funding of additional pension contributions (APC) shared cost
Explanation
Where a member has elected to pay Additional Pension Contributions (APCs) an employer can elect to fund part or the entire employee’s share of the contributions.
In your policy you must decide:
- if you would consider contributing to a shared cost APC
- in what circumstances you would enforce this discretion
- how much you would contribute
This does not relate to cases where a member has a period of authorised unpaid leave of absence and elects within 30 days of return to work to pay a shared cost APC to cover the amount of pension 'lost' during that period of absence. In these cases the employer must contribute 2/3rds of the cost (Regulation 15(5) of the LGPS Regulations 2013.
Employer's policy
[name of employer] has not adopted this discretion.
LGPS Regulations 2013 - Regulation 30 (6): Flexible Retirement
Explanation
A member who is aged 55 or over and with their employer’s consent reduces their hours and/or grade, can then, but only with the agreement of the employer, make an election to the administering authority to receive all or part payment of their accrued benefits without having retired from that employment. In your policy you must decide:
- if you will consider granting flexible retirement
- the circumstances in which flexible retirement will be awarded
- whether to waive any reduction that will be applied to the members benefits. There will be a direct cost to the employer
Employers policy
[name of employer] has agreed to release pension where there is no cost and not to waive any reduction.
Members must reduce their hours by a minimum of xx% and/or reduce their job by xx grade.
[name of employer] may however allow the release of pension where there is a cost or waive reduction in a potential redundancy situation, where a reduction may occur through redeployment, or in other exceptional circumstances supported by a business case.
LGPS Regulations 2013 - Regulation (paragraph 1(1)( c) of Schedule 2 to the LGPS (Transitional Provisions, Savings and Amendment) Regulations 2014): Switching on rule of 85
A member who meets the 85 year rule and elects to draw their pension benefits from age 55 will no longer require their employer’s consent if they retire after 31 March 2014. However certain members will lose some 85 year rule protections if they wish to draw their pension between age 55 and 59.
An employer may decide to 'switch on' protection to the 85 year rule for a member who voluntarily retires from age 55 but before age 60, and meet any additional cost of the retirement.
If the employer does agree to switch back on the rule of 85, the cost of any strain on the fund resulting from the payment of benefits before age 60 would have to be met by the employer
Employers policy
[name of employer] will not apply either discretion, unless there is a business case to support this as an alternative to a redundancy situation.
LGPS Regulations 2013 – Regulation 30 (8): Waiving of actuarial reduction.
An employer has the discretion, under a number of retirement scenarios, to waive actuarial reductions on compassionate grounds.
The cost of which would fall upon the employer.
'Compassionate grounds' is not defined in the regulations.
Employers policy
[name of employer] will not apply this discretion, unless there are exceptional circumstances.
The Director or Business Manager involved will consider any cases and will decide whether the actuarial reductions should be waived. In all cases the financial position of [name of employer] must be considered.
Other discretions scheme employers may exercise under the LGPS Regulations 2013
Whilst there is no requirement to have a written policy in respect of following it would perhaps be appropriate for Scheme employers to have a written policy in order that members can be clear on these matters
LGPS Regulations 2013 – Regulation 17 - Shared Cost Additional Voluntary Contribution Facility
This discretion allows the Employer to maintain and contribute to an employee's Additional Voluntary Contribution Scheme.
Employers policy
[name of employer] has not adopted this discretion. This will not have any effect on the existing AVC facility available where the employee only is able to make such contributions.
LGPS Regulations 2013 - Regulation 100 (6) – election to transfer within 12 months
This discretion allows the Employer to extend the 12 month limit a member has in which to elect to transfer other pension rights into the LGPS. This has to be with the agreement of the Administering Authority
Employers policy
[name of employer] will not normally allow an extension of the 12 month limit, but will consult the Administering Authority in making a decision.
Extenuating circumstances may apply and this would include:
- where evidence exists that an election was made within 12 months but his was not received by the administering authority
- where evidence exists that the member was not aware of the 12 month limit due to maladministration
LGPS Regulations 2013 - Regulation 22 (7) and (8) – election to aggregate within 12 months of commencement
This discretion allows the employer to extend the 12 month time limit a member has within which they must elect not to have deferred benefits aggregated with their new LGPS employment
Employers policy
[name of employer] will not normally extend this 12 month time limit
Extenuating circumstances may apply and this would include:
- where evidence exists that an election was made within 12 months but his was not received by the administering authority
- where evidence exists that the member was not aware of the 12 month limit due to maladministration
LGPS Regulations 2013 - Regulation 9 – allocation of contribution band
This discretion allows the Employer to determine which contribution band is allocated on joining the scheme and at each April. It also determines the circumstances when an employee’s band may be reviewed.
Please note: Please check this with your Payroll provider to see which process they currently follow. Most employers now monitor contributions on a monthly basis.
Employers policy
- base pay on actual pay in April plus previous years overtime
- run an exercise half yearly as a check and re-band up or down where necessary
- re-band on all contractual changes, but not ad hoc hours changes and re-band upon a pay award.
Or, re-band on a monthly basis as per any change in pay that may occur
LGPS Regulations 2013 - Regulation 21 – assumed pensionable pay
This discretion allows the Employer to determine whether to include in the calculation of assumed pensionable pay the amount of any 'regular lump sum payment'.
This is in cases where an employee’s pay needs to be calculated where their pay has been reduced due to certain absences in order that they are not unduly advantaged or disadvantaged.
Employers policy
To determine in individual cases where necessary to establish in a fair, equitable and justifiable way what the members likely pay would have been but for the absence, and in cases where this pay is to be used for future enhancements whether that level of pay would have been received every year to normal retirement age.
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