LOCAL
GOVERNMENT PENSION SCHEME
SUSTAINING
THE LGPS IN
Consultation
commenced:
Consultation
closed:
SUMMARY
TABLE 1 OF 2
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CONSULTATION QUESTIONS 1-7 |
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Respondee
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Q7. It is suggested to consultees that surpluses or
deficits which exist in the local funds at the commencement date of the model
scheme would be excluded from the notional fund and should not form part of
any cost sharing envelope, as these are related to experience which occurred prior
to the implementation date. Views on
such an approach are therefore sought. |
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County
Councils |
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The fund favours
Statutory Instrument setting out framework and principle for cost sharing
mechanism as it will set parameters and responsibilities of different stakeholders
and expert advisors. Policy Review Group to reflect the views of members and
employers in a structured way; GADs and advisory group of Local Government
actuaries also is part of the governing body. Assumptions used in the cost
sharing model and those responsible for agreeing them; need to set out in
schedule. |
The process
should be simple and focused on elements that most affects the cost sharing
mechanism. A simple approach would be for the actuaries to supply cash flow
data to GADs who will then apply financial assumptions that are centrally
agreed to generate the future contribution rates applicable from the
beginning of cost sharing process. |
See answer 1. |
Most of the
information and datasets can be agreed centrally by actuarial advisory group
and GAD. Individual funds only need to provide membership; demographic and
payroll data, probably through their actuaries. Death in service, ill-health;
compulsory/other retirement; commutation rates and early leavers, should only
be accounted if it material enough to affect future service costs. |
Consideration
should be given to a career averaging scheme as this reduces the risk of pay
drift. |
The criteria
need to be decided at the outset then applied consistently across all cost elements.
As it’s not always clear which stakeholder would influence or benefit from
each cost element, the Council propose that everything should be cost shared
except for investment returns. Unless this approach is adopted it is
difficult to understand how the cap be implemented. |
Surplus and
deficits which exist in the local funds should be excluded from the notional
fund. |
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Bedfordshire |
No comment. |
No comment. |
No comment. |
No comment. |
No comment. |
The scheme
should be simple so recommend restricted changes to longevity and to lesser
extend, changes in pay growth and pension. Shared costs: Longevity; pay
increase; benefit structure (including change in regulations); investment
returns. Employer costs: Demography; options
(added contract etc). |
No comment. |
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The principles
of cost sharing as set out in the consultation paper are supported and good
communication is vital for the scheme to succeed. The cost sharing exercise is
a partnership and recommends that regular bulletins (newsletter style) are
issued by the Policy Group; this should include the views of cross –section
of the group, rationale behind decisions being taken and next steps of the
process. |
It should not be
necessary to set out in legislation the precise series of steps likely to be
needed within the cost share process. However, it would be helpful to have
some minimum prescription to begin and end the exercise in form of a
framework to clarify the statutory role of Minister and the active
involvement of stakeholders. |
The actual
content of each of the critical stages set out in the consultation paper (and
others) in statutory guidance prepared by the CLG. This guidance could be
informed by the statutory consultation and active engagement with
stakeholders via the Policy Review Group, with a clear understanding that
final decisions are for Minister within the established statutory
framework. |
The Council do
not envisage any problems in providing the required datasets for cost sharing
mechanism. |
Stability in
contribution rates for both employers and employees is considered as an
essential element of sustaining a pension scheme. This can be achieved by
excluding potentially unpredictable and volatile influences from the cost
sharing mechanism whereas include investment returns and the financial
actuarial assumptions. Amortisation period over which deficits and surpluses
are spread is another important factor in sustain the scheme. |
The allocation
and justification of cost sharing risks as set out in the consultation paper
in pages 7-9 inclusive is acceptable. |
The notional
fund should initially be equal to the total accrued liabilities of the scheme
membership at the commencement date. Thus any surplus/deficiency already
recognised at the implementation date would then continue to be the
responsibility of employers. New sources of surplus/deficiency would fall
within the cost share envelope, as would any adjustments to the estimates of
the original sources already recognised. |
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The Policy
Review Group is the most effective way to process and deliver and the cost
sharing objectives. |
Same as 1. |
No comment. |
No comment. |
No comment. |
Investment returns,
changes to financial assumptions and actuarial methodology should be excluded
from the cost sharing calculations as proposed in the consultation paper. |
Surplus or
deficit which exists at the start of the scheme model should be excluded from
the notional fund. |
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Devon |
The cost sharing
governance principles as set out in the consultation paper are supported.
These principles should be kept under review by the Policy Review Group and
ensure that stakeholders views are taken into account as the process
progresses through to Ministerial approval. |
Cost sharing
requires a framework as we anticipate difficulties against the background in
consulting with the Trade Union on effects of any changes to employee
contribution rates. Cost of providing benefits in the current scheme could
significantly exceed the 14% cap thereby necessitating the increase in
employee contribution rates to be pro-rated across the bands. |
Each stage of
the process will require a regulatory framework and that any variables be
accommodated with the definitive regulations. |
The Council will
provide dataset as required for valuation purposes although data on
married/partnership rate is limited and can only provide data that it
currently holds. |
Whilst cost sharing
mechanism is essential for long term sustainability the suggested scheme
could be cumbersome, onerous and difficult to deliver from the current
pension scheme. The scheme isn’t designed to provide a fixed cost, it may be
necessary to take account of investment factor when making calculations. |
The risk sharing
elements set out in the consultation papers appears to be a sensible
assumption. |
Past surplus or
deficits should be excluded from the notional fund; the model should be based
upon the total accrued assets and liabilities of the scheme membership from
the commencement date. |
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The cost sharing
mechanism should be transparent and capable of being understood by all
stakeholders. Depending on the nature
of the cost-sharing mechanism adopted could lead to pressure to change the
governance framework of individual Funds. For example, scheme members and
their representatives may claim they should have voting rights on pension
fund committees if they are being asked to pay a variable, larger percentage
of future pension costs. This will particularly be the case if a cap on
employer contributions is implemented. |
It is important that the costs-sharing framework and methodology is clearly
set out along with the roles of each of the stakeholders in the process
(central government, employers, scheme members, actuaries etc). The
cost-sharing mechanism should ideally be robust and ‘future-proof’ also it
would be helpful if some degree of cross-party consensus or at least
consultation be part of the process to develop cost-sharing. If this is not
considered then the likelihood is that a complex cost-sharing mechanism could
be developed and put in place only to be swept away through future political
decisions. |
Regulation
should be used to set out the broad framework such as the different steps set
out in paragraph 14 of the consultation paper. The detail should be included
within CLG guidance; over-regulation should be avoided as it will not provide
the flexibility that is likely to be needed as the process develops. |
The datasets
are provided for triennial valuations and so it should not be a problem
extracting it. Although to note that some of the information will not
necessarily be entirely accurate – for example, not all members keep us
informed of their married / partnership status. |
Over the long term future service contribution rates have drifted
steadily upwards and there is no reason to expect this will not continue.
Whether or not cost-sharing can make the LGPS sustainable in the long term
depends on whether it finds the right balance. If member contribution
increases (or future benefits are reduced) by an amount that is seen as
unacceptable by the membership the LGPS will no longer be seen as an
attractive scheme. Conversely, if employer contributions increase taxpayers
may view the scheme as too generous and expensive to continue. |
For simplicity and clarity it would make sense to focus on the most
significant ‘shareable’ factors (longevity, pay increases, pension
increases). With significant improvement in mortality rate active members
will pay for increased life expectancy of pensioners and will also pay for
longevity that they won’t benefit themselves.
One option would be to adjust the rate of pension increase applied to
existing pensioners, to allow them to share the cost for greater than
expected improvement in their life expectancy. |
The notional fund should be set up initially equal to the accrued
liabilities of the scheme membership at the commencement date. Existing
surplus / deficits should not form part of the cost-sharing mechanism. |
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The governance
principles as set out in the consultation document are supported. |
No comment. |
No comment. |
All the data
listed in the consultation paper will be provided, however the size of the
scheme with over 200 employers the actuarial valuation process is already a
major exercise. Hymans Robertson has
been able to provide results for the major employers by the beginning of
November to coincide with budget / MTP cycles. |
Major factors
such as changes to longevity have to be included quickly and do not support
spreading the impact over long periods.
The actuary has a long term strategy for dealing with these issues and
phased changes to dampen the impact. |
The cost sharing
factors should be limited to the major elements such as longevity, pay
growth, pension increases and changes to the benefit structure. |
For a single
national fund past surpluses and deficits will have to be excluded. |
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Hampshire |
The governance
principles as set out in the consultation paper are supported. The Policy
Review Group should have a wider stakeholder representation and there is less
need for transparency over the assumptions and calculations. As these are
necessarily subjective and only verifiable by actuaries. It is difficult to
see the benefit in sharing the detailed datasets with other stakeholders. |
It should not be
necessary to legislate for the precise steps needed within the cost share
process but that there should be some legislation to begin and end the
exercise to provide the framework and clarify the statutory role of Ministers
and the active involvement of stakeholders. |
The timescale
for the implementation of cost sharing mechanism is very tight so the overall
process and aim of each stage needs to be clear from the start. However as
there will always be unforeseen factors that need to be accommodated the
details should be subject to statutory guidance rather than legislation to
allow for flexibility and avoid over-regulation. |
The Council does
not hold information on married/partnership rates. |
Change is needed
to improve long term sustainability of the scheme. With the current economic
climate and employer cap at 14% cost pressures will fall directly to
employees. Therefore it is unlikely to be a sustainable option and believe
that the LGPS needs to reviewed ie consider fundamental changes such as
moving to a CARE scheme. |
The Council
recognises the trade-off between complexity and volatility and GAD model has
been designed to balance these two factors. However with an employer cap
there is little relevance to the rationale behind the risk sharing as all the
cost will be borne by employees, regardless of who is better placed to
control them. The cost list appears reasonable but there should be an
opportunity to revise it in light of experience. |
Past surplus or deficits
should be excluded from the notional fund as proposed in the consultation
paper. The inclusion of existing deficiencies would imply the need to include
ongoing investment performance which would make a very volatile cost share
mechanism. |
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No comment. |
Equalities issue
to be considered under the cost sharing principle. The concept of rate cap
should apply to both employers’ and employees’. There must be a need to turn
the emphasis away from increasing employee contribution to reducing future
benefit accrual so that it would be affordable to new members and low paid
workers. |
The present
proposal of cost sharing mechanism as outlined in the consultation paper is
overly complicated and will cause serious issues of comprehension on the part
of all the main stakeholders in the scheme. |
No comment. |
The Council
supports the principle of taking appropriate action to make LGPS a
sustainable pension option with particular reference to affordability aspect
on the part of participating employers. |
No comment. |
No comment. |
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Oxfordshire |
Given the number
of stakeholders with an interest in the scheme it is difficult to envisage a
solution which will meet the needs of all parties. It is therefore felt that the existing
practice of working through the Policy Review Group with agendas and minutes
published on the CLG website offers the best option and ensures the greatest
degree of transparency. The
involvement of the Policy Review Group would need to be both in the finalisation
of the scheme itself and as a key partner in the tri-annual updating of the
national model. |
The current
method of working through the Policy Review Group with the formal
consultation later this year is seen as the most effective way of taking forward
the cost sharing mechanism. |
The statutory
guidance covering the agreed timetable for the provision of data to CLG/GAD,
collation of data and publication of results and implications back to local
Funds should be produced. This will provide
the required formality whilst retaining the flexibility to quickly implement
changes where needed. |
Change to
processes and system might be necessary; at present the Pension Fund does not
specifically hold data on commutation rates. In addition, data on marital /
partnerships not held. |
There is a
strong concern that cost sharing only shares the problem not solves it. Longer term sustainability will require a
more radical review of the Scheme, to revisit those items not picked up in
the 2008 Scheme including moving to a Career Average Salary scheme; increases
in normal retirement date; a reduction in the accrual rate. |
The proposals of
risk sharing elements as contained within the consultation paper are
acceptable. Further complexity will
undermine the key requirement of transparency within the proposal and ability
of administering authority to brief employers and members on the scheme and
the results. However greater
simplification risks the watering down of the cost sharing arrangements at the
expense of the sustainability of the LGPS.
It should though remain open to the Policy Review Group to recommend
changes to the model in light of actual experience. |
Past surplus or
deficits be excluded from the notional fund and should not form part of cost
sharing. |
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Shropshire |
As there will no
doubt be difficulties in reconciling the conflicting interests of the
parties’ continuation of the Policy Review Group with its current
transparency would be one solution to the governance of cost sharing
mechanism. |
Same as 1. |
As it is
difficult to know the process and outcome of the cost sharing mechanism at
this point in time, so would prefer that this be by statutory guidance rather
than in regulation as guidance can be changed more quickly than regulation. |
Most information
listed in the consultation paper should be available from the Axis pension’s
software used by |
The scheme must
be sustainable but a long term view must be taken and results from each
valuation must not be looked at in isolation. Actuarial advice must be sought
on national trends and costs. Also it must be remembered that current and
future employer costs will reflect decisions made in the past ie early
retirements. |
Certain areas
such as longevity and benefit structure could be shared 50:50. Demographics
and pay structure are controlled more by employers who are able to smooth any
effects on the pension costs. Investments return, financial assumptions and
actuarial methodology should fall on employers as now. In terms of stability
it must be remembered that employee contribution rates have historically been
unchanged until recently. Volatility in the employee contribution rate may
affect recruitment and retention for an employer. It will also increase
workload and complicate collection even further. |
Past surplus or
deficits be excluded from the notional model fund. |
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Staffordshire |
A governing body
with usual Ministerial decision making which offers transparency for formal
consultation is supported. However it would
be sensible to have a group of all key stakeholders including the actuaries
responsible for developing the detail and keep everyone informed. |
Same as 1. |
The main aspects
of cost sharing to be statutory including 14% cap and basic cost sharing
mechanism. Overall process and detailed implementation can be dealt through
non statutory guidance to allow flexibility as the whole process will evolve
over time. |
Cost sharing
mechanism would be easier if focused on main costs and ignore minor items.
Data extracts should be specific to avoid errors or ambiguity and checks
should be carried out at the national level. |
The cost sharing
mechanism will help to maintain long term sustainability of the scheme but
the proposed changes in accounting practice could make such schemes more
expensive in future. |
Cost shared: Longevity, pay, inflation, commutation (if
material), benefit structure (depending on capping), membership data
(employee: pension ratio). Employer cost: Investment returns, actuarial methodology, existing
deficits. Exclude: Ill-health, early retirement, married/partnership
rates from the cost sharing mechanism. |
Past surplus or
deficits be excluded from the notional model fund. |
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West Sussex |
The cost sharing
governance principles as set out in the consultation paper are supported. A
watching brief could be kept by the Policy Review Group to update on the
proposals being adopted to meet the principles as the process progresses for
the ministerial approval. |
It should not be
necessary to set out in legislation the precise series of steps likely to be
needed within the cost sharing process. However it would be helpful to have
minimum prescription to begin and end the exercise to provide a framework and
to clarify the statutory role of Ministers and stakeholders. |
Some of the
actual content of each of the critical stages be set out in statutory
guidance prepared by the CLG. The guidance should be informed by the
statutory based consultation and active engagement with stakeholders via
Policy Review Group. |
There may be no
problem in providing datasets set out in paragraph 20 of the consultation
paper. There may be timing issues for initial implementation if cost sharing
data is collected at the same time as the regular triennial valuations. |
Stability on
contribution rates for employers’ and employees’ is considered essential
element to sustain the scheme. This can be achieved by excluding significant
potentially unpredictable and volatile influence on contribution rates
whereas include investment returns and financial assumptions. Amortisation
period is another factor although there is a need to reconcile the benefit of
smoothing gained from spreading with downside of any resultant contribution
adjustment having little relation to recent experience. |
For simplicity
purpose only the factors likely to have the most impact should be taken into
account. Sensitivity Analysis undertaken by Hymans indicates that changes in
longevity; pay growth and pension increases have the most significant impact
on contribution rates. In addition, changes to benefit design should be
considered. A rolling period of 10 years would be appropriate for a smoothed
approach for longevity. Inflation/pension increase needs to be factored as
risk. Hence it may be useful to build into the regulations scope to revisit
the model and cap to cater for currently unknown factors. |
The notional
fund should initially be set equal to the total accrued liabilities of membership
at the commencement date. Existing surplus or deficits should not fall within
the cost sharing and would continue to be employers’ responsibility. New
source of surplus or deficits would only fall in the cost envelop if related
to share risks (not generated by investment returns). |
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Wiltshire |
The
Policy Review Group offers the most appropriate forum for engaging the views
of key stakeholders involved in the process. |
Same as 1. |
It would be most appropriate
to set out the critical stages of the cost sharing process in a statutory
guidance as this offers greater flexibility than a statutory instrument. |
Most of the data should be
available to the fund’s actuaries via reports from the software system. |
The introduction
of the cost-sharing mechanism is necessary to ensure the longer term future
of the scheme and to meet the statutory requirement that employers’
contribution rates remain stable. |
Cost shared: Demography; pay
awards; benefit structure; overriding legislation. Employer costs: Investment
returns; financial assumptions; actuarial assumptions. Employees costs: Longevity; other
options. |
Past surplus or deficits
should be excluded from the notional fund to make a ‘clean-slate’ start to
the cost sharing mechanism. |
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Worcestershire |
The cost sharing
governance principles as set out in the consultation paper are supported. To
continue with the Policy Review Group and the transparency it offers by publishing
agendas and minutes on the CLG website. |
It would be
helpful to have some prescription throughout the exercise to provide a
framework and to clarify the statutory role of Ministers and the active
involvement of stakeholders. To continue with the Policy Review Group. |
There needs to
be an agreed timetable for the provision and collation of information and the
date from which the outcomes from each triennial exercise should be
implemented. This should be in statutory guidance rather than regulation. |
Most of the data
referred in the consultation paper is available but the Council may struggle
with the breakdown of accurate record of members’ status. |
The introduction
of the cost sharing mechanism is essential to ensure the longer term
affordability and sustainability of the scheme. |
There is a trade
off between complex model of GADs which best protects the interests of
employers, tax payers and long term sustainability’ or a less complex and volatile
model that would be easier to understand and administer but offers less
protection that concentrates on and few key issues such as longevity and
increase in Normal Retirement Age. The County believes that they need to
accept the greater complexity of the GAD model as the price for seeking
greater long term sustainability. It is recognised
that the items in the cost sharing list might need to change over time to
reflect changing circumstances. |
Past
surplus or deficits should be excluded from the notional fund. |
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LB Bexley |
The governing
principles set out in paragraph 12 of the consultation paper seem to make
sense. The Policy Review Group or a sub-group of that seems a worthwhile
grouping to take the whole matter forward. Various consultations such as this
can be carried out. |
Same as 1. |
The timetable
for establishing the initial cost sharing arrangement and for future exercises
should be included in a regulatory framework but the administrative and
review process should be operated more flexibly. |
The datasets
listed in the consultation paper should be available to the scheme actuaries
for triennial valuations and it is suggested that obtaining data in this way
rather than directly from administering authorities may provide more
consistent treatment of data and interpretation of definitions. |
The longer term
sustainability is probably not possible unless the 2008 scheme is further
amended. To achieve stability for both employers and employees investment
returns should be kept out of cost sharing mechanism as well as change of
contribution rates over shorter period. |
Sustainability
to be maintained in contribution rates. |
Exclusion of
past surplus or deficit will stabilise contribution rates. |
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LB Brent |
To continue the
governance by the Policy Review Group and the transparency it offers by
publishing agendas and minutes on the CLG website is supported. |
Same as 1. |
There
needs to be an agreed timetable for the provision and collation of
information and the date from which the outcomes from each triennial exercise
should be implemented. This should be in statutory guidance (rather than
regulation) in order to reflect the fact that timetables for each triennial
cost sharing exercise might need to change (and changing guidance is easier
than changing a statutory instrument). |
Funds do not hold details of
the current marital, civil partnership or co-habiting partner status of
individuals. |
The introduction of the cost
sharing mechanism is essential to ensure the longer term affordability and
sustainability of the scheme. |
A trade off
between a simple and easy to understand and administer but volatile model or
a complex but best protects the interests of employers, tax payers and long
term sustainability of the scheme. On balance there is need to accept the
greater complexity of GAD’s model for long term sustainability. Cost sharing
for longevity could be dealt with by increasing Normal Retirement Age. |
Surpluses and
deficits in the local funds at the date any national notional fund was
established should not be included and at subsequent valuations only any
deficit or surplus that has arisen in the interim on cost sharing items
should be included in cost sharing calculations. |
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LB Camden |
No comment. |
No comment. |
No
comment. |
No comment. |
The Pensions Committee
believes that although at the present time both the employers and employees contribute
to running of the scheme, however increase in the costs is not shared. In
line with CLG proposals the Pensions Committee believe this should be
reviewed and are in favour of a cost sharing mechanism whereby part of the
increase in costs is borne by scheme members whether this is by increasing
the members’ contributions or by adjusting the benefits or a combination of
both. |
The Pension
Committee accepts that there are issues that need to be resolved and
decisions to be made whether all or certain elements to be included in cost
sharing mechanism. |
No
comment. |
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LB Enfield –
also see any other points table |
No comment. |
Supports the
thrust of the main themes in the consultation paper and advocates that all
main stakeholder groups are brought together to agree how best cost sharing
process and delivery be taken forward. |
No comment. |
No comment. |
Having a good
pension scheme is a key to recruitment and retention. Also important is that
the mechanism and evidence used to justify the change in assumptions should
be simple to understand. Further, members’ would be more willing to accept an
increase in their contribution rate provided they were presented with clear
evidence eg there is an increasing trend in the average time pensions being
paid and that alternatives are equitable, understandable and fair. |
No comment. |
No comment. |
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LB Hackney |
Any decisions
surrounding cost sharing need to be transparent to all parties is supported. At
this stage it seems appropriate that the best way of ensuring this is via the
Policy Review Group and ensuring that it represents the interest of all
stakeholders. |
The transparency
offered by the Policy review Group should help to drive the process forward,
however formal consultations with all stakeholders should also be included
once some clarity on possible approaches has been reached. |
The statutory
guidance would be the best approach for the contents of individual stages
given as this would allow flexibility should there be the need to incorporate
changes in future. |
Most of the data
as listed in the consultation paper will be supplied with the exception of
marital/ partnership/co-habiting
status which are not regularly updated for changes. |
If the LGPS is
to remain affordable and sustainable, then there has to be some capping of
employer contributions and a mechanism where scheme members share increases
in costs within the scheme or alternatively seeing a reduction in benefits. |
Cost shared: Longevity; other
demographics; pay increases; other options; changes to benefits Employers costs: Investment
returns; financial/actuarial assumptions. It is debatable
how much employers have control over their costs, hence there could be
potential factor to be incorporate these changes either on basis of movements
over a certain amount or a lower % of cost sharing for the employees. |
The factors
arising prior to the implementation dates should be excluded from the
notional fund. |
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LB Havering |
No comment. |
No comment. |
No comment. |
No comment. |
The council is
mindful of its stewardship responsibility to local council tax payers and
believes that the current arrangements are not sustainable and contribution
made by employees needs to better reflect the benefits provided having regard
to longevity, pay increases and benefit of final salary scheme. Any changes and principles should be
consistent to all public schemes. |
No comment. |
No comment. |
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LB Lewisham -
also see any other points table |
No comment. |
No comment. |
No comment. |
No comment. |
No comment. |
The risk
elements and cost sharing responsibility listed in paragraph 25 of the
consultation paper is the way forward for the cost sharing mechanism, however
some consideration be given to include investment return risk at a limited
level to maintain the stability in the contribution rates; ie improved
investment will cause resentment if excluded from the cost sharing mechanism.
Also with increased longevity employees’ contribution will increase yet with
improved investment returns employers’ contribution will reduce. |
No comment. |
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Borough
Councils |
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Buy-in from scheme
members is essential for the governing framework through full consultation
with stakeholders and independent actuaries (including GADs). Emphasis is
given to integrity of cost sharing assessment process so it’s acceptable to
stakeholders. The scheme should be transparent with robust data/analysis and
debated through consultation. |
Process should
be driven to achieve a robust, fully consulted and agreed outcome to meet the
objectives. Although it is intended that the mechanism be in place by 31st
March 2009 more time is required to take account of 2010 valuation and 2011
change in rate, also Ministers should be regularly updated on the process. |
Instead of
regulatory framework stakeholders’ consultation and agreed outcome would
provide best foundation. For key objectives following should be included:
(i)calculations of standard cost of contribution for notional fund
(ii)changes to contribution rates is equitable to contribution bands
(iii)clarity on how changes to employees’ rates or benefit be decided. |
Employers or
local funds should be able to provide historic dataset although is noted that
further information on unidentified cost sharing categories may be requested. |
The following be
implemented to maintain long term sustainability: (i)prudent actuarial
assumptions (ii)sound scheme management (iii)local scheme manage local
circumstance (iv)local demography varies so setting employer rate in notional
scheme is questionable (v)members contribution fixed by negotiations rather
than notional level (vi)different public pension schemes should be treated
differently (vii)introduction of contribution band to attract members should
be maintained. |
Centrally
maintained models ie LABGI and FGDS
have chequered history so a formulaic model on notional level with an opaque
mechanism can’t be used as replacement for negotiating employees’
contribution rates. A notional cap on
employers will frustrate cost sharing by pushing cost to employees. Pensions
are specialised so need for participation from local managers, actuaries and
all stakeholders when deciding change of rates. Shared costs: demography Employers costs: longevity; pay
increase Exclude: added contracts; benefit
Structure; investment returns
financial assumptions; actuarial
methodology. |
Past surplus and
deficits should be excluded from the notional fund however arrangements
should be in place to manage local surplus/deficit that reflected in local
employers’ contribution rate. |
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Mets
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The Policy
Review Group should be formalised with the membership seat allocated to
various stakeholder groups through consultation with the normal consultees.
The process should then continue by the Policy Review Group with their
agendas and minutes published on the internet and their availability
advertised via regular CLG newsletter to all administering authorities and
other interested parties. The administering authorities should then inform
their employing authorities so a wide circulation would be achieved. LPFA supports
the ideas set out in paragraph 11 of the consultation paper in terms of
minimum prescription be set out in legislation with the underlining
principles for a cost sharing mechanism detailed in paragraph 12 to enable
national stakeholder consultation for key changes to the mechanism. |
The Policy
Review Group, formally constituted can greatly aid the effective delivery of
a cost sharing mechanism and onward operation while being representative of stakeholders
and accountable to them. The issue of
clear achievable timetables for the finalisation of cost sharing regulations
and guidance will allow authorities to plan resources and workloads
effectively to enable efficient operation of the scheme. |
There should be
a regulatory framework to start and end the cost sharing exercise, however
detailed operational steps can be laid out in a statutory guidance as they
are more likely to vary to suit the valuation timetables and ongoing
operational experience of the mechanism. |
The LPFA can
provide the data listed in paragraph 20 of the consultation paper with the
exception of married/partnership rates. Along with many funds, LPFA does not
maintain this data on an ongoing basis and would prefer to collect it at key
membership event times. A change in this practice would increase
administration costs. |
Investment
returns should be excluded from the cost sharing mechanism to maintain
stability of the scheme. The proposed notional cap will affect the stability
of contribution rates although increase in retirement age in line with
increasing longevity help to stabilise the contribution rates to sustain the
scheme. |
The cost sharing
of risk elements as set out in paragraph 25 of consultation paper is
agreeable but has some concern on pay increase being shared. Employers have
greater influence of this risk element so it would be unfair for members
picking the cost especially the ones who have received a lower pay increase. |
Past surpluses
and deficits in the local funds at commencement date of national notional
fund should be excluded and that at subsequent valuations only any deficit or
surplus that has arisen in the interim on cost sharing items should be
included in the cost sharing calculations.
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Greater |
The governance
arrangements should be sustainable in the long term. It is important that there is adequate time
to communicate any changes to scheme members and employers and adequate time
for systems and procedures to be adapted to deal with any changes. |
No comment. |
No comment. |
The earliest that the administering authority can provide data is likely to be
late summer. There is a possibility that data may be incomplete for some
employers particularly when they have changed their payroll system during the
year. |
The joint negotiation of pay and pension matters may assist long term sustainability of the scheme. |
No comment. |
Surpluses or
deficits at the commencement of the model scheme should be excluded. |
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The Policy
Review Group should continue with the governance; agenda and minutes of
meeting are available to administering authorities through CLG website. |
The process and
delivery of cost sharing mechanism should be done through the Policy Review
Group considering the comments of the Local Govt Pension Committee and
responses to consultation exercises. |
The actual
content should be set in the regulatory framework and WYPF feels this should
be in the form of a statutory guidance. |
The only
information that may be difficult to provide is married/partnership status as
it’s not generally stored. |
Cost sharing
mechanism may be essential to maintain stability of LGPS as a final salary
defined benefit scheme. With the wide variation in funding at local authority
level the employer’ cap should relate to future funding and not to past
deficiencies. |
The fund would
not disagree to the proposals as to who the cost/benefit risk should be borne
by, however where the cost is to be shared there should be consideration as
to whether each element should be cost-shared equally. |
Any surplus or
deficit should be excluded from the notional fund and should not form part of
any cost sharing mechanism. |
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Wirral Council
(Merseyside Pension Fund) |
The Policy
Review Group to continue with the governance but feels that there is a need
for information in progress of implementation to be communicated to all
stakeholders. Any decision should only be taken after full consultation with
all stakeholders. |
The process and
delivery be carried out by the Policy Review Group but feel that there is a
need for information on progress of implementation to be communicated to all
stakeholders more actively than simply posting minutes on CLG website.
Regular progress updates should be published by CLG and any decisions taken
only after full consultation with all stakeholders. |
The actual
content of each of the stages be set out in statutory guidance as a more
flexible method of delivery rather than relying on legislation but believe
that it is essential that a clear
implementation timetable is widely publicised and progress or lack of it is
clearly monitored and reported to all groups of stakeholders. |
Administering
authorities may not hold details of marital status etc of all members to
enable these costs to be accurately calculated. |
The fund
wouldn’t support reductions to future benefits as a desirable or satisfactory
mechanism for future cost sharing adjustments and suggest that any required
changes be achieved by justifiable changes in contribution rates following
full consultation with all stakeholders. |
Surplus or
deficits which exist in individual funds should be excluded from the notional
national fund calculations and only future increases or decreases in costs
should be considered. |
Same as 6. |
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City
Councils |
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The Policy Review
Group to continue with the governance and the transparency it offers through
publishing agendas and minutes on the CLG website. |
Same as 1. |
There needs to
be an agreed time-table for provision and collation of information and date
from which the outcomes from each triennial exercise should be implemented.
This should be in a statutory guidance rather than a statutory instrument as
this will provide flexibility (if required) in timetable during each
triennial valuation. |
The datasets is
provided by the Pension Funds and not employers so the question is not
applicable. |
An introduction
of the cost sharing mechanism is essential to ensure the
longer term affordability and sustainability of the scheme. |
There is a trade
off between the complex and possible less volatile GADs model which best
protects the interests of employers, tax payers and long term sustainability;
and a less complex and volatile model that would be easier to understand and
administer but which might offer less protection. The model should
concentrate on a few key issues: ie longevity and increasing cost be dealt
with increasing National Retirement Age. Primary consideration should be to
maintain a fair and equitable resourcing between members, employers and
taxpayers. Hence it is necessary to accept a complex GADs model. |
Past surplus or
deficit should be excluded from the commencement date of the notional fund. |
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The governing
principles as set out in the consultation paper are supported. |
While the structure
and certainty are seen to be inherent in the process to achieve certainty and
stability there should be flexibility ie the process should not rest solely
on short-term decisions but long-term options and risks when considering
necessary effects and consequences. The integrity of the actual cost share
assessment process is critical to the success of the mechanism especially in
terms of acceptability to stakeholders. |
No comment. |
The range of
data sources/types and categories as set out in the consultation paper to be
fed into the cost sharing framework are acceptable. |
No comment. |
No comment. |
Past surplus or deficit
be excluded from the notional fund however it need to be recognised that the existing
employer and employee contributions coupled with investment returns may not
be sufficient to meet existing scheme liabilities for active members,
deferred pensioners and pensioners. This may need testing and if relevant
then further proposals be considered in advance of the statutory formal
consultation. The Council would wish
to have an opportunity to make further representations in the formal
consultation. |
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District
Councils |
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Town
& Parish Councils |
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Welsh
Councils |
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Powys |
Covered in LGE
response. |
Covered in LGE
response. |
Covered in LGE
response. |
Covered in LGE
response. |
Covered in LGE response. |
Covered in LGE
response. |
Covered in LGE
response. |
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Trade
Unions |
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Aspect |
The governing
body should include wide stakeholders’ representation. Secretary of State, employers and Trade Union
in the group with a legislative ‘Terms of Reference’ and access to advice;
budget; power and scope. The governing body should have a narrow statutory
role with wider terms of reference |
The governing
body’s role to make decision making and support the process as well as to
analyse data and decide on consultation process on changes to cost sharing
prior to wider consultation. |
Same as 1. |
Robust dataset
is essential for scheme; perhaps to make it a statutory requirement. Data on
married/partners; number of membership take up; Additional Voluntary
Contracts is also required. Higher contribution rate for higher bands doesn’t
justify without relevant data. |
Answered in Q6. |
The principle of
cost sharing is agreeable but divergence in local and national experience
lacks confidence. Cost sharing for longevity, pay increases whereas
investment returns outside the scheme posses reservations. Governing body decides on cost sharing
elements with agreed proposals subject to statutory consultations. |
Past and present
surplus/deficit should be excluded and the notional fund should be based on
future benefits accruing in the scheme. |
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GMB |
The governing
body should meet the |
To be clear, the
issuing by the Secretary of State of guidance (by 31st March 2009)
as to the manner in which the costs of the scheme will be met after 31st
March 2010 is a statutory requirement. GMB sees no reason why this cannot be
achieved providing the mechanism involved is simple and reflects the view of
the key stakeholders. The guidance would form the parameters of the
Sustainability Review; it triggers the composition and constitution of the
review group. Datasets and other information to be supplied to the group from
funds, employers and other relevant groups. A whole cost approach to the
scheme would facilitate the issuing of clear and transparent guidance as
required by Regulation 40 SI 2007 1166 as amended. |
A statutory
instrument setting out the terms of the sustainability process would be the
best way to ensure the statutory obligation is met and that it is properly
consulted and debated by all the relevant stakeholders. |
The list set out
in paragraph 20 of consultation is the minimum required datasets. The transparency
and provision of data needs to be significantly improved though it is
appreciated that in some cases it may take time and effort to collate the
relevant data; however deficiencies in the past should not be used as an
excuse to restrict transparency and scrutiny going forward. |
Maintaining long
term sustainability is vital, this process should not be about meeting short
term concerns or changes in cost pressures over the next couple of valuations
but must be fit for purpose for decades to come. That is key reason why GMB
believes the only viable approach is a holistic one and not the segmented
cost approach advocated/presented in this CLG consultation. The model
outlined meets the long term challenge but to avoid disingenuous adoption of
cost sharing, a total cost approach
is the only sustainable way forward. |
The structure
outlined in the table on pages 9-11 of the consultation paper doesn’t seem
appropriate or workable. The segmented approach is short term, impractical
and inherently inappropriate for the LGPS. |
Past surplus or
deficits should be excluded from the model scheme. The sustainability
strategy applies to the new scheme so there is no reason to suppose that
funds will have significant surplus or deficit by the implementation date; if
this is not then the implementation date must be clearly set out by the
Secretary of State so the data used in sustainability review only applies to
appropriate events, ie costs/savings made after this point. |
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Unison – Head
Branch |
Cost sharing mechanism
doesn’t require formulaic approach that is automatically applied. Instead
joint meetings between stakeholders should be developed into a governing
group whose role would be to determine any changes to future benefits or
contribution rates that might be appropriate to the notional model. Unison
suggests that only a significant (ie + 2 %) change in cost should trigger any
cost sharing mechanism; this would remove the need to continually review
contribution rates of the scheme. |
The model scheme
should be transparent and reflects actual experience of all funds. There is
very little real data and so needs to be rectified. When assessing any
changes on the contribution rates it is essential that the key assumptions
are being negotiated and agreed among the stakeholders at each triennial
valuation, Unison has made this clear at each Policy Review Group meeting. |
Unison and other
unions have already agreed with CLG, LGE and LGA to look at the increased
costs and savings arising from the scheme changes for each valuation period.
Any agreed adjustments need to be negotiated and considered following each
triennial valuation. This position has been made clear at each Policy Review
Group meeting and hope that this agreement will form the basis of the
Government policy taken forward. |
No comment. |
To sustain the
scheme (i) LGPS should remain open to new members; (ii) be able to attract
high take-up of membership; (iii) controls administrative charges and rationalise
the number of pension funds currently operating within the scheme; (iv)
pension funds kept separate from Council’s general funds; (v) better
governance including membership representation on investment panels; (vi)
model scheme be constructed on the basis of actual experience after the New
Look LGPS has been in operation for sufficient time to collect reliable data
eg longevity. |
The Unison would
not support the inclusion of investment returns as part of cost sharing risk.
With the notional employer cap any short term volatility in investment return
would impose burden on employees and if the funds do well any savings will
reduce employers’ contribution, also employees doesn’t have any control over
the fund returns. |
The model scheme
would be constructed based on the situation of all funds at each valuation to
determine whether there has been any significant change in the cost of the
scheme. All factors would be taken into account including assumptions on
future service investment returns but not past service deficits. Unison
believes that such deficits should continue to be excluded as they were in
GAD’s costing for the new scheme when assessing the benchmark cost. |
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Unite |
Unite would like
to see an introduction of quasi trustee membership representation. LGPS must
meet its obligation under EU directive to have a clearly delineated
distinction between LGPS and employer funds. There needs to be greater
transparency of data; scrutiny of decision making and member engagement. A
lay member presentation will bring independence to the governance. Member
representation is crucial for fundamental reform and should be an integral to
running of the scheme. |
The Secretary of
State to set the regulatory framework by 31st March 2009 provided
the mechanism is simple and straightforward and considers views of those consulted. |
The statutory
instrument setting out the sustainability process would be most effective way
of ensuring statutory obligations to have a cost sharing mechanism that works
provided proper consultation on the contents of statutory instrument are done
within the current time-frame. |
The list of dataset in paragraph 20 of the consultation paper should be the minimum amount of data needed. More money and resources needs to be placed to gain useful and accurate dataset. |
In order to
achieve long term sustainability rather than a few actuarial cycles whole
cost should be adopted within the scheme based on long term experiences. The
approach suggested in the current consultation is too fragmented. |
Unite doesn’t
see the three columns approach as a workable solution. This approach is
short-term and doesn’t set out appropriate model for longer term
sustainability. |
Surplus or
deficit shouldn’t be incorporated within the notional fund. Past service
costs must remain the responsibility of the employer. |
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Unison –
Charnwood Branch (also see any other points table) |
Joint governance
with stakeholders to agree terms and assumptions in setting a notional fund. |
Any changes
should be subject to rigorous equality impact assessment with the framework
of Public Sector Equality Duties and Equal Pay Act. |
The actual
contents of the scheme should be in line with the European Legislation which
provides greater member participation in the scheme. |
No comment. |
Long term
sustainability can be achieved from savings arising from commutation and
increase in take up of membership from April 2008 to offset increase in costs
elsewhere. |
Careful
consideration to be given to the risk factors included in notional fund by
triggering debate on any possible changes. Only long term trends of
investment returns to be included and as the mechanism is already in place to
ease long term pressures, rather than fundamental change to the scheme.
Employers should pay the balance of cost in future from now. |
Past service
deficits caused by past under funding should be excluded from the notional
fund. |
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Unison – |
Union
representation is required on baseline information when developing and
governing cost sharing mechanism. Union inclusion on decisions where
mortality rate used from experience and not from CMI statistics. |
The Process be
taken forward by allowing the Union sufficient time for their actuaries and
experts to comment constructively on the legitimacy of dataset used for cost
sharing, failure to do this will give way to more disputes. |
A regulatory
framework for actual contents through consulting with stakeholders to
identify the extend of influence it carries on cost sharing mechanism. |
Certain data
will be unreliable with the introduction of New Look LGPS such as ill-health
will have short trends; compulsory retirement changes with organisation
changes; commutation take up rates and partnership cost will differ.
Unreliability will derive from short length trends for above influencing
factors. |
The rationale
for long term sustainability is based on false premise where it doesn’t
account for number of relevant considerations. LGPS cost should be linked to value of
expanding service provision with the introduction of new technology and
working practices. Productivity rises should be linked to cost of retirement
as quoted in ‘The Aging Population, Pensions & Wealth Creation’ 2005 edition. |
Longevity: no mandate on statutory guidance, so
share. Other Demography: too vague, no share. Pay increase:
minority well-paid should share, not to rest. Added Contracts &
Commutation: added contracts shouldn’t be awarded widely. Commutation rate
is insignificant – no cost share. Benefit Structure: cost sharing
confined to significant change at triennial valuation but not automatic
change with every valuation. Investment Return, financial & actuarial
assumption: no share. |
Past deficits
should be excluded from notional fund as many local funds are already
carrying deficits which will introduce backdating cost sharing. |
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Unison –
Denbighshire County Branch (also see any other points table) |
No comment. |
Cost sharing mechanism
shouldn’t be a vehicle for employers to recover under-provision from
increasing employee contribution rate. |
No comment. |
No comment. |
Pension scheme
is for long term and not sensible to change benefits at triennial period
because it will change the longevity assumptions. Employees’ shouldn’t bear all risks above
employers 14% cap. |
Only longevity
risks to be shared, other risks are materially small and volatility should be
outside the cost envelope. |
Scheme members shouldn’t
pay previous liabilities due to under-provision for longevity ie deficits
outside the cost-sharing envelope. |
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Unison –
Kent Branch |
The governing
board of individual funds should have the chance to debate the issues and
respond to CLG. The |
An effective
mechanism for scheme could be achieved through the CLG concept of a model
based on a notional national fund, its parameters developed through a joint
governance group of stakeholders including employee representatives. Were it
necessary to find additional finance the group could determine how the
liability should be shared making any ensuing changes subject to a rigorous
equality impact assessment. The |
There would need
to be prescription as regards the collection and analysis of appropriate data
on which to base judgements; timetable and responsibility for the cost of the
scheme. |
Data can be
extracted more easily with some software packages than others. Some authorities
might argue for the cost of data retrieval to be added to the costs of the
scheme. The |
It’s too early
yet to say how the various changes to the scheme will affect the longer term
sustainability. Past under funding and the loss of ACT exemption have
affected pension funds adversely and will continue to be an issue. Past under
funding which varies widely among the schemes should be excluded from the
notional fund. |
Shared costs: other
demographics; options; investment returns(employer if cap adopted) Employers costs: pay increases;
benefit structure; financial;
assumptions; actuarial methodology Employees costs: Longevity Individual cases: overriding
legislation For more details
refer to response paper. |
Deficits caused
by past service under-funding that is not attributable to employees should be
excluded from the notional fund. |
|
Unison – |
See response from Unison - Head Branch |
See response from Unison - Head Branch |
See response from Unison - Head Branch |
See response
from Unison - Head Branch |
See response from Unison - Head Branch |
The suggestion in the consultation paper that cost above the notional cap be borne by the employees; actuaries noted that under such an arrangement the term cost sharing becomes a misnomer, since all additional costs fall to one party. Given that pension’s actuaries are not voted for being overly sympathetic towards a trade union perspective, on these matters their comment provides objective support to the argument that the concept of the cap is intrinsically unjust. |
See response from Unison - Head Branch |
|
Unison –
National Assembly for |
The role of the scheme
members is not to bear risk or cost of the scheme but to be part of the
governing body so they can influence the long term performance of the LGPS in
a positive manner through greater transparency and joint open governance. |
The cost sharing
mechanism should not just be carried out to meet the legally necessary
minimum level of assessment but should be seen as an opportunity to embrace
equality on an ongoing basis into the future of the LGPS. The Unison branch
welcomes the opportunity to engage with CLG at the earlier stages of this
policy development and intend to make full response to a formal consultation
when published. |
No comment. |
No comment. |
The consultation
document seems to draw a narrow view of sustainability. Commonly accepted definitions
view sustainability as the balance of economic, social and environmental
issues; the consultation paper appears to view the future of LGPS as nothing
more than an economic argument. Environmental, social and equality should
also be considered for long term sustainability of the scheme. |
The mechanisms
and principles within the pre-April 2008 scheme and the balance of risks in
funding the cost sharing scheme should remain wholly with the employers. |
Past service deficits
are excluded from all agreements on the future sustainability of the scheme. |
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Societies |
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PPMA |
A broad range of
consultees should be involved in the consultation process and governance arrangements. Representatives from Policy Review Group
advised by GAD should form a small core team to administer the scheme and
advice the Ministers. Also there needs to be technical input into any
recommendations made by the group perhaps from the LGE and/or pension
managers of administrative authorities. |
The CLG/Policy
Review Group commission a communication exercise to ensure that local
authorities understand the reasons for cost sharing are not unduly influenced
by one point of view. The Policy Review Group advice the Ministers on the
outcome of consultation exercise but not before the group has had an
opportunity to consider outcomes itself. Also formal negotiations with Trade
Union should commence as soon as possible through the LGE. Any proposals developed
for cost sharing are tested with a technical group of LG pensions experts ie
through LGE. |
The equity and
variations to the cost sharing elements should be enshrined in a statutory
instrument to ensure compliance. This approach could also be used in the
setting up and maintaining the governance structure. Other elements such as
the LGPS benefits should be considered as part of establishing the notional
fund which should not be included in a statutory framework and can be
included into a non-statutory guidance. Although this approach could increase
negotiation and slow down outcomes. |
Dataset can be
provided without any significant problems although it could bring greater
administrative burden. |
A 15 year
amortisation period is reasonable to maintain longer term sustainability of
the scheme. Consideration should be given to extending retirement ages or
making elements of the overall scheme less favourable. (Increasing
contribution would have detrimental effect upon recruitment and retention).
Ultimately the political decisions may affect scheme sustainability. |
The risk sharing
proposals within the cost sharing mechanism are agreeable in the main
although longevity shouldn’t be borne by scheme members only as they do not
have direct influence upon the life expectancy. Employers have as much influence on this
factor and it should be shared. Agrees with the
50:50 split of cost share but unclear on the decisions that would affect
investment returns (ie ethical investment) will be addressed. |
Past surplus or
deficit should be excluded from the notional fund and smoothed assumptions be
adopted on basis of past experience of the fund over time to set a national
notional fund rate. |
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Society of |
The cost sharing
governance principles as set out in the consultation paper are supported. A
watching brief could be kept by the Policy Review Group to advise as to what
extent proposals being considered to meet the principles as they progress to
the Ministerial approval. |
It is not
necessary to set the precise steps of the mechanism into legislation, however
it would be helpful to have some minimum prescription to begin and end the
exercise to provide a framework for the cost sharing mechanism and to clarify
the statutory role of Ministers and the active involvement of
stakeholders. |
The Society
would favour setting out some of the actual content of each of the critical
stages set out in the consultation paper (and others) in statutory guidance
prepared by the CLG. This guidance
could be informed by the statutory-based consultation and active engagement
with stakeholders through the Policy Review Group with a clear understanding
that the final decisions are for Ministers within the established statutory
framework. |
All the datasets
referred to in paragraph 20 of the consultation paper are provided for the
valuation purposes hence no problems are envisaged in providing it for the
cost share exercise. There may be
timing issue for initial implementation if cost sharing data is collected at
the same time as the regular triennial valuations (also see answer 14). |
Stability of
contribution rates for both employers and employees is considered an
essential element for sustaining a pension scheme. This can be achieved by excluding
significant, potentially unpredictable and volatile influences on
contribution rates such as investment returns and the actuarial
assumptions. Amortisation periods over
which deficits and surpluses are spread are another important factor in
sustaining the scheme via the stability of contribution rates. Although there is a need to reconcile the
benefit of smoothing gained from spreading, with the downside of any
resultant contribution adjustment having little relation to recent
experience. |
Sensitivity
analyses undertaken by Hymans Robertson indicate that the factors likely to
have the most significant impact on contribution rates are: changes in
longevity, pay growth and pension increases. Changes in benefit should also
be considered. The allowance
for future improvements could be linked to observed improvements over past
periods (with the prior period being used to update the actual assumption for
the following period). This has the
advantage of greater objectivity and a smoother impact when compared to a
step change in future expectations.
Analysis undertaken by Hyman Robertson suggests a rolling period of at
least ten years would be appropriate to give a smoothed effect. Whilst the
consultation document does not explicitly mention price inflation or pension
increases it is considered there is a strong argument for sharing greater or
lesser than expected increases given that actual levels have a direct impact
on benefit levels of non-actives. For simplicity
demography and other options cost sharing risk borne by employers. Against this
background it may be useful to build into the regulations scope to revisit
the model and the cap to cater for currently unknown factors (refer to
response paper for more details). |
The notional
fund should initially be set equal to the total accrued liabilities of the
scheme membership at the commencement date.
Existing surplus or deficit relates to experience before
implementation so should not fall within the cost share mechanism and would
continue to be the responsibility of the employers. New sources of surplus/deficits would only
fall within the cost share mechanism if related to shared items (not if they
were generated by investment returns). |
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Other
employers |
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LGPC/LGE |
To continue with
governance by the Policy Review Group for the transparency it offers by
publishing agendas and minutes on the CLG website. If a cap on employers’
contribution is introduced it will, if investment returns were to be included
in the cost sharing mechanism, add weight to Trade Union claims for ‘Member
Nominated Trustee’ voting rights on the Pensions Committee. |
Same as 1. |
LGE would prefer
to see statutory guidance with an agreed timetable for the provision and
collation of information and the date from which the outcomes from each
triennial exercise should be implemented. |
Funds do not
hold details of the current marital, civil partnership or co-habiting partner
status of individuals. |
The introduction
of cost sharing is essential to ensure the longer term affordability and
sustainability of the scheme. |
The complex
model by GADs protects the interests of employers, taxpayers and longer term
sustainability of the scheme. A less complex and volatile model will be
easier to understand and administer but will offer less protection. On
balance a complex model where cost sharing reflects new factors and change in
circumstances is supported. |
Past surplus or
deficit should be excluded from the notional fund |
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Other
Government Departments |
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HM Treasury |
No comment. |
The broad thrust
of the consultation paper is consistent with other schemes although no views on the process/delivery. |
No comment. |
No comment. |
Triennial
valuations imply degree of stability. |
Too much
emphasis on member’s stability on contribution rates, shouldn’t it change in
line with fluctuations or change the benefit if cost sharing or capping is to
be meaningful. Also need to clarify the intended discount rate used for
calculating the cost of the scheme and is there any consideration to use a
central methodology such as ‘SCAPE’. |
20 years
amortisation period is too long, whereas other public services have explicit
15 year rules and private sector is fixed at 10 years. |
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Education |
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The existing governance
appears to be effective. Any further changes as a result of consultation
should be carefully considered before introduction so as to optimise
administration for long term management of the scheme. |
The Policy
Review Group should circulate agenda and minutes and consult on key issues. |
Prefer to wait
and comment at the formal consultation stage. Individual development steps
needs to set in statutory guidance to
avoid over legislation. |
Datasets is
provided by the scheme administrators and hopefully this level of detail is
already provided and complete. |
Cost sharing
mechanism should strengthen long term sustainability but like any model there
may be constraints in its ability to deal with all the potential
fluctuations. A right balance needs to be maintained between the long term
commitment of employers and short term contribution split between employer
and employee. Short term adverse movements shouldn’t allow to fluctuate
decisions on scheme benefits or contribution levels. |
All the
proposals in the consultation paper on risk sharing elements are not
acceptable. For instance part of national pay bargaining members has major
influence and employers very little. The concept of splitting individual
areas of influence into one party’s responsibility would make the model
complex for calculating contribution rates and over time would be both
contentious and administratively complex. For this reason consideration
should be given to a macro level approach that assumes a shared
responsibility between the employers and scheme members. |
Past surplus or
deficit should be excluded from the notional fund |
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Individuals |
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Kevin Gregson |
No comment. |
Cost sharing mechanism
chosen must be transparent and simple enough to be understood by majority of
scheme members and other stakeholders. Clearly this will necessitate a broad
and less detailed approach to this exercise where all parties have confidence
in the arrangement and a situation where figures are felt to come from a
mysterious “black box” must be avoided. |
No comment. |
The cost of
providing data for this exercise should be kept to a minimum ie the data requirement
should not be significantly different to those needed to conduct the main
pension fund valuations. |
The proposed
employer cap will be significant in maintaining sustainability of scheme,
however many councils will be close to 14% cap hence any future cost share
will be passed to the employees. The whole cost
of any benefit improvement should be met by an adjustment to employee
contribution, or a corresponding reduction of equal value being made to
another area of the benefit structure. |
(i) Demographic
and structural cost changes (eg increased longevity) should be shared equally
by employer and employee. (ii) Investment return shared equally for long term
assumptions. To avoid short term market volatility demography could be looked
at each triennial valuation, with funding/ investment returns being
considered every second or third valuation. |
No comment. |
|
John Bowers (Gwynedd) |
Scheme members’
representation for decision making on investment strategy, financial assumptions
and actuarial methodology. Also need
to consider whether Councillors should be the sole guarantors of the
taxpayers’ interest. |
No comment. |
No comment. |
No comment. |
No comment. |
No comment. |
No comment. |
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Actuaries |
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Hymans Robertson
- also see any other points table |
No comment. |
No comment. |
No comment. |
No comment. |
No comment. |
According to
Hymans’ analysis the factors proposed for cost sharing shows that cost variability
may be most affected by change in experiences in longevity; pay growth and
pension increase. Although the consultation paper doesn’t explicitly mentions
pension increases however there is a strong argument to include it in the
cost sharing mechanism as it has direct link to members benefit. Demographic
experience is likely to have less impact and can be disregarded on the
grounds of materiality, although changes in benefit or policy (eg ill health
awards) should be considered in the cost sharing mechanism. A number of OECD
countries have introduced cost sharing into their State Pension arrangement
where benefits are paid as defined benefits and only longevity is factored in
and sharing is achieved by adjustment of benefit amount. |
No comment. |
|
Campaign
Letters from Unison = 60 |
Joint meetings
between stakeholders should be developed into a joint governance group with a
role to agree the terms and assumptions to be used in setting up a national
notional fund. |
The regulation
for cost sharing mechanism does not
require a formula that is automatically applied. |
Any changes
should be subject to a rigorous equality impact assessment within the
framework of the Public Sector Equality Duties and the Equal pay Act. |
No comment. |
No comment. |
No comment. |
No comment. |
SUSTAINING
THE LOCAL GOVERNMENT PENSION SCHEM INI
FEBRUARY
– MAY 2008
ANY
OTHER POINTS TABLE
|
Name
of Respondee |
Any
other points |
|
LB Enfield |
The Government
needs to recognise the ‘pension gap’ between the public and private sector
pension funds and mechanism are introduced to limit taxpayers’ exposure to the
‘unlimited’ costs of Defined Benefit schemes. Continued increase in costs of
the LGPS can no longer be met by council tax payers or through finding
savings in front line services. Also to note that the overall objective of
cost sharing is to reduce the burden on the employer. |
|
LB Lewisham |
Lewisham has
more inward transfers then outward which incurs unfunded liabilities and thus
request GAD to provide revised AMC tables to recognise the reality of market
returns. |
|
Unison –
Denbighshire |
Made reference
on AA Corporate Bond which is not applicable to LGPS. |
|
Unison –
Charnwood Branch |
LGPS should
remain a single scheme covering |
|
Actuaries –
Hymans Robertson |
It is not
necessary to set up a notional fund model for the effective operation of LGPS
cost sharing. The effort involved in operating a notional fund should not be
underestimated and might be expected to introduce a significant time lag into
the process. With a small number of experience items on cost a simpler
mechanism could be used to identify contribution adjustments. Such mechanism
need not require maintenance of a notional fund with artificial allocation of
notional investment returns and allowance for notional contributions and
benefit payments. With a simpler model it would be possible to base any
adjustment to the cost on experienced rates of each the factors. Also there
are a number of ways in which a simplified mechanism might be structured
depending on the required extent of durability before review eg a simplified
mechanism could factor in future changes in maturity. |