Restricting exit payments in the public sector
I am writing to provide the response of Tyne and Wear Pension Fund (TWPF), as administered by South Tyneside Council, to the HM Treasury consultation on - ' Restricting Exit Payments in the Public Sector'.
Before responding in any detail, we would comment that TWPF recognises that the proposals are broadly matters for employers rather than pension scheme administrators. However, there are a number of concerns in respect to fairness, consistency and guidance on how the exit payment cap may be effectively implemented in the LGPS and the administrative challenges this will bring. Substantial clarification on the impact of the cap in the LGPS is needed in order to make them workable.
We are aware that The Local Government Association has submitted a detailed response to the consultation and we support their concerns, especially in connection to the above.
In further support we wish to bring to your attention the following areas:
Whilst the Enterprise Act contains amendments to the LGPS to allow partial reduction of a members benefits, the methodology in applying this remains unclear and requires further statutory guidance or regulatory change.
Whilst the discretion on any exemptions does not sit with a pension fund administrator, further clarity is needed on how exemptions to the cap would apply on a "day to day" basis . Ultimately the Fund will be required to correctly pay benefits within the statutory timeframe and therefore requires clarity on how exemptions are to be applied.
Due to the amendments that will be required to the LGPS Regulations 2013 in order to actually implement the exit cap in the LGPS, and for the substantial changes to administration systems that will also be needed, there needs to be a significant period of time between the date of any regulation passed to the date the reforms are introduced into the LGPS. As a minimum, nine months would be needed. Failure to allow sufficient time could also have an adverse effect on LGPS employers in their workforce planning as they will require time to prepare discretionary policies and seek legal advice. This may then impact on the payment of benefits within requisite time frames.
Pension strain costs (i.e. a payment made to reduce or eliminate an actuarial reduction to a pension on early retirement or in respect to the cost of a pension scheme of such a reduction not being made) are included in the cap. Currently there are differing methods around strain payments across the LGPS and also across different public sector schemes. It would be sensible for a standardised approach to be implemented. If not this will result in inconsistencies as to who is capped and to what extent.
The introduction of an exit cap will result in the need for additional resources to monitor payments for the administering authority and the employer and deal with any resulting breaches and subsequent part payments . In addition, it is understood the exit payment cap of £95,000 will not be indexed linked, therefore over time more people will be affected resulting in the need for further resources.
In addition, as a point of general fairness, the inclusion of pension strain costs within the scope of the exit payments cap could impact on lower paid members of the LGPS, if they have sufficient long service. This seems contrary to the policy intent of the cap being implemented to restrict payments to high earners and steps ought to be taken to protect those of lower financial means.
We hope this is of assistance in considering the proposals.
Principal Pensions Manager
Tyne and Wear Pension Fund
South Tyneside Council,Town Hall and Civic Offices
Westoe Road, South Shields, NE33 2RL