To receive an update report from Hymans Robertson
Julie West, Fund Actuary, Hymans Robertson summarised the key issues, which were detailed at page 23 of the report.
Members were advised at the start of the summer there were changes to the exit credit regulations which allowed funds to repay any surpluses back to any employers when they leave the fund, this was also detailed at agenda item 8, Exit Credit Policy.
The McCloud judgement referred to when schemes were changed out from final career average and protections were put in place for any members within 10 years of retirement to make sure they were not any worse off when they came to retire. So if a person were age 55 or over at 31st of March 2012, when they came to retire they would receive the better of the either the benefit in the care scheme or what they would have earned in the final salary scheme. It was evident that most members would benefit in the care scheme because of the scheme generosity.
It was explained the case went to court and the transitional protections applied to all of the public service schemes. The Committee was advised that it was a member of the firefighter scheme that took the government's to court to state that the transactional protections were age discriminatively.
It was a long process and the Government lost the initial case, the government appealed and lost, they sought to appeal again and there were no further grounds for appeal. So that case remained and the proposed remedy for that case, was to make those transitional protections in place for all of the staff in the scheme at 31st March 2012, so they would get the better of that benefit. From an actuarial point, in terms of the pension fund liabilities Hymans expected the impact to be small. Obviously there was an increase in benefit and because they didn’t expect there to be that many cases and did not expect a significant impact on pension fund liabilities.
However, there would be an impact on the administration of the scheme. Every member of the scheme who was eligible for that benefit, when they come to retire there would have two benefit calculations carried out. The Actuary didn’t feel this was an issue for the Gloucestershire fund, but would be an issue for many funds throughout the country. Since the care schemes had been in place there was no requirement to collect some of the data that's was necessary to calculate that benefit underpin. There was now a large admin task to go back and seek that data from employers and this was expected to be a significant project for pension fund admin teams, probably for the next two years with some dedicated resource required to resolve this issue alone.
The Chairman appreciated the actuaries’ explanation of the McCloud ruling but questioned what the impact would truly be on the Pension Fund. The Chairman suggested that perhaps the newly appointed Head of the Pension Fund could be tasked with looking at this issue in more detail when he was in post.
The Director of Finance advised the Committee that the actuarial value would be quite small, the big issue would be the administrative issue. As it would be necessary to produce calculations for all employees and that's was quite a significant burden. Fortunately GCC had kept its records up to date, so it was anticipated that the burden could be managed with some extra resources.
The Chairman questioned the impact on the fund, in terms of pension liabilities. The Actuary explained that it would probably equate to less than 1% of the pension fund liabilities. The Chairman was alarmed at costs involved, officer explained in costs terms it was large, but in comparison to the fund it was small in significance.
The Chairman advised the Committee that the figures would be confirmed in due course and it would be necessary for Officers to work on the project and report back at a later date. The Actuary confirmed that it was significantly less than 1% but it was still an additional cost that would have to borne by the fund.
One member was interested to know what happened when someone who was a member of pension fund left Local Authority employment and then rejoined, he wondered if they still had the benefit of choosing the career average as opposed to final salary. The Actuary explained that a member was unable choose to stay in the final salary scheme or the care average scheme. The administration team had to calculate two benefits and the member gets the better of those benefits when they came to retire. Members felt this could be a complicated area for some employees and would require due consideration. This issue would be considered further by the New Head of Funds when he was in post.
A member wished to know in terms of administration, when members would know if this would affect their pension return. The Actuary explained that it would be when the pensions were calculated and would be incorporated in the annual benefit statement, however this would depend on when the project began. It was anticipated this would be included in 2021/22 annual pension statement.
The Actuary summarised the cost of management valuations, as the scheme being was changed from final salary to care average, one of the original recommendations in Lord Hutton’s report was to put in place a cost cap mechanism. This was to make sure that the cost of this scheme couldn't go onto it, so this was in a period where life expectancy increased and the scheme was being reformed to limit the costs and his recommendation was to ensure that that cost couldn't keep increasing and there was a mechanism to bring it back in line.
It was noted that what happened between the report and the implementation of the benefits was through the discussions and agreement with the unions, the cost cap became cost sharing and that was a set cost of the scheme which was calculated by the Government actuary and the cost of the scheme would be checked at four yearly intervals.
The scheme mechanism had also been put on hold until the McCloud judgement was rectified and had been on pause, so the outcome was yet unknown. However, any benefits would be retrospective to the 1st April 2016, as the outcome was unknown this could also potentially be another administration challenge. The Chairman summarised that clarification would need to be sought before any work could progressed.
It was noted the Goodwin case was a similar discrimination case to McCloud and referred to survivor’s benefits and discrimination on the grounds of sexual orientation, male dependent of a female member was entitled to less of a pension, or a female dependent of a male member, or a female dependent on the female member. The Government just lost that case and similarly to McCloud it would involve a rectification of benefits for the resolution of that, it was expected to be an even smaller liability impact than McCloud but again significant in terms of admin.
The actuary gave a detailed explanation of the £95K cap, as it could be significant in terms of local authorities, some academies and potentially colleges. The Government had put in place at cap on the exit payment, so if you were aged over 55 they would eligible for immediate receipt of the pension. So any other payments that members may get, when made redundant plus the pension stream cost and if that exceeds £95,000 then they would have their pension reduced.
Another part of that consultation was going through parliament and there was an unexpected part of which was to limit the exit payments of all in people that were being made retired. So the stream cost would be less and employees would receive smaller benefits and may come into force by 2021.
The Chairman suggested there must have a lot of consultation, as interfering with member’s pensions was a hot issue and he hoped the unions had all been consulted. The Actuary confirmed that the 95K cap was already law but she didn’t think any of the consultation responses made it to the final regulations. It was noted that there would be some issues around administering this area and members wondered if this would also end in court too as this was a significant issue for LGPS. The Chairman was concerned for the rate payers as the budget would be under further stress.
The Actuary referred to the funding update which gave an update of the current position. Members felt that clarification would need to be sought from the administration, when the full impact had been assessed and known. It was anticipated that this information would be shared in due course.
In response to a question, it was explained that it was too early to know the long term effects of Covid-19 were at this stage. At there could be some younger deaths, which would have a greater impact on the fund, however this information was unknown at this stage. The Actuary referred members to Club Vita, as they'd been doing lots of work on the mortality rate and there was lots of detailed information available for members to consider.
The Committee noted the report.