To note the Actuary Update report.
The Director of Finance advised the Board that over the last six months there had been significant developments in Local Government Pensions schemes, many of which were very complex.
Paula Hicken, Hymans Robertson summarised the key issues which were detailed at Page 29 of the report.
Members were advised that 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. The Board were 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 Director of Finance advised the Board 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. He added that this would be a task for the new Head of Pensions, when he was post and the issue would be reported back to the Pension Committee in due course.
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.
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.
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 Director Finance explained that the Authority would continue to monitor the situation and would report back to the Pension Committee in due course. He added that changes in LGPS regulations would be needed to ensure they were in line with the new legislation. However this would take several months so would create a period of uncertainty between now and the new financial year.
The Committee noted the report.