Pension update

Payments when leaving Local Government Employment

The Government has not activated the proposals in relation to exit payments for Local Government employees, therefore I can only inform you of what the proposals are and in my opinion how they would affect the members of our branch.

A maximum tariff for calculation of three weeks’ pay per year of service

This should not affect our members as we currently are compensated for the last 20 years’ service as follows:

  • 5 week’s pay for each full year worked when you’re under 22
  • 1 week’s pay for each full year worked when you’re between 22 and 41
  • 5 week’s pay for each full year worked when you’re 41 or older

A ceiling of 15 months’ pay as the maximum payment

Currently we do not know if the Pension Lump Sum is included in this but if you had 34 years pre 2008 pensionable service your lump sum would exceed 15 months’ pay.

We also do not know if the strain in the pension fund is taken into account. Early volunteers for redundancy were rejected if the strain exceeded 2 years’ salary so we know the strain can exceed 15 months’ salary

If the payment only relates to redundancy payment the maximum number of week’s compensation is 30 and you have to be 61 or over to get that.

A maximum salary on which an exit payment can be based, currently envisaged to be £80,000

This is quite easy to see if you are affected.  Do you earn more than £80,000 per year?

Tapering of lump sum payments when normal pension age is close

They have not released enough information to make an educated guess as to how this will affect people

Action to limit or end employer funded early access to pension within exit packages.

These will be workforce specific but could include capping top ups at the redundancy lump sum limit, and/or removing the ability of employers to make top ups altogether.

  • Again we need clarification this could mean the end of obtaining your pension before retirement age.
  • We will have to see if it affects ill health retirement

Increasing the minimum age at which an employee is able to receive an employer funded pension top up. 

This is self-explanatory, unless it does include ill health retirement as you cannot currently retire before you are 55 unless it is due to ill health when there is currently no lower age limit.

These proposals are in addition to the provisions relating to recovery of exit payments where those exiting are re-employed in the public sector and the £95,000 cap which will be applied to exit payments (about which we have previously reported). 

  • The repayment only becomes effective if you move to certain other employments.
  • Again we need more information.

The above does not give the answers but does show the direction the Government appears to be going when the Government does eventually activate the proposals.

The 85 Year Rule

Ill Health Retirements

You can retire on ill health from any age up to Normal Retirement Age

Ill Health provision

LGPS Benefits earned up to date of leaving without an early retirement factor applied for pension being paid before Normal Retirement Age (for ill health retirement NRA is age 65 or a State Pension Age if higher).

There are 3 levels (called tiers) of ill health retirement, with tier 1 being the most generous, which are:

Tier 1 – Benefits earned up to date of leaving but service enhanced to Normal Retirement Age.

Tier 2 – Based on service enhanced by 25% to NRA.

Tier 3 – Based on benefits earned to date of leaving without early retirement reduction but no enhancement of service, which stops after a maximum of three years and stops earlier if member recovers enough to do gainful employment as defined.

To qualify for an ill health retirement:-

A member can be retired by their LGPS employer if a medical advisor (with a qualification in Occupational Health), appointed by the employer to consider ill health referrals (but with no other connection with the employer) agrees the member meets the criteria for ill health retirement set out in the Regulations.

The criteria

  • The member has at least 2 years pensionable service
  • The member on the balance of probability is permanently incapable, for medical reasons of doing the duties of their employment until their Normal Pension Age.
  • They cannot do gainful employment as defined when they leave. Gainful employment is any employment but for a minimum of 30 hours a week for at least 12 months.

So which tier?

  • If the medical advisor believes on medical grounds the member is not likely to recover sufficiently to do gainful employment before their normal retirement age it is Tier 1.
  • If it is likely to be more than three years after leaving but before NRA then it is Tier 2
  • If it is likely to be less than 3 years it is Tier 3

Appeal the decision?

There are full rights of appeal on all decisions.  A member can go through the Internal Disputes Resolution Procedure (IDRP) if they want to dispute either the employers decision not to grant them ill health retirement or the tier /level of ill health retirement.

Members should appeal within 6 months of the employer’s decision with any medical evidence that supports them to stage 1 of IDRP. This is to a person appointed by the employer. Then if not resolved appeal to stage 2 of IDRP within 6 months of the stage 1 determination. This is to a person appointed by the LGPS Administering Authority.

If not resolved at IDRP stage 2 the member can go to the Pensions Ombudsman within 3 years of the start of the dispute. The PO usually limits their enquiry to looking at whether the procedure was correctly followed by the employer. The PO will very rarely overturn the decision but simply ask the procedure to be re-run if the PO agrees it was not done correctly.

Those on Tier 3 can ask the decision to be reviewed at any time within the three years the pension is payable to get it upgraded to Tier 2 if the medical evidence supports this.

If the member believes they should have a Tier 1 then they have to dispute the original decision and show at the date of leaving their medical condition was serious enough to qualify for Tier 1.

Possible changes

Ill health provision is currently being reviewed by the LGPS Cost Management, Benefits and Administration Sub group.  UNISON is pushing for tier 3 to be removed and replaced by a life time pension (at time of writing there was no time table for the removal of tier 3).

If you have any questions or queries in relation to any information provided on this page or any other pension related query please email me at george.pearson@sunderland.gov.uk.

George Pearson
Pension Contact / Transformation Officer