CLG (08) PRG 21
LOCAL
GOVERNMENT PENSION SCHEME
POLICY REVIEW
GROUP
Rule
of 85 Fresh Assessment of Cost
GAD
Report on Removal of Transitional Protection Taper
At the last PRG meeting, held on 9 April, initial findings of the review
of the cost of providing the tapered protection based on data available as part
of the 2007 actuarial valuations were presented by GAD.
The report has now been finalised and is based on returns from all but
one of the 89 separate pension funds in
·
out of a total
number of 1.7 million active members of the Scheme some 189,000 (11%) of members would be affected by the
removal of the taper;
·
the capital cost
of removing the taper and extending the protection to 2020 is £575 million; and
·
this adds 0.1% of payroll per annum
to employers’ costs over the next 20 years (over and above the agreed cost
envelope) or, in cash terms, adds some £30 million per annum, over that period.
Subsequent to the last meeting of the PRG the trades unions jointly wrote to the Minister raising an issue which had been discussed at the PRG and making the following suggestion:-
“One approach [to deal with the cost] would be that a facility should be
introduced to enable those members affected to pay additional contributions to
‘buy out’ the reduction that they would face on their early retirement
pension.”
This proposal assumes that a means could be found for affected members to make payments to offset the phased withdrawal of the rule of 85 so that members retire on an overall level of pension equal to that before actuarial reduction applied.
It should be noted that in their final report GAD made the following observation on potential for costing such an option.
“The actual cost per member affected will vary
greatly between individuals, and will depend upon the choices and decisions
made by them.”
Further
work is needed to see how this option might operate and PRG members are now asked
for their further observations. We also invite the Group again to consider what
other possible means might be worth exploring, provided they are affordable and
legal and would not exceed the agreed employers’ cost envelope limit of 13.2%
of pensionable payroll.
WPP
CLG
July 2008