The LGPS Regulations 2013 require employers and administering authorities to update their discretion policy statement. Guidance on the mandatory discretions as well as a link to the full list of employer discretions available can be found on the LGPS regulations and guidance website.
Discretion policy template
The Cheshire Pension Fund has produced a template discretion policy, which provides details of the mandatory discretions required, and a format in which to provide them, this is available via the following link:
Transfer In after the 12 month time limit
Members of the Local Government Pension Scheme (LGPS) have 12 months from the date they start membership of the LGPS to indicate that they have previous pension rights they wish to consider transferring into the Scheme. If the member wants to consider a transfer after the 12 month time period has elapsed they must ask their employer (under Regulation 100 (6)), to extend it. This decision must also be agreed by the Pension Fund. A member cannot opt out and back in again to artificially get around the 12 month time limit and a transfer would not be permitted in these circumstances.
It is therefore very important for Fund employers to adopt a consistent approach when considering requests from employees to extend the 12 month time limit. A published discretionary policy for dealing with these applications is often good practice and is also fair and transparent for employees. Employers who need further guidance to help formulate a policy may find this fact sheet useful as it includes information and issues to consider when drawing up the policy.
Issues to Consider
Cheshire Pension Fund cannot give advice to employers, but we’ve highlighted some important issues which should be taken into consideration when developing the policy:
- Transfer values increase the value of the pension scheme benefits ultimately drawn when the member retires
- Funding the liability post transfer falls to the employer’s share of the Fund. As earnings increase so will the cost of funding the liability and the original assumptions made at the time of transfer may no longer hold true at the point benefits are paid out e.g. investment returns may not meet expectations or longevity may increase
- Any future cost implications of agreeing to extend the time limit should not be considered in isolation when drawing up the policy
- There is undoubtedly a balance to be struck for employers, between any future cost of accepting the transfer after the 12 month time limit and the impact on employee relations of not agreeing to extend the time limit
- Employers will need to consider whether there are valid reasons (e.g. because staff have not been informed of the time limit when they become eligible to join the scheme) to justify agreeing to extend the time limit
- A decision not to extend the time limit may be subject to appeal so should be well documented, clear and transparent
- Early retirement on either redundancy, efficiency or ill health grounds would mean the transfer credit is paid unreduced and earlier than funded for
- Cheshire Pension Fund can refuse to accept a late application in circumstances as outlined in their policy
Ultimately, the decision to extend the time limit is purely discretionary for employers, but whatever approach is adopted we would encourage you to apply the decision making process consistently and to communicate decisions clearly to all managers and employees.
Decisions to allow employees to investigate a transfer of previous pension rights should be approved on a case by case basis in accordance with the criteria laid down in your discretionary policy. The decision should be clearly documented and include the rationale which either supports or rejects the decision. It is also important that the decision is not based solely on the cost of any increase in the future pension liability.