Administering Authority Discretions
• The Local Government Pension Scheme (LGPS) (Administration) Regulations 2008, require administering authorities to formulate and keep under review their policy on whether they abate (reduce or stop) the basic pensions of members who are subsequently re-employed
with a LGPS scheme employer.
• In compliance with those regulations, the abatement policy must be published following consultation with scheme employers. This
document represents Cheshire Pension Fund’s policy and it has been consulted on and agreed by the Pensions Consultative Forum (PCF),
the body representing Fund employers.
• Abatement of any pension payable as a result of a member being awarded compensatory added years under separate discretionary
compensation regulations, continues to be a regulatory requirement if the pensioner exceeds the earnings limit during a subsequent period
of re employment.
• The regulations state that a member in receipt of a LGPS pension who is re-employed with an admission body is specifically excluded from the requirement to abate the basic pension.
• There is no statutory requirement to consider pension abatement (either basic or compensatory added years) when a pensioner in
receipt of a LGPS pension is re-employed outside of the LGPS Scheme.
• Prior to 2006 and following consultation with scheme employers, Cheshire Pension Fund’s policy was to abate pensions on reemployment. This approach was consistent with the approach adopted by the majority of administering authorities at that time.
• In 2006, the LGPS regulations were amended to reflect changes in the tax regime for pensions and members can now draw their pension and remain in employment (flexible retirement subject to employer consent). Pensions drawn this way are not subject to abatement under
the regulations in respect of any subsequent employment with the same employer.
• The retention of abatement following the introduction of flexible retirement options ran counter to government and employer objectives
of allowing staff to receive their pension and remain in employment. Scheme employers were therefore consulted again and as a result,
Cheshire Pension Fund’s Policy was reviewed and amended to reflect the employer’s agreement to remove abatement.
• Not to abate basic pension on re-employment with effect from 1 April 2006.
• To apply abatement to basic pension in cases of re-employment following ill health retirement (both tier I and 2) after 1 April 2008.
• Abatement may be applied to basic pension in cases of re-employment following a flexible retirement where the member is re-employed with a different LGPS employer, subject to the awarding employer’s discretion.
NB Abatement still applies to those pensioners who have previously received compensatory added years under discretionary
compensation legislation and who are subsequently re-employed by a LGPS scheme employer.
Additional Pension Contributions (APCs) - Medical Policy
The Local Government Pension Scheme Regulations 2013 allow members to purchase additional pension through Additional Pension Contributions (APCs). The maximum allowable purchase is in line with the regulations and can be spread over a number of years up to Normal Pension Age.
Regulation 16(10) gives the administering authority the power to “require an active member to produce a report by a registered medical practitioner of the results of a medical examination, undertaken at the member’s own expense, and may refuse an application to make arrangements under paragraphs (1) to (4) if that authority is not satisfied that the member is in reasonably good health”.
Although the LGPS regulations do not explicitly require Administering Authorities to maintain a written policy on how they will exercise their power in this area, good practice and fairness as well as the protection of the Fund dictate that a consistent policy should be followed.
The Cheshire Pension Fund will require active members of the fund, who apply to purchase additional pension through APCs, to produce a report by a registered medical practitioner of the results of a medical examination, undertaken at the member’s own expense in the following circumstances:
• Where the member has not signed a statement to declare they are in good health or
• The employer has reason to believe the member is not in good health and
The report should answer the following question:
• Is the member likely to retire or leave work due to ill health before normal retirement age due to an
existing medical condition.
Where the report states that this is likely the administering authority will refuse this and any future applications, save those in respect of the repayment of breaks in service.
1 APC Medical Policy Issue Date – January 16
Reason for Policy
The above policy is designed to allow an administering authority to mitigate the risk of a member taking out an APC contract and subsequently retiring on an ill health pension.
If a member does retire on ill health grounds the APC contract would be paid be without any early payment reduction. This along with the awarding of an enhanced tier one or two ill health pension could result in the employer and fund bearing the costs for a benefit which is unfunded.
Transfer in policy
The Local Government Pension Scheme Regulations 2013 allow members to transfer in accrued pension rights from a registered pension scheme in order to purchase additional benefits within the LGPS. Regulation 100(6) requires that the member makes such an election “before the expiry of the period of 12 months beginning with the date on which the person first became an active member in an employment (or such longer period as the Scheme employer and administering authority may allow”.
Although the LGPS regulations do not explicitly require Administering Authorities to maintain a written policy on how they will exercise their discretion in this area, good practice and fairness dictate that a consistent policy should be followed.
The Cheshire Pension Fund will generally support employers who wish to allow an employee to transfer in pension rights outside of the standard 12 month election period.
However, where the Fund considers that such a transfer would have a significantly adverse effect on an individual employer’s funding position and/or there is a possibility that the additional liability will fall to a sponsoring employer or some other employing authority a late transfer will not be permitted.
The above policy would allow employers to exercise their discretion over this area in order to provide fairness to their employees in what, it is anticipated, will be exceptional circumstances. Examples of such exceptions might include where ill-health has prevented a member making an election within the 12 month period, or where delays have been caused by administrative errors on the part of the transferring scheme.
The previous LGPS Regulations required that only the employer’s agreement was required to effect a late transfer in and the discretion to do so was very rarely used by employers.
Reason for Policy
Any transfers accepted outside of the 12 month window will purchase an amount of pension, to be revalued in line with the usual career average benefits (CPI) and payable unreduced from State Pension Age (which is expected to be reviewed in line with observed demographics).
For these reasons, two of the key risks around accepting transfers which previously applied are no longer relevant; namely, the risk that an individual’s salary will increase by more than assumed at the time of the transfer and that the member will live longer than the longevity assumptions used.
That is not to say that accepting transfers is wholly risk free. In particular if an individual is allowed to transfer in previous pension rights prior to being made redundant after age 55 or retiring on ill-health they will be able to access all of their benefits unreduced, with the additional cost being picked up by their employer.
For this reason the Fund considers that where, in their view, a late transfer places a significant risk on an employer such that the some liability may fall back onto a sponsoring employer or the Fund’s other employers a late transfer will not be permitted.
Examples of this scenario might include, but are not limited to, an employer where a high proportion of the liabilities sit with a handful of employees. If one of those individuals was allowed to transfer in significant previous pension rights, that employer’s funding position might be completely altered and the current funding and contribution strategy may no longer be applicable.
Other cases might include an employer in a particularly poor funding position, or one closed to new entrants and being managed towards exiting the Scheme on a gilts funding basis.