Agenda item

Committee members noted this report and make themselves aware of the various current issues affecting the LGPS, some of which are significant to the operation of the Fund.

Miss Fellowes gave a brief update on the key issues that are affecting the LGPS at the moment. She noted the following points;

·         CPI has been confirmed as 2.4% for September 2018, this means that pensions will increase by 2.4% in April 2019.

·         The Section 13 report from GAD was published in September where the Fund was not flagged. The four main actuarial firms who advise LGPS funds had a number of concerns about the report and they have jointly written to MHCLG and SAB to express their concerns.  Discussions will no doubt continue regarding these concerns.

·         There have been discussions around moving to a 4-year valuation cycle where the 2019 valuation will still go ahead, but a review of employer contribution rates will follow mid-cycle (likely 2022) with the subsequent statutory valuation being in 2024. Further updates from Mercer will follow on this.

·         In October, the High Court made a decision to equalise GMPs for members who had Contracted-Out of the State Scheme. This affects all members with GMPs dating back to 17 May 1990 and is expected to have an effect on liabilities and costs for private sector schemes. For the LGPS and the Fund, the preliminary view is that the impact will be dependent on the profile of the members and is likely to be much less significant due to the method of indexation which is used, and likely to be extended, in the LGPS. The actuaries are keeping this under review.

Cllr Jones wanted clarification whether all of the LGPS administering authorities are on the same cycle for actuarial valuations. Mr Middleman confirmed that currently all LGPS administering authorities in England and Wales are in line with Scottish LGPS being a year behind. In 2024, it will be aligned if the proposed changes proceed. Mr Middleman noted that a 4-year cycle is a long time when a fund has active risk management policy so it is important were have the power to review contributions mid-cycle if need be.

            Mr Hibbert queried about an update on the Cost Management process. Mr Middleman explained that under the HMT process if costs go up above 2% of the target, the members will have to pick up the costs whereas if the cost go down by more than 2% of the target the members will get the benefit (through benefit improvements or contribution reductions).  However, there is a further process run by the SAB which can override the HMT process where there are some discretions where cost changes are between 0-2% of pay.  It is looking likely that there will be some benefit improvements and/or contributions rate reductions in the LGPS based on latest trend data (in particular life expectancy reductions).

Mr Middleman expects there to be more detail on this topic soon where the intention is that it will be implemented from April next year. The changes that will follow will be in relation to payroll systems, communication and administration, and the Actuarial Valuation will be affected by it but the contributions will not change until 2020.

Mr Latham asked what the contribution rate will increase by.  Mr Middleman confirmed that it is not finalised but it could be over 1% with all of the other things being equal. Mr Middleman said that this is an average across the LGPS but changes will impact to each employer in different proportions. Some employers will be impacted more or less depending on what they change and the employer’s membership profile.

Mr Hibbert mentioned that from a Fund perspective, the impact of the change in benefits could be costly in terms of the administration. Mr Middleman responded stating that the changes in relation to the member contributions is more an employer issue which will need addressing very quickly if implemented from 1 April 2019. On the benefit changes some of them would be more difficult than others and it is possible some complexities around ill health may be removed e.g. Tier 3 option which has been talked about for a while.

Mrs McWilliam agreed with Mr Middleman’s points in relation to the scheme changes, and that all scheme members and employers need to have awareness of these changes, and she highlighted that the short timescales for implementing the change will be very challenging for both employers and the Fund.

Mr Middleman confirmed that there would initially need to be a consultation on the changes because the Regulations will need to be changed.

RESOLVED:

Committee members noted this report and make themselves aware of the various current issues affecting the LGPS, some of which are significant to the operation of the Fund