Agenda item

To receive a report from officers updating the Committee on various developments.

Andy Cunningham, Head of Pension Administration and Relations, updated the Committee on the various Scheme, Legal, Regulatory and Fund developments.

Among the key updates discussed, exit caps were highlighted as being particularly challenging in respect of the proposed changes to the primary legislation. This meant that the Fund could be legally required to follow two pieces of legislation that contradicted one another for a period of time, in regard to the payment of exit and pension packages in line with the LGPS regulations. It was highlighted that more information such as timeframes was needed before further action could be taken. It was noted that advice was being sought from the Scheme Advisory Board and MHCLG, and that the risk had been increased on the risk register but as more information continued to come to light this would be reviewed again.

Members questioned the amount of people that were likely to be caught up in this process to which it was confirmed by officers that the impact on the Fund would be minimal in terms of the number of members, but the impact on the individual scheme members themselves would be more significant. From an employer perspective it was noted that it was complicated for them to communicate with scheme members about the changes, and that timing in the short term was the biggest issue as organisations could be looking at redundancy exercises and this would cause a barrier to undertake such analysis due to the complexity of the legislative position.

The Vice-Chair confirmed that she would meet with both Andy Cunningham and Andy Brown, Director of Finance and Procurement, in the near future to understand the situation further in order to ensure that the impact on employers and scheme members was minimal.

Employer risk management was discussed, and it was noted that the Government had made changes that apply from 23 September 2020 and that the Fund needed to implement policy changes to reflect these (mainly to the Cessation Policy and Fund Strategy Statement). This had led to newly available options, notably employer contribution rates to change into valuation as long as certain conditions were met such as material changes in circumstances specific to each employer. These would be requested by an employer subject to the Fund’s agreement, or the Fund could insist on a change in employer contribution rate.

The changes to the LGPS Regulations enable the Fund to implement a more flexible approach. An example of which was the ability to allow employers leaving the Fund to enter into an agreement to spread any cessation debt across a specified period of time. Additionally, the possibility to allow employers to delay the crystallisation of the final calculation was discussed. 

It was confirmed that draft changes to the cessation policy was being undertaken and any proposals would be brought forth to the next Committee meeting.

The McCloud case was explored, and it was confirmed that further analysis was being undertaken to provide a targeted, proportional administrative approach to the issues faced. It was clarified that although the McCloud rulings would affect a small number of members, these members needed to be identified to avoid unnecessary administrative work. The cost impact was expected to be relatively small compared to the Fund as a whole, but it was reiterated that these were estimations due to the McCloud case’s focus on the future circumstances of the members.

One member of the Committee questioned the differences to the impacts of McCloud on unfunded schemes as opposed to the LGPS. In response, the officer confirmed that from a financial and member perspective within unfunded schemes the impact would be bigger, but that was due to the significant changes and reforms made to those schemes in 2015. It was noted that any financial impacts despite being more significant would be less transparent due to the nature of the schemes being unfunded.

The Goodwin Case was introduced to the Committee; it was noted that it was similar to McCloud in so much as it was a discrimination case but instead related to sexual orientation, and was not as far advanced as the McCloud case. Although this would mean changes to the legislation the funding, administration and communicative costs were expected to be smaller than McCloud. It was confirmed that as soon as the case developed, and more information was available, it would be circulated to the Committee.

In respect to the Fund update, it was confirmed that an alternative investment strategy that was discussed in previous Committee meetings in the 2019 was now in place despite delays, with a few employers involved. It was clarified that this strategy was put in place as a tool to use in respect to employers in certain situations such as wanting to leave the Fund. This was noted as fitting well with the reforms that the Government had made as it provided employers with the ability to de-risk when leaving the Fund and allowed Fund officers to manage their exit in a more controlled manner.

A review of the employer ill health insurance policy would be taking place, looking at an alternative way to provide similar cover, which is more cost effective for employers. Work was being done with the actuary and a proposal would be brought back to Committee.

Resolved

The Committee noted the scheme, legal, regulatory and Fund update.