Annual Report and Accounts 2005

Scheme Administration

The Local Government Pension Scheme for England and Wales is administered mainly on a county basis. Tameside MBC is the administering authority for the Greater Manchester area. The Greater Manchester Pension Fund is the largest fund in the Scheme.

Employees (apart from teachers, police officers and fire fighters) of all the local and joint authorities in the Greater Manchester area and of many other public bodies have automatic access to the Scheme. Employees of a wide range of other bodies providing public services can join the Scheme if covered by a relevant resolution or by means of admission agreements made between the body concerned and Tameside MBC. Local authority councillors may also be eligible to join the scheme.

The Scheme is a traditional final salary scheme where benefits are generally related to years of membership and pay near to retirement. Benefits are defined by statutory regulations and do not depend on investment performance or market conditions.

Standard employee contributions are a fixed percentage of pay. Employers meet the balance of the cost of the Scheme through employer contributions which are normally set by the Fund actuary following actuarial valuations held every three years. Employer contributions can rise or fall depending on the solvency of the Fund and the estimated cost of providing benefits for future membership. The rates for 2003-04 are shown also for comparative purposes.

Members of the Scheme are contracted-out of the State Second Pension (S2P) [previously known as the State Earnings Related Pension Scheme (SERPS)] because the Scheme has been judged to provide at least broadly equivalent benefits. Members and their employers pay lower National Insurance contributions as a result. The Scheme is also “exempt approved” by the Inland Revenue, so benefiting from favourable tax treatment, including tax relief on employee contributions.

Membership

Scheme membership continues to grow and the total of the categories shown now exceeds 213,800. Although the number of contributors continues to grow, the numbers of pensioners and deferred members are growing at a faster rate so that the number of contributors as a proportion of total membership at 47.8% is lower than at the same point last year. A trend of growing maturity of membership has now become established and seems likely to continue as the number of non local authority employers which restrict access to the scheme grows and as a consequence of the reduction in the vesting period to 3 months - more members become entitled to deferred benefits on leaving.

2004-05 has again seen a large number of new employers joining the Fund. Admitted bodies starting to contribute during the year include: Amey Highways Limited, Aramark Limited, Cash Box Credit Union, Commission for Social Care Inspection, Contour Homes Limited, Groundwork Bury, GSL UK Limited, Jarvis Accommodation Services Limited, NPS North West Limited, The University of Manchester and Trafford Housing Trust Limited. The Valuation Tribunal Service has become a Scheme employer. Some employers have left the Fund during the year. Three Scheme employers (Greater Manchester Magistrates Courts Committee, East Manchester Education Action Forum and Wythenshawe Education Action Forum) have ceased to exist and four admitted bodies (UMIST, Stockport CVS, The Credit Union for Tameside Employees and Progress Trust) no longer employ any scheme members. These changes in employers mean that at 31 March 2005 there were 203 employers actively contributing to the Fund. These include the 10 local authorities in Greater Manchester, 56 schools and colleges, a further 26 Scheme employers, and 111 bodies which have made admission agreements.

There are transitional arrangements for members who were members of the Scheme before 1 April 2005. These provide that:

•  the minimum age that benefits may be paid will continue to be aged 50 for members who are 50 or more on 31 March 2005

•  benefits accrued prior to 1 April 2013 will not be reduced for members who will be aged 60 or more on 31 March 2013 and who will satisfy the 85 year rule and elect to receive their benefits under regulation 31 (1)

•  benefits accrued prior to 1 April 2005 will not be reduced for other members who meet the 85 year rule and elect to receive their benefits under regulation 31 (1).

On 18 March 2005, the Deputy Prime Minister announced “It is my clear intention to revoke at my earliest Parliamentary opportunity, subject to statutory consultation, the Local Government Pension Scheme (Amendment) (No.2) Regulations 2004 with retrospective effect: no Scheme members will be disadvantaged. It is my intention also to begin consultation on new Regulations, which will ensure the continuing solvency of the Scheme.”

He also said: “Following constructive dialogue on the Local Government Pension Scheme, I have decided, with the agreement of all parties concerned, to establish a tripartite committee, which I will chair. The key stakeholders will consider and negotiate the long-term future of the Local Government Pension Scheme.” 

Draft regulations revoking the No 2 regulations were issued for consultation on 1 April 2005. On 13 July 2005, the Minister for Local Government made a Written Ministerial Statement in Parliament indicating that new regulations (The Local Government Pension Scheme (Amendment) Regulations 2005) would come into force on 3 August 2005 which would revoke the Local Government Pension Scheme (Amendment) (No.2) Regulations 2004. The statement also indicated an intention to make further regulations effective from 1 April 2006 to address the costs of revocation.

The future of the LGPS

In October 2004, the Office of the Deputy Prime Minister issued a Consultation Paper entitled “Facing the future – Principles and propositions for an affordable and sustainable Local Government Pension  Scheme in England and Wales”. It outlined the key features of a “new look” LGPS which could replace the present scheme from 2008. Some of the main suggestions were:

•  tiered employee contributions averaging 7% of pay

•  only basic pay to be pensioned

•  normal retirement date of 65

•  benefit accrual rate of 1.6% a year with optional conversion to lump sum

•  two tier ill-health pension benefits

•  death in service lump increased to 3 times pay

•  survivor benefits for registered partners and co-habitees

•  existing contributors to be transferred to the new scheme with an adjustment to past membership

Changes to Scheme rules

The Local Government Pension Scheme (Amendment) (No 2) Regulations 2004 [SI 2004 No 3372] were laid before Parliament on 22 December 2004 and came into force on 1 April 2005. The main changes to the Scheme are as follows:

•  to raise the normal retirement date for members who joined the Scheme prior to 1 April 1998 to their 65th birthday

•  to raise the age at which a member will be entitled to the immediate payment of retirement benefits following redundancy from 50 to 55

•  to raise the age at which a member can elect to receive early payment of their retirement benefits from 50 to 55 and to provide that where an early leaver retires and elects to receive benefits prior to their 65th birthday, those benefits are reduced in accordance with Government Actuary’s Department Guidance.

There are transitional arrangements for members who were members of the Scheme before 1 April 2005. These provide that:

•  the minimum age that benefits may be paid will continue to be aged 50 for members who are 50 or more on 31 March 2005

•  benefits accrued prior to 1 April 2013 will not be reduced for members who will be aged 60 or more on 31 March 2013 and who will satisfy the 85 year rule and elect to receive their benefits under regulation  31 (1)

•  benefits accrued prior to 1 April 2005 will not be reduced for other members who meet the 85 year rule and elect to receive their benefits under regulation 31 (1).

On 18 March 2005, the Deputy Prime Minister announced “It is my clear intention to revoke at my earliest Parliamentary opportunity, subject to statutory consultation, the Local Government Pension Scheme (Amendment) (No.2) Regulations 2004 with retrospective effect: no Scheme members will be disadvantaged. It is my intention also to begin consultation on new Regulations, which will ensure the continuing solvency of the Scheme.”

He also said: “Following constructive dialogue on the Local Government Pension Scheme, I have decided, with the agreement of all parties concerned, to establish a tripartite committee, which I will chair. The key stakeholders will consider and negotiate the long-term future of the Local Government Pension Scheme.” 

Draft regulations revoking the No 2 regulations were issued for consultation on 1 April 2005. On 13 July 2005, the Minister for Local Government made a Written Ministerial Statement in Parliament indicating that new regulations (The Local Government Pension Scheme (Amendment) Regulations 2005) would come into force on 3 August 2005 which would revoke the Local Government Pension Scheme (Amendment) (No.2) Regulations 2004. The statement also indicated an intention to make further regulations effective from 1 April 2006 to address the costs of revocation.

Actuarial Valuation and Funding Strategy Statement

The actuarial valuation of the Fund as at 31 March 2004 was completed in March 2005. This has revealed that the Fund has moved from its previous position of having an actuarial surplus (105% funded in 2001) to having an actuarial deficit (93% funded in 2004). The common rate of contributions set for the three years starting in April 2005 is 12.5% of pay, 2.8% higher than the equivalent rate set following the 2001 valuation. Although the estimated cost of future service has reduced from 12.8% to 10.4% (after allowing for the estimated savings flowing from the changes to the Scheme rules implemented with effect from 1 April 2005), this reduction is more than offset by the change in the past service adjustment from a reduction of 3.1% (2001) to an increase of 2.1%, reflecting the change from a surplus to a deficit position.

Employer contribution rates certified by the Fund actuary vary between employer reflecting their particular circumstances. A major influence has been the Fund’s Funding Strategy Statement prepared concurrently with the actuarial valuation in consultation with employers. It makes recommendations about the periods over which actuarial deficits should be spread.

Pensioners

October saw us hosting the annual Pensioners Forum, with questionnaires revealing good levels of satisfaction. The mixture of presentations from officers regarding the finances of the Fund along with information about the pensioners themselves, coupled with changing guest speakers, appears to be a winning formula. This year a presentation from a police officer regarding crime prevention was both informative and interesting.  

A variety of independent computerised checks continued to be made on pensions.

We also examined annual compensation pensions under the National Fraud Initiative. This led to approximately 30 pensions being abated due to people being re-employed by an LGPS employer. 

Employers

Quarterly meetings with local authority pensions officers have continued and are a routine but valuable part of the calendar of events. Meetings with other employers take place twice yearly. Our Pension Administration Strategy with employers continues in operation with some key performance statistics now being copied to local authority treasurers.

Institute of Payroll and Pensions Management

There were several successes during the year regarding professional qualifications, with 5 staff passing Pensions Administration examinations.

Encouraging staff development continues to be an important activity particularly in the rapidly changing environment in which the Fund is operating.

Website

Our website (www.gmpf.org.uk) continues to grow. It receives approximately 230 visits a day (including the employers’ section but excluding visits by Pensions Office staff), and is promoted in each newsletter. This annual report is one of an increasing number of documents that are now on-line. The employers’ section has also been expanded in response to comments received with items such as the Ill-Health Guidance Manual being present as well as an FAQ section regarding FRS 17.

Funding Strategy Statement

During the year the Fund published its first Funding Strategy Statement (241 KB), following consultation with employers.

It includes guidance to the Actuary about the periods over which actuarial deficits should be spread and the phasing period for contributory increases.

The Statement is published on the Fund’s website and is available in hardcopy form upon request.

Best Value

Benchmarking has continued via our membership of the CIPFA club for administering authorities, with our costs being in the lowest quartile. The average annual cost per member regarding membership costs (i.e. ignoring costs relating to investments), was £22.53; the Fund’s was £15.04. We also continue to meet with representatives from the other five metropolitan funds. 

Communications

The production of high quality Fund literature continued generally, with both a Pension Power and a Pensions Grapevine being published. A major improvement relating to contributors (and one that took a lot of work from a variety of people), was a revamp in the benefit illustration stationery, with a switch to full colour too. A pilot for combined (GMPF/DWP) benefit illustrations was also undertaken.

Bulletins were also issued to deferred beneficiaries to bring them up to date regarding developments to the Scheme during the period of deferral. Each deferred member was sent an update of how deferred benefits had been increased to take account of inflation. This was the successful conclusion to a major levelling-up exercise, which now sees deferreds being as well informed about the Scheme as contributors and pensioners.

Performance Standards

Despite membership growing and changes in the Scheme’s rules, adherence to standards set by the Fund’s Management Panel was substantially achieved. All but one of them registered at 90% or more with six being at 100%.

Awards

Finally, and by no means least, the Fund won the IPPM Employer of the Year Award in recognition of our commitment to professional training, Professional Pensions’ self-explanatory Pensioner Communications Award and contributed to the Fund being named as the Local Government Chronicle’s Large Fund of the Year.

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