New LGPS - the impact on redundancies

One of the most alarming features of the “new look” Local Government Pension Scheme is the changed arrangements for members who are made redundant. At present those aged 50 or over are entitled to immediate payment of accrued pension benefits. Any “added years” have been discretionary, but the pension has been paid without any actuarial reduction.

An actuarial reduction is otherwise made when pensions are paid before normal retirement age to reflect the fact that the pension is likely to be in payment for a longer period before the pensioner dies.

Under the draft Regulations (Regulation 11) the employer “may” pay pension benefits early (and – from 2010 only to those aged 55 and above) which suggests that they will have discretion not to do so. Furthermore, if they exercise their discretion the employer will be required to consider whether or not to make an actuarial reduction in the pension. The actuarial reductions for those aged under 60 will obviously be higher than the well publicised reductions for those aged 60 and above.

Separately the employers will have discretion to increase the pensionable service of any active scheme member (i.e. not yet retired) by up to 10 years (Regulation 25) but it wouldn’t be wise to hold your breath to see if your employer would do so in your case (unless you wanted your dependents to benefit from the enhanced death in service benefits under Regulation 15 I suppose).

These changes would appear to represent a very serious detriment to local government employees being made redundant over the age of 55. They will also make it much less likely that longer serving older employees would be interested in volunteering for redundancy – therefore increasing the risk of compulsory redundancies in any reorganisations (of which, as any local government worker will know, there are an ever increasing number…) It now makes more sense that the Government recently increased the maximum redundancy payment for a local government employee from 66 weeks to 104 weeks pay (as higher redundancy payments will be needed to induce people to leave their jobs if they are not going to be offered their pensions up front).

If these proposals aren’t dropped by the Government during the formal consultation period on the draft Regulations they will, I should think, guarantee a large vote for strike action. On the other hand, even if they are dropped, the package on offer is still not nearly good enough.

Sometimes in negotiations the other side propose something outrageous simply in order to slip other things past you when you are so relieved that they have backed down on their very worst proposals.