Our Ref: LGR 85/18/239    724          INDEX

14 April 2000

LOCAL GOVERNMENT PENSION APPEAL

SUPERANNUATION ACT 1972

LOCAL GOVERNMENT PENSION SCHEME REGULATIONS 1997 (the 1997 regulations)

1.                  I refer to your letter of 17 November 1999 in which you appeal (under regulation 102 of the 1997 regulations) on behalf of XXX formerly XXX Limited (the company), to the Secretary of State for the Environment, Transport and the Regions against the decision of Mr XXX, the Appointed Person in relation to Mr XXX’s local government pension scheme (LGPS) dispute with the company.

2.                  The Appointed Person overturned the company’s decision that an increase in Mr XXX’s pay before his employment was terminated was not pensionable because it was an inducement to extend his period of notice with the company.  Mr XXX argued that it was the pay rate for the job and the Appointed Person found the contract increasing the pay rate did not distinguish between pensionable and non-pensionable payments when setting the new pay rate.  You maintain that Mr XXX’s increase in pay was not pensionable under regulation 13(2)(e) of the 1997 regulations as it was paid to obtain “a short extension in the contractual notice period”.

3.                  The question for decision: The question for decision by the Secretary of State is whether the salary increase the company agreed to pay Mr XXX on 16 January 1998 was pensionable pay.

4.                  The Secretary of State has considered all the representations and evidence.  Copies of documents supplied by the Appointed Person were sent to you under cover of the department’s letter of 7 January.

5.                   Secretary of State’s decision: The Secretary of State has taken into account the appropriate regulations.  He finds that the salary increase was pensionable pay.  His decision confirms that made by the Appointed Person.  The Secretary of State’s reasons and the regulatory provisions which he considers apply in your case are set out in the annex to this letter, which forms an integral part of this decision.  He is acting judicially and has no power to modify the way the regulatory provisions apply to the facts of the case.  Having made his decision he has no power to alter it and his officials cannot discuss the case further.  The decision is binding and can only be overturned by a judgement of the High Court or the Pensions Ombudsman.

6.                  This completes the second stage of the internal disputes resolution procedure.  The Pensions Advisory Service (OPAS) is available to assist members and beneficiaries in connection with difficulties which they have failed to resolve.  Their address is 11 Belgrave Road, London, SW1V 1RB (telephone number 020 7233 8080).

7.                  The Pensions Ombudsman may investigate and determine any maladministrationcomplaint or any dispute of fact or law in relation to the LGPS made or referred in accordance with the Pensions Schemes Act 1993.  His address is 11 Belgrave Road, London, SW1V 1RB (telephone number 020 7834 9144).


EVIDENCE RECEIVED

1.                  The following evidence has been received and taken into account:

(a)               from you: letter dated 17 November 1999 (with enclosures);

(b)               from the Appointed Person: list and enclosures dated 16 December 1999 (copied to you with the department’s letter of 7 January 2000); and

(c)               from Mr XXX: letter dated 16 February 2000 (copied to you with the department’s letter of 18 February 2000).

REGULATIONS CONSIDERED AND REASONS FOR DECISION

 

2.      From the evidence submitted the Secretary of State has noted the following points:

 

a)      Mr XXX was employed by the company;

 

b)      he was a member of the LGPS;

 

c)      at the end of January 1998 he was on an annual salary, on which he paid pension contributions, of £21,992;

 

d)      a memo from Mr XXX, Finance Director XXX, to Mr XXX, dated 16 January 1998 and headed “Extended terms of Employment”, established Mr XXX’s Rate of Pay, Length of Employment, and All other Terms;

 

e)      the memo was signed by Mr XXX and Mr XXX to indicate both parties’ agreement to the terms;

 

f)        the new rate of pay took effect from February 1998;

 

g)      in a letter dated 12 February 1999 the company informed Mr XXX that his pensionable pay from February 1998 had been overstated, he should not have paid contributions on the additional payments made to him and these would be refunded, and from then on he would pay contributions on his former salary of £21,992 plus the 1998 pay award;

 

h)      Mr XXX appealed against the company’s decision and the Appointed Person upheld his appeal.

 

3.                  The Secretary of State in reaching his decision has had regard to the regulations which, in his view, apply.  When Mr XXX’s rate of pay was changed from 1 February 1998 as a result of the agreement dated 16 January 1998 pensionable remuneration was calculated by reference to regulation D1 of the 1995 regulations.  This is in turn referred to “remuneration” which was defined in regulation C2 as “ … all salary, wages, fees and other payments paid to him for his own use in respect of his employment, and … any other payment or benefit specified in his contract of employment as being a pensionable emolument.”  Specifically excluded from this definition was, “ … any payment made to an employee as an inducement not to terminate his employment before the payment is made;” (regulation C2(2)(e)).  On 1 April 1998 the 1995 regulations were revoked and replaced by the 1997 regulations in respect of active members of the scheme.  The 1997 regulations contain similar provisions calling pensionable remuneration “final pay” (regulation 21), defining “pay” in regulation 13 and excluding from pay inducements not to terminate employment under regulation 13(2)(e).  The Secretary of State therefore takes the view that the issue to be resolved is whether the increase in Mr XXX’s rate of pay from February 1998 was an inducement for him not to terminate his employment before the payment was made which falls within regulation C2(2)(e) of the 1995 regulations and regulation 13(2)(e) of the 1997 regulations (“regulation 13(2)(e)”).

4.                  You maintain that the sole purpose of the addition to Mr XXX’s monthly salary awarded in the document of 16 January 1998 was to retain his services for an extended period, and as such it falls within the exclusion contained in regulation 13(2)(e).  Mr XXX maintains that that the contract document (the memo of 16 January 1998) did not mention an additional payment, the increase was part of his basic pensionable salary, there is no evidence it was an inducement to stay on, and that it was the market rate for the work.

5.                  The Secretary of State has considered all the representations and evidence.  He notes that the memo dated 16 January 1998, under the XXX heading “Rate of Pay”, says “£1,300 per week.  (This will be paid through the Rider Payroll, so will be subject to tax and national insurance.  Your pension contributions will also continued [sic] to the end of your employment.)”.  The next heading is “Length of employment” and what follows says “Your resignation is accepted but the notice period will be extended for a minimum of 6 months starting 1st February 1998 extending until the XXX payroll has been signed off by [the company].”.

6.                  The Secretary of State further notes the 7th and 8th paragraphs of the Appointed Person’s letter dated 30 June 1999 which said “...in signing the document of 16 January 1998 you [Mr XXX] accepted an increased rate of pay of £1,300 per week.  The position would have been different had your employer made clear in the document that your pensionable pay was to have been restricted to your previous basic salary with any pay over and above this to be treated as an inducement not to terminate under regulation 13(2)(e).”

7.                  The Secretary of State agrees with the Appointed Person.  Although you maintain that that the increase in the rate of pay was intended as an inducement to Mr XXX not to terminate his employment, there is no evidence which clearly supports this. You say that it was not your intention to award this level of compensation for a short extension in the contractual notice period, but in the Secretary of State’s view that is what, in effect, the memo of 16 January as it stands achieved.  Your intention cannot at this stage be proven but the effect of the memo is clear: it set Mr XXX’s rate of pay at £1,300 per month.   In the Secretary of State’s view the whole sum falls within the definition of pay in regulation 13(1)(a) of the 1997 regulations.  There is nothing in the memo which identifies the increase over his former pay rate as a non-pensionable sum separate from basic pay which is conditional upon the extended notice period.  The Secretary of State cannot, therefore, reasonably conclude that it was clearly an inducement excluded from the meaning of “pay” by regulation 13(2)(e).