THE LOCAL GOVERNMENT PENSION SCHEME

INCREASE IN BENEFITS TO A PERSON WHO REMAINS IN SERVICE AFTER HIS 65^TH BIRTHDAY – REGULATIONS 25A(1) AND 20 (4A)

1.      Purpose Regulation 25A of the Local Government Pension Scheme Regulations (SI No. 1612 of 1997 as amended) provides for a member who, with the consent of his employing authority, remains in service after his 65^th birthday, to be entitled to a pension and retirement grant when he retires from service. Regulation 20 (4A) provides for the benefits payable to a person who remains in service under the provisions of Regulation 25A to be increased at such a rate as is shown as appropriate in guidance issued by the Government Actuary in respect of each day that payment of benefits is delayed between his 65^th birthday and the date of his retirement.

2.      The purpose of this note, prepared by the Government Actuary’s Department, is to provide the guidance required by Regulation 20 (4A). The note has been prepared at the request of the Department of the Environment, Transport and the Regions and is issued to them for onward transmission to administering authorities and employing authorities.

3.      Benefits to be increased and period after the member’s 65^th birthday for which payment is delayed The benefits to be increased are the member’s pension and retirement grant, the contingent long-term pensions to the member’s spouse and children but not the contingent short-term pensions, and the service-related death grant under Regulation 38(5A)(b) but not that of twice final pay under Regulation 38(5A)(a). These benefits, before they are increased, would normally be calculated as though the member had retired on his 65^th birthday, and the period for which payment of these benefits is delayed would normally be that between the 65^th birthday and the date the member retires from service or dies in service.

4.      The increase in benefits The level of benefits, as calculated at the beginning of the period during which payment was delayed, should be increased by 0.02% for each day of delay, in the case of the member’s pension and the contingent long-term pensions to the member’s spouse and children, and 0.01%, in the case of the retirement grant and the service-related alternative death grant under Regulation 38(5A)(b) where this is more than twice final pay. Pension increases should then be added to the benefits, as increased under Regulation 20(4A), as though the date of leaving service were the beginning of the period during which payment of benefits was delayed, rather than the actual date of leaving service.

5.      Example Consider a member who joined the Local Government Pension Scheme after 19 May 1999 whose 65^th birthday fell on 31 May 1999. If he had retired then, his last day of service would have been 30 May 1999 and he would have been entitled to a pension of £22,500 p.a., a retirement grant of £67,500 and a spouse’s long-term pension of £11,250 p.a., all of which would have been based on 40 years’ membership including that transferred in from another scheme and final pay of £45,000. However, he sought and obtained his employing authority’s consent to him remaining in service after his 65th birthday, under the terms of Regulation 25A.

6.      The member’s last day of service was 30 September 1999. The period for which payment of benefits was delayed was therefore 123 days. Thus the increases in benefits under Regulation 20(4A), as a result of payment of the pension commencing on 1 October 1999 instead of 31 May 1999, would be as follows:

Member’s pension £22,500 x 123 x 0.02/100 = £553.50

Retirement Grant £67,500 x 123 x 0.01/100 = £830.25

Spouse’s long-term pension £11,250 x 123 x 0.02/100 = £276.75

If the member had died on 1 September 1999, after payment of his benefits had been delayed for 93 days, the increases in benefits under Regulation 20(4A) would be:

Spouse’s long-term pension £11,250 x 93 x 0.02/100 = £209.25

Minimum underpin 3/80ths death grant * £67,500 x 93 x 0.01/100 = £627.75

* In practice, it is likely that the alternative death grant due of twice final pay will be
more than 120/80ths of £45,000 increased in accordance with Regulation 20(4A).

7.      On retirement on 1 October 1999 there would be no adjustment for pension increases initially for someone with a date of leaving service, for pension increase purposes, of 30 May 1999. Thus the pension to the member paid from 1 October 1999 would be £23,053.50 p.a. (i.e. £22,500 + £553.50) and the retirement grant would be £68,330.25 (i.e. £67,500 + £830.25). If the member had died on 1 September 1999, the spouse’s long-term pension would have been £11,459.25 (i.e. £11,250 + £209.25).

8.      The pension increase in April 2000 is 1.1%, based on the increase in the RPI in the year to September 1999. For pensioners with a date of leaving service of 30 May 1999 the increase is 0.92%. Thus a member’s pension in payment of £23,053.50 p.a. would be increased in April 2000 by multiplying by a factor of 1.0092 to give £23,265.59 (for simplicity the effect on the pension increase of part of the pension being GMP has been ignored). There would also be a pensions increase adjustment to the retirement grant in April 2000 for the period between 30 May 1999 and 30 September 1999 of 0.37%. The supplementary payment would be £252.82 (i.e. .0037 x £68,330.25). If the member had died on 1 September 1999, the spouse’s long-term pension would also be increased in April 2000, by 0.92%, to £11,564.68 (1.0092 x £11,459.25).

9.      Review of factors The rate of increase in the pensions and grants for each day for which payment is delayed will be reviewed from time to time, having regard to changes in the return on investments and the mortality rates of members and their spouses.

R T Foster

Government Actuary’s Department

28 June 2000

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