BOROUGH OF POOLE
RESOURCES OVERVIEW GROUP
29 NOVEMBER 2007
EARLY RETIREMENT 2006/07
REPORT OF HEAD OF PERSONNEL AND TRAINING SERVICES AND HEAD OF FINANCIAL SERVICES
1.0PURPOSE AND POLICY CONTEXT
7.12This report monitors Borough of Poole Council Government Pensions Scheme retirement arrangements. It includes school support staff (other than Foundation School Staff).
2.0RECOMMENDATION
2.1For noting.
3.0ENHANCEMENT LEVELS
3.1A review of enhancement arrangements where early retirement occurs took place, and revised arrangements were introduced from October 1998 and a new policy was introduced following Resources Overview Group considerations on 22 February 2007. Each case is now assessed on its merits rather than normal maximum enhancement levels applying. This has significantly reduced enhancement levels and costs. The new Policy agreed last financial year provides that enhancement will in future not normally apply. The Policy has not been associated with leading to compulsory redundancies.
3.2Average enhancement levels for early retirement since Local Government Retirement have been as follows: -
1997/987 years 146 days
1998/994 years 243 days
1999/002 years 38 days
2000/010 years 313 days
2001/023 years 183 days
2002/031 year 281 days
2003/040 years 122 days
2004/050 years 145 days
2005/060 years 31 days
2006/07No enhancements
3.3Changes in policy have reduced enhancement levels, this results in reduced severance long-term costs.
4.0FUNDING ARRANGEMENTS
4.1Full pension costs of early retirement are now charged to the service unit in the year the payment is due. This has applied rather than early retirement costs normally being met from central budgets.
5.0POLICY ARRANGEMENTS
5.1A new Retirement Policy has been determined following Joint Information and Consultative Committee and Resources Overview Group consideration on 22 February 2007 that takes account of statutory changes to the Local Government. The new policy will be monitored.
6.0PENSION FUND
6.1The actuary for the Dorset County Pension Fund determines its funding level, which was assessed as 74.3% at the last valuation for 31st March 2004. Whilst interim valuations will take place, the next full review will be undertaken for the year ending 31st March 2007 and this is currently in progress.
6.2The total pensionable pay for local government services employees in 2006/07 was £45.7 million (in 2005/06 it was £44 million). The Borough of Poole made contributions of £8.57 million, figures were £8.35 million in 2005/06. Individual employees contributed a further £2.76 million (this was £2.66 million for 2005/6).
6.3The Department for Communities and Local Government has reviewed the Local Government Pension Scheme and a new look scheme will be introduced in April 2008.
6.4One change is that no retirement (other than on health grounds) will be available below age 55 after 2010 (previously this was age 50).
7.02006/2007 RETIREMENTS
7.1The number of retirements during 2006/07 was broadly consistent with recent years involving 40, this compared with 41 employees in 2005/06. This comprised: -
06/07 / 05/06 / 04/05 / 03/04 / 02/034 / 10 / 9 / 12 / 13 / Ill health retirements (average age of retirement 47.25 years).
32 / 28 / 23 / 27 / 27 / Age retirements and rule of 85 retirements, including 1 ex-employee who’s pension was released on compassionate grounds.
4 / 3 / 10 / 10 / 6 / Retirements due to redundancy and the interest of service efficiency (average age 56 years compared with 61 years for the 2005/06)
7.2Performance has remained at an improved level with the majority of retirements now relating to age and ill health rather than early retirement due to redundancy and service efficiency.
7.3Retirements due to redundancy/service efficiency took place in the following services: -
Service /Number of Employees
Culture and Community Learning / 1Children and Young People’s Services / 1
Customer Services and Communication / 1
Schools / 1
Total / 4
7.4The average age of the 4 retirements on the grounds of redundancy or efficiency was 56 years, this compares with 3 early retirees in 2005/06 with an average age of 61 years.
7.5Retirements due to redundancy and efficiency have diminished since the review of policy and practice. Numbers and total costs for early retirement/redundancy have been as follows:-
YearNumberCost £Average age of Retirement
1997/98151,181,00055.9
1998/9918 659,65559.1
1999/00 3 237,06460.7
2000/01 7 227,72159.5
2001/02 4 428,90359.6
2002/03 6 316,58759.5
2003/0410 439,13958.9
2004/0510 391,58261.1
2005/06 3 80,93459.5
2006/07 4 255,94359.0
7.6Immediate total severance costs were £181,791 in 2006/07.
7.7Retirement and redundancy costs are lower than original costs (even though inflation factors exist). Retirement and redundancy costs were higher in 2006/7 compared with 2005/6 when the cost figure was particularly low.
7.8There are best value performance indicators relating to retirement. Best value indicators BV14 relates to employees retiring early (exclusively ill heath). Early is defined as before age 65. The figure for Poole in 2006/7 was 0.95. This compares with an upper quartile figure of 0.3%. Although our retirement costs are low the proportion of Poole employees with long service who were able to retire before age 65 is felt to reflect the Councils position against this indicator. For ill health retirements BV15 in 2006/7 the Poole percentage of ill health retirements was 0.17% of the workforce. This compares quite favourably with the upper quartile percentage of 0.13%.
7.9For early retirements the financial test of applying a 3-year recovery period from the service unit budget has applied as a normal principle. This has constrained the use of early retirement but it is felt to be appropriate and is reflected within the early retirement policy adopted by the Council.
7.10The number of ill health retirements in 2006/07 was 4. This compared with 10 ill health retirements in 2005/06 of which 4 were ex-employees who’s pensions were released on ill health grounds (without enhancement).
7.11The central fund created to assist redeployment has been used to support grading protection and retraining where significant redundancy and retirement costs might otherwise have applied. A budget of £13,000 exists to assist redeployment which has contributed to avoiding redundancy and retirement costs at the level that historically applied.
7.12Further changes to the early retirement policy are not proposed at this time. These may be necessary when the proposed Department for Communities & Local Government changes to pension regulations are implemented and after the impact or these have been assessed. Some greater flexibility of existing early retirement arrangements is taking place.
7.13Monitoring information contained in this report has been considered by the Local Government Service Joint Information and Consultative Committee.
8.0THE FUTURE
8.1The changes made to the Council’s policy and application of that policy has affected the level of benefits that might apply in the event of early retirement and the likelihood of early retirement being appropriate. This has changed employee expectations on their expected retirement age and the possibility of early retirement.
8.2Changes being considered by the Department for Communities and Local Government are likely to further impact on the number of early retirements and costs associated with them.
8.3For the 2007/08 financial year the number of early retirements due to redundancy and or efficiency of the service are expected to continue at a lower level than have previously applied. The average level of enhancement is also still expected to remain lower than it has been in view of the fact that the lower policy provides that enhancement will not normally apply. This will have a continuing positive impact on pensions and severance costs as well as avoiding a potential need to make further savings. This means expenditure that would have been used on early retirement costs can be used for the benefit of service delivery and protecting employment opportunities.
8.4In addition to the authority’s management of the early retirement arrangements, changes to the national framework relating to local government services pensions have been taking place. This includes the phasing out of the rule of 85 which can enable employees whose age and service equates to 85 years seeking early retirement without actuarial reduction. Whilst this has been removed there are protection arrangements in place for those who are due to reach the age of 60 before 31 March 2020. This change is expected to increase the average age of retirement in the future. The early retirement policy will be reviewed if revised regulations are approved.
9.0LEGAL AND FINANCIAL IMPLICATIONS
9.1Changes to the early retirement policy and severance will be needed as a consequence of legislative changes and a further report will be submitted on this topic.
Financial information is included within the report detail.
9.2The trend has been for a reduced level of retirement and redundancy costs involving a reduction of more than £1.1million compared with the original cost even though inflation factors exist.
10.0EQUALITIES IMPLICATIONS
10.1A normal policy of not agreeing enhancement and very small numbers of early retirements due to service efficiency or redundancy helps to avoid different treatment on retirement. Removal of the ‘rule of 85’ will be expected to lead to increasing numbers of employees working longer which will be likely to affect the Council workforce age profile, with a higher proportion of workers over age 60 being employed.
COLIN HAGUE
HEAD OF PERSONNEL AND TRAINING SERVICES
BOB JACKSON
HEAD OF FINANCIAL SERVICES
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