Allocation of Pension Contribution Banding (Agenda item 7)
Report of the Deputy Chief Executive.
The Payroll and Reward Manager presented the report which concerned a decision to review the Scheme Members’ contributions bands once a year each April.
Under previous pension scheme regulations Scheme Members had made a compulsory minimum contribution of 6% of their pensionable pay into the Pension fund, irrespective of their earnings level.
With effect from 1 April 2008, all existing and new members of the LGPS would pay contribution rates according to the table, at 3.1.2 of the report, based on their full-time equivalent pensionable pay at the date of joining or on 1 April 2008.
With the scheme going live from 1 April 2008 it was anticipated that the main potential area affecting the day-to-day administration of the scheme would be in relation to contribution banding when an employee theoretically moved into a different band (that they were allocated into on 1 April) due to a change in their employment/salary conditions mid-year.
The frequency of reviewing which band Scheme Members should be in would result in certain administrative and technical payroll implications.
The preferred option by Officers was to reassess contribution bands once a year. The advantages and disadvantages of this approach were explained.
A policy statement had yet to be drafted and would be presented to a future meeting of the General Purposes Committee.<1>
Members’ attention was drawn to Appendix A of the report which showed an estimate of £5.5k for 2008/09 for the total amount of employees’ contributions that would not be paid in relation to in-year band changes based on an assumption of a 5.5% pay increase. This figure was not material when compared with the estimate of the total employees’ contributions of £517k to the fund. The estimate had been based on 293 employees in the fund with only 43 (15%) staff changing contribution bands within the year.
A Member asked what other Norfolk authorities were doing. In response, the Payroll and Reward Manager advised that Norfolk County Council was opting for the once a year approach based on salaries as at 1 April 2008.
In response to various questions, the Chief Accountant explained that there were two elements to contributions: the employees’ and the employer’s rates, which fund the Breckland share of the Norfolk Pension Scheme. On the other side there were current employees who were members of the scheme; previous employees who had left the authority and had deferred their pensions, and employees who had retired. Every three years the actuary reviewed demographic data, interest rates and investment performance and projects the contribution rates required to meet predicted liabilities. The actuary would take into account any contributions made, including any shortfall from employees, and adjust the employers’ contribution rate.
A Member asked how this related to contribution figures. In response, the Chief Accountant advised that the employee contribution rates were set by Government and would not change unless legislation changed.
Another Member asked whether the cost of the administration would be more than £5.5K. The Payroll and Rewards Manager explained that this would be where the cost benefit would have to be assessed. Members were made aware that the Payroll and Rewards Manager was also working on the Pay and Reward Scheme and if the preferred approach was not agreed, the extra work would have a great impact on the whole of the HR department and locums might then have to be employed. It would therefore be cost effective for the Council to reassess the contributions once a year, in one fell swoop, rather than piece-meal.
A Member fully understood what was being proposed but drew other Members’ attention to the risk element highlighted in the Proforma B. He asked whether there were any further worries from a financial point of view. The Chief Accountant did not anticipate any further risks. He felt that inflation and investment returns should be considered as a far greater risk as it would have a greater impact on contribution rates.
1) the decision to review the Scheme Members’ contribution bands once a year, each April, be approved; and
2) this policy be reviewed in March 2009 following the inaugural year of the new regulations.
Cllr I Sherwood wished for it to be noted that he voted against this decision.
- Pension Contribution Banding, item 32. PDF 87 KB
- App A 080423 Est of Emp'ee contribtns bands on March Fixed Rate, item 32. PDF 11 KB
- B 080423 Pension Contribution Banding, item 32. PDF 54 KB