1. To meet current policy objectives to help people build up occupational pensions as a supplement to state provision for their retirement, the legislation governing pension schemes should be efficient, effective and proportionate to its policy purpose. An effective regulatory framework is an essential pre-requisite of any pension scheme. It must provide certainty and stability for the arrangements designed to provide a long term financial promise in the form of an income in retirement for contributing members and assist in the efficient delivery of pension payments. The Local Government Pension Scheme Regulations and the Scheme they govern, as they apply in England and Wales, are no different in this respect.

2. In Proposals for Change (DOE 1995), paragraph 18 referred to the need to "consider whether it is possible for local government pension responsibilities to be handled more effectively with less centralised prescription and less over-bearing detail, leading to improved local decision-making and accountability". Paragraph 21 in that consultative document went on to seek "what explicitly should form the new core provisions for new regulations, how these might be expressed to achieve maximum clarity, and the degree of overall prescription that new LGPS regulations should contain". These principles still seem relevant to this current exercise.

3. For the future there appears to be scope for a dual approach :-

to address the current LGPS regulatory framework taking account of the extant constraints on its legislation, the need to ensure the provisions are achieving their policy intent and blend with the messages and direction to be taken by the government in its response to the Pickering Review; and

to determine, against that background, how best to devise any new legislation brought forward as a consequence of the second phase of the stocktake exercise.

Stocktake Findings

4. Within the consultation and discussion context provided by the LGPS stocktake exercise conducted between 1 September 2001 and 31 January 2002, some clear principles have emerged. In discussions with interested parties since, discernible changes of interest has emerged.

5. In no order of priority they are:-

the national, statutory basis of the LGPS needs to remain;

elements of local discretion within that framework should remain;

the inherent statutory-based and other strengths of the Scheme need to be re-emphasised but, at the same time, be adapted to meet the needs of employers and contributing members;

a clear recognition emerged of the advantages to be gained from a sensible reduction in the scale and in the over-bearing complexity of much of the Scheme’s current provisions;

support for the simplification principles embodied in the Pickering Review of private sector pensions legislation; and

a wish to see practical and comprehensive centrally-produced guidance, and for it to be relevant not only to specific LGPS interests, but also to others in local government such as human resource and procurement specialists and payroll managers.

DWP Review of private sector pension legislation

6. Alan Pickering’s review of the legislation governing private sector pensions was published on 11 July. This review chimed well with the stocktake exercise directed to the LGPS and its focus on further simplification (beyond that already achieved since 1997) of its extensive secondary legislation framework. A Green Paper to be published later this year will provide the government’s response to the Pickering Review.

7. One of the objectives of the review was to identify ways to simplify the pension regulatory framework to encourage employers to offer pension schemes to their employees and encourage individuals to save for their retirement, whilst at the same time maintaining protection for scheme members. This exercise has close links with the on-going Inland Revenue review of the tax regime applying to occupational pensions, and with the Sandler review which reported in July on the retail savings market.

8. The review has not only suggested ways to simplify the present prescriptive and detailed legislation which applies generally to pensions, but has also signposted a way forward to avoid renewed complications within the UK’s pension system. The review’s recommendations and the government’s eventual response will have a bearing on the precise way in which the LGPS moves forward both contextually and in a Scheme-specific way. In due course this will provide an important input to the future decisions for the Scheme’s regulatory framework.

A practial way forward for the LGPS

9. As a central tenet, the LGPS scheme provisions should provide a nationally consistent and unambiguous regulatory base. Against the background of the stocktake’s findings, a number of specific ideas need to be tested, discussed and resolved as a basis for providing an effective and efficient statutory framework for the LGPS.

10. Recent contributions by several LGPS practitioners have suggested that the time is now right, for a variety of reasons, to focus critically on the need to question the utility of retaining and updating very detailed provisions which are applied in rare circumstances, and point to the efficiency benefits from adopting a more modern regulatory framework.

11. Consultees may, therefore, wish to suggest which elements of the LGPS are seen as superfluous and which provisions may well retain too high a level of prescriptive detail. The opportunity should also be taken to explore possible ways of expressing policy intentions by means of improved ordering and sequencing of the Scheme’s provisions and Parts. In addition, it would be helpful to have views on the merits of radically simplifying the actual legislative detail in the Scheme’s provisions, thereby ensuring that the legally expressed requirements are proportionate to the essential policy purpose. Would there be, assuming a best-fit approach, any actual loss to any interest in practical terms if there was to be such a significant change in the scale of prescribed detail? In this respect, is there practical scope for introducing a fresh mixture of broad based regulations and authoritative codes in the way that the Local Government Pension Scheme (Management and Investment of Funds) (Amendment) Regulations 2002 brought into force on 9 August?

12. Views are invited also as to whether the overall structure of a single statutory instrument is needed. Is it sensible to link, in one discrete section, for example, all the provisions setting out the Scheme’s qualifying conditions? How far subsequently could these be simplified? Are there any elements or experiences to be drawn from private sector pensions legislation which could be usefully adapted for inclusion into the LGPS? The Department intends to seek specific inputs from private sector legal interests on these matters.

13. Use of ICT should also permit better scope for signposting and cross-referencing, and would build on recent developments undertaken by the LGPC. In particular the links being built up between the Timeline Regulations, appeal decisions and central LGPC guidance, will provide a robust base from which to continue to move forward.

14. As well as being available in conventional written form (conforming to Plain English standards), should the regulations, guidance, and local policy statements be provided in a variety of electronic formats, eg on rewritable CDROM (with website back up for updates as necessary)? This could enable the use of a search engine and indexing mechanism to access electronic copies of the employers and employees guides, a database of anonymised appeals, and the other guidance materials, including, at local level, policy statements on the use of discretionary powers. Hypertext links could be used within the body of the text of electronic documents to link to relevant appeals and passages in all the other guidance materials as well as other legislation where appropriate. The number of pages accessed on the Timeline regulations (6000 pages over 450 occasions in one month, indicating that the service is used in depth) has already shown how useful this can be to administrators.

15. Taking this forward makes it essential to maintain a balance between the effectiveness of the regulatory provisions and the efficiency of administrative processes. Provisions need to be understood easily by all users, not just pension staff in administering authorities. Duties and obligations, and to whom these fall and when, must be crystal clear. Without this there is the inevitable danger of problems arising between administrators and employers, and for these difficulties with contractors and regulatory bodies to be compounded over time.

16. Whilst maintaining the Scheme’s core strengths, comments are invited on how to frame enabling provisions on a strategic level. This would involve the capacity for providing actual local policy choice. But at the same time more work needs to be done on understanding and promoting the opportunities for local decision-making already available. Lack of clarity, in spite of the best efforts of a number of administering authorities’ publicity, is preventing the Scheme from being fully understood and fully utilised where, and with whom, it matters most – employees and their employers within the Scheme as a whole. The Department intends to pursue this issue with interested parties within the timescale of this consultation exercise.

17. In parallel with any changes to the regulatory framework of the LGPS, it is essential to provide authoritative guidance and advice. This advice must be readily available for all Scheme interests – employers at all levels and all sectors, and by employees in the Scheme. It should be in an easily accessible format and should be developed in the context of the Plain English awards received by the Department for previous guidance material. Is there scope here for basic guides, both for employers and employees, having the rights and obligations of each clearly spelled out? Could the administrators guide be structured on a functional basis, and with full cross referencing to the regulations? Consultees are invited to offer specific advice on important questions.

18. Comments from consultees as to who should develop such guidance are also invited. In line with the e.government agenda the aim should be to provide this on line. Local authority employers not actively engaged in administering the LGPS must be operationally and formally involved with their statutory (ie legal) responsibilities within the Scheme. Guidance for this group is critical to the Scheme’s future. A much more bespoke approach to LGPS employers by LGPS administering authorities is required. This suggests the Employers’ Organisation, given its national "trustee" position, should have the key role in producing such guidance.

19. Consultees’ views are also invited on how the following suggestions might be developed:-

the regulations, using the Timeline approach, might be expressed in a radically simplified and minimalist form. These would primarily meet the requirements of those involved in resolving disputes, the Courts and would have to be the document of ultimate legal interpretation, in the same way that any trust deed and rules form the basis of private sector arrangements;

employees’/employers’ guides should be framed in Plain English style. These would provide members with a clear and concise explanation of the Scheme. They would need to be available in a variety of formats, for example, traditional hardcopy backed up by electronic-on line copies with updates to meet the differing needs of all those involved by the Scheme as a whole. These would need to be backed up by effective advice and points of contact to be provided both electronically and personally;

a comprehensive and acceptable guide for all LGPS interests as to how the regulations work in practice; and

a modern version of SHAWS guide to be provided by a commercial provider or sponsor. This would provide an objective and authoritative legal commentary on the Scheme’s regulations, with relevant links to appeal decisions, Ombudsman cases, High Court and ECJ decisions.

 

 

20. The regulatory framework currently governing the LGPS ensures that the Scheme, as a whole, enjoys security, certainty and provides guarantees to contributing members together with a transparent, codified and legally-focussed framework for employers, regulators, auditors, actuaries and policy-makers. These quantitative elements are not in doubt; they must be retained and enhanced.

21. It is one of the challenges of such arrangements especially for regulators, to ensure a proper balance between the law and sensible practice, as against the need to protect the statutory benefits of Scheme members.

22. This discussion paper, therefore, seeks some radical and fresh ways to ensure that critical balance continues to be achieved, going forward, in and for the Scheme.

24. As ever, the Department is willing to discuss with all interests the matters put forward in this paper and to receive any additional suggestions which will help to achieve the best possible outcome.