Monday, April 06, 2009

Back of a fag packet guide to ill-health retirement under the LGPS

While I am very interested in governance issues regarding the Local Government Pension Scheme (LGPS - Britain’s largest pension scheme with some 3.5 million active, retired or deferred members) today I have been trying to puzzle out the new regulations regarding ill health retirement.

I am helping out a UNISON steward who is representing a member who is very seriously ill and we are trying to see if the member is eligible for ill health retirement.

The regulations were radically changed last year and I think many trade union activists (and employers!) are still trying to work out what the changes mean in practice.

Firstly a health warning indeed for my blog trollers, while I am pretty relaxed at abuse directed against myself and I don’t like deleting comments as a matter of principle – I will delete without hesitation stupid stuff about this serious topic. In the past there well may have been abuse of all ill-health retirement schemes to get rid of people the organisation wanted to make redundant quietly. This is long dead and the members who I have represented and tried to get medical retirement for have without exception have been very, very ill. While I am in rant mode I will also say that there is nothing unaffordable or “gold plated” with the LGPS so why don’t all employers offer decent pension schemes to their employees?

Secondly this is my own personal interpretation of these regulations and I am hoping that wiser heads will point out where I have gone wrong. Do not take this interpretation as gospel and check it out with your own full time officials before you do anything.

This is after all a “back of a fag packet guide to ill-heath” under the LGPS.

There are now 3 different levels of ill health retirements in the LGPS. 1st, 2nd and 3rd Tier

The 1st Tier will pay anyone eligible for their pension at the same rate as if he retired at 65! (If he is 49 now he will get 16 years extra enhancement).

To get any ill health pensions everyone first has to pass these 2 tests

Test 1
Their employment with the local authority is terminated due to their mental and/or physical ill-health and they are permanently incapable of carrying out their present job in the local authority.

Test 2
They have a reduced likelihood of obtaining “gainful employment” (whether in local government or otherwise) before he is 65.

Test 3
To get 1st tier medical retirement you have show that there is no reasonable prospect of them obtaining gainful employment before 65.

Arguments
All these decisions are on a “balance of probabilities” basis – e.g. “more likely than not” NOT beyond reasonable doubt etc. So the Doctor does not have to say that the member will never work again.

Gainful employment” is defined as 30 hours or more per week.

Tier 2
Again you have to pass test 1 and 2 but it's different test 3 is that the member is judged to be incapable of obtaining gainful employment within three years of leaving local government employment, but is thought likely to be able to do so before reaching 65

If you pass this test then your existing pensionable service is enhanced by 25%. I’m not sure how that pans out in practice but I assume that if you have 25 years service then you will get 6 or 7 years extra?

Tier 3
Firstly of course you have to pass test 1 and test 2. Tier 3 test 3 - Is the member likely to recover sufficiently from his incapacity to enable him to be capable of obtaining gainful employment within three years of leaving local government employment?

If so you are only awarded your pension for up to 3 years. This is the only test to be reviewed (after 18 months) as well and will be stopped if you find “gainful employment” beforehand.

Protection
If you were a member of the LGPS and age 45 or over on April 1 2008 then you have a “protection” (only for 6 months service past 1.4.08 now finished unless you retired during that period). If you are awarded retirement after this then you should get whatever gives you the best payment - either under this new system or the old 1997 regulations.

Back of the fag packet calculations

25 years service at £20,000 age 48. To keep things simple I’m ignoring the new 1/60th rate in place for 2008 onwards

Tier 3 - No enhancements 25 x1/80th of £20,000 = £6,250 per year and £18,750 lump sum

Tier 2 – 25% enhancement (6 years) 31x1/80th of £20,000 = £7,750 per year and £23,250 lump sum.

Tier 1 – 100% enhancement 40x1/80th = £10,000 per year and £30,000 lump sum.

Final message - Please, please join a union for crying out loud to get proper advice on your pension scheme.

Check out the LGPS website, the 2007 regulations and the Workplace Pay and Pensions (CLG)

4 comments:

Anonymous said...

Employers cannot afford to fund the pensions of their employees thanks to Gordon .... meanwhile MP's, not content with taxpayer-funded second homes, televisions the size of double duvets, and subscriptions to red-hot movies, parliamentarians will henceforth enjoy an increase in the exchequer's donation to their pension pots from 27 per cent to 32 per cent of an MP's salary? Not bed eh! Good old socialist Government!

John Gray said...

Hi Anon
What rubbish! There is a problem with MP's expensives and their pensions. I think most MPs accept this and it appears that things will change. But all decent employers should be able to provide decent final salary pensions. Their running costs are extremely low and they actually cost less than comparable personal pensions. It is a complete con to state otherwise!

Anonymous said...

Not sure what planet you are on John but it is stupidity to say it costs less to fund a final salary pension. Absolutely none of the facts back up your argument.

John Gray said...

Hi Anon

No , afraid you are talking rubbish. If I was to give up LGPS scheme it would cost my employer 16% of salary to join the group stakeholder and more for them to provide death in service and PHI for ill health/disability. At the moment the LGPS "only" costs them 13.8%.

Look - pensions are expensive. Full stop. If you want people to live in poverty when they are old -then fair, you would be that type of right wing tory scum bag. Otherwise you need to put around 20% of your pay in any pension scheme for 40 odd years to get a decent pension.

Private pension scheme cost up to 40% of contributions in charges and don't protect people from recessions.

Good FB schemes cost less than 0.5%pa.

So do the maths.