Hymans Robertson warns of pension cuts for redundant local civil servants if govt proposals are implemented

Public sector members of the Local Government Pension Scheme (LGPS) aged over 55 could face a “significant cut” to their benefits upon redundancy if changes proposed in the government’s exit pay consultation are implemented, Hymans Robertson has warned.

The firm argued that “ambiguous wording” in the proposals could have an “unexpectedly wide-ranging impact” on LGPS members, with “surprising changes” which would affect all LGPS public sector members on redundancy, regardless of what they earn.

It also warned that this would add “yet more layers” of complexity to local authority funds that are already dealing with the “significant administrative charges” arising from the McCloud ruling.

The proposals would mean that any public sector member retiring on redundancy grounds with unreduced LGPS benefits would receive no discretionary severance payment, and will be required to pay the scheme a sum equal to their statutory redundancy payments.

Hymans Robertson head of LGPS benefit consultancy, Ian Colvin, warned that these latest changes to the early retirement package will impact local authority staff that are already at risk of redundancy due to Covid-19, and “heighten the uncertainty the pandemic has brought”.

He added: “This will impact a huge array of employees already struggling and will impact across the board, not just those at the top or on the highest salaries.

“The guidance and methodology lacks clarity. It is imperative that this is rectified as soon as possible to minimise the disruption to funds and employers (particularly English local authorities) impacted by these changes.”

Hymans Robertson LGPS actuary and partner, Douglas Green, also warned that the ambiguity could prevent councils from providing the appropriate duty of care to employees facing redundancy.

He emphasised that there are currently councils trying to arrange for headcount reduction, who need to be able to tell employees who are being made redundant what benefits they will get, in order to allow forward planning and personal financial implications.

Green warned that, as it stands, members will lack “any real certainty”, whilst pensions and HR teams will face “enormous pressure” to ensure employees understand the “difficult decisions” that must be made, without advice.

He added: “The exact choice of detailed guidance, awaited from MHCLG and the Government Actuary’s Department, will affect how much pension members will lose if they don’t give up their Statutory Redundancy Payment.

“It will also affect which members’ packages are caught by this £95,000 cap and which aren’t.

“In the absence of this information, it is impossible to provide the duty of care to employees facing redundancy and provide accurate assistance about the impact this will have.”

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