Civil staff pensions

Report: 10
Date: 15 May 2001
By: Treasurer

Summary

The executive summary of Hymans Robertson's Strategic Review of Pension Options is presented. The consultants' conclusion is that the MPA should transfer from the MCSSS to the PCSPS.

A. Recommendations

On the basis of the advice provided by Hymans Robertson:

1. that the MPA agrees to pursue the option of transferring from the Metropolitan Civil Staffs Superannuation Scheme (MCSSS) to the Principal Civil Service Pension Scheme (PCSPS);
2. that this should be achieved at the latest by October 2002 when PCSPS 2000 is implemented;
3. that officers should negotiate the appropriate contract changes with Capita;
4. that officers negotiate with Cabinet Office and/or Treasury with a view to securing application of the current reduced rate Accruing Superannuation Liablility Charge (ASLCs);
5. that the Treasurer should review the impact of the changes on the civil staff pensions uplift in the grant formula with a view to ensuring appropriate recognition of the Authority's pension arrangements in the grant allocation;
6. that officers review with the Human Resources Committee a communications strategy to inform civil staff of the new arrangements;
7. that the specialist services of Hymans Robertson are drawn upon to support the implementation of these recommendations as appropriate.

B. Supporting information

Introduction

1. At their respective meetings in October 2000 the Finance Planning and Best Value Committee and the Human Resources Committee agreed to appoint consultants to advise on the options available to the Authority in respect of civil staff pensions. A panel of four members, two from each Committee, appointed Hymans Robertson to carry out this work.

Consultants' report

2. A full copy of Hymans Robertson's final draft report was circulated to all members of the two Committees in advance of an informal workshop held on 25 April 2001. The final report has been delivered subsequently and the Executive Summary is attached at Appendix 1. The full report can be made available on request. Certain information which could be sensitive in future commercial negotiations has been provided on a confidential basis.

Key findings

3. Hymans Robertson confirm that there are three main policy options available to the MPA in respect of civil staff pensions provision:

• retain the current scheme (MCSSS) as a stand-alone pay-as-you-go scheme, with benefits analogous to the PCSPS;
• join the civil service scheme (PSCPS);
• join the local government scheme (LGPS).

4. Currently the benefits provided by the MCSSS/PCSPS and the LGPS are very similar. This comparison will change significantly from October 2002 with the introduction of a revised civil service scheme, PCSPS 2000, which would also automatically apply to the MCSSS. The new scheme will provide improved personal benefits in the existing defined benefits (or final salary) format, and will also offer a defined contributions (or money purchase) option for future recruits.

5. Employee contributions are currently 1.5 per cent in the civil service and Met schemes, related specifically to dependants' benefits, compared with 6 per cent in the LGPS. Under PCSPS 2000 employee contributions for defined benefits will increase to 3.5 per cent in recognition of the improvement in benefits.

6. The consultants have calculated that, even if the MCSSS were closed to new entrants, the direct cost to the MPA, currently around £42 million per year, would double in real terms over the next thirty years. This would be in addition to the costs of a replacement scheme.

7. Under the PCSPS employers pay a charge, assessed as a percentage of current payroll, which has the same effect as a contribution to a pension fund (ASLC). On the current MPA/MPS civil staff payroll the cost has been calculated at £39.2 million (£28.6 million if the MPA were allowed to benefit from a current surplus on the notional fund).

8. If the MPA were to transfer to the LGPS, including existing employees, the estimated cost would be £39.6 million reflecting employer's fund contributions and the pay adjustment required to compensate for higher employees' contributions.

9. The accrued past service liabilities of the present scheme have been calculated at £1.25 million. If the MPA joined the PCSPS the Treasury would bear the cost of this past service transfer, effectively as a paper accounting exercise. If the MPA were to join the LGPS the same past service transfer would require real funding at the same level. The consultants do not believe that the Treasury could be persuaded to support this.

10. Entry into the PCSPS would necessitate changes in the current outsourced pensions payroll and administration contract. A partial transfer of new employees only until the end of the contract would avoid any costs of change or early termination. However the consultants' calculation of the additional pension costs which would arise from this course of action outweighs the potential penalty for early termination. In any case the consultants advise that there could be grounds for reaching an accommodation with the contractor for a variation, rather than a breach, of the contract.

11. The MPA's higher civil staff pension costs relative to other police authorities are recognised in the civil staff pensions uplift which generates additional grant. This uplift would have to be reviewed and renegotiated following any change in the pensions arrangements.

Conclusion

12. Hymans Robertson's overall conclusion is: On balance, we believe that transferring from the MCSSS to the PCSPS is the most attractive route. There are a number of transitional issues which such a transfer raises and which may affect the timing of the transfer. However we believe that a transfer before the PCSPS 2000 changes are implemented in October 2002 would be desirable.

C. Financial implications

The long term effect of the recommendations will be to stabilise civil staff pension costs and avoid the continuously increasing demand on future resources. There may be short term costs associated with the renegotiation of the administration contract. Use of consultants to support the transition will be kept to a minimum and paid in accordance with the terms of the original tender.

D. Background papers

• Report by Hymans Robertson for the Metropolitan Police Authority entitled Strategic Review of Pension Options for Civil Staff

E. Contact details

The author of this report is Peter Martin, Treasurer.

For information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

Appendix 1: Strategic review of pension options for civilian staff

This appendix is available from the MPA.

Send an e-mail linking to this page

Feedback