Transfer of civil staff pensions to the civil service scheme: transitional costs

Report: 13
Date: 8 November 2001
By: Treasurer

Summary

At meetings in May 2001 the Finance Planning and Best Value Committee and the Human Resources Committee agreed on the basis of advice from Hymans Robertson, inter alia: 

• to pursue the option of transferring from the Metropolitan Civil Staff Superannuation Scheme (MCSSS) to the Principal Civil Service Pension Scheme (PCSPS); 
• that this should be achieved at the latest by October 2002 when the revised PCSPS is introduced; and 
• that officers should negotiate the appropriate contract changes with Capita Business Services which provides the pensions payroll and administration contract on behalf of the MPS. 

This report sets out the result of those negotiations, with short term costs and funding arrangements.

A. Recommendations

1. That approval be given to commissioning Capita to carry out the work necessary for the transfer of the MCSSS to the PCSPS with the funding as set out in paragraphs 9-10 of the report.

B. Supporting information

1. At meetings in May 2001 the Finance Planning and Best Value Committee and the Human Resources Committee agreed on the basis of advice from Hymans Robertson, inter alia:

• to pursue the option of transferring from the Metropolitan Civil Staff Superannuation Scheme (MCSSS) to the Principal Civil Service Pension Scheme (PCSPS);
• that this should be achieved at the latest by October 2002 when the revised PCSPS is introduced; and
• that officers should negotiate the appropriate contract changes with Capita Business Services which provides the pensions payroll and administration contract on behalf of the MPS.

2. The proposed transfer is part of a long term financial strategy to secure better control and greater stability over the MPA's costs. Hymans Robertson estimated that the costs of the present pension arrangements would double in real terms over the next thirty years from the current cost of £42 million. Transfer to the PCSPS will replace the responsibility for meeting pension payments direct with the responsibility to pay annual charges (accruing Superannuation liability charges or ASLCs) to the Cabinet Office who administer the civil service scheme.

3. Hymans Robertson assessed the cost of ASLCs at £39 million without any benefit from the reduced charges currently being paid by existing PCSPS employers. The charges are based on current employment and should remain relatively stable over time.

4. The options for changing the contract with Capita were identified by Hymans as follows:

• Terminate the contract with Capita and transfer the administrative function to a provider approved by the Cabinet Office. This would incur substantial compensation costs payable to Capita.
• Defer transfer of the pension scheme until 2005 when the Capita contract ends. This would involve the MPA having to continue meeting the higher and increasing costs of the MCSSS for a further three years. Furthermore there would be a risk over the continued availability of Treasury funding for the transfer of past service liability.
• Support Capita in becoming an approved administrator for the civil service scheme (APAC).

5. The third option would incur transitional costs but it was expected that these would be less than the costs involved in either of the other options. This approach has therefore been adopted. Changes to the contract are notified by means of a formal contract variation notice and it was not until Capita responded to the variation notice on 15 October that the costs could be clarified.

6. Capita's proposal has been reviewed in detail with them and we have secured further advice from Hymans Robertson and lawyers Pinsent Curtis.

7. Capita has identified short term start up costs of £978,000 as summarised in the attached note. A small proportion of these costs would have had to be incurred whether the MCSSS was transferred to the PCSPS or not. The principal activities making up the costs are as follows:

• A data cleanse exercise to ensure that the information transferred to the PCSPS in respect of active and deferred members is accurate and complete
• Establishment of individual preferences with the implementation of the revised PCSPS (PCSPS2000).
• Transfer of the pension payroll to Paymaster, the sole payroll provider for the PCSPS.
• Acquisition, implementation, training, etc for PenServer the accredited system for administration of PCSPS.

8. Capita have accepted that their estimates for some of these activities, particularly the data cleanse, are to some extent speculative and we have therefore agreed to assess the position shortly after the start of that work and adjust the requirement accordingly.

9. As identified in paragraph 2-3 above there is an estimated saving from the transfer of £3 million in a full year. Implementation from October 2002 should yield a half year's saving in 2002/03 of £1.5 million. It would be appropriate to meet the transitional costs from the first year's savings.

10. Capita's programme of work will commence in January 2002 and there will therefore be three months cost in the current year. It is proposed to meet these costs temporarily from the pensions reserve. The reserve will then be restored out of the civil staff pensions savings in 2002/03 with the savings also absorbing directly the costs falling in next year.

C. Financial implications

The short-term start up costs are estimated at £978,000, of which arguably £33,000 would have been incurred as a result of modernising MCSSS next year. The estimated costs, as indicated at paragraph 8, will be the subject of further negotiation. The costs will be funded from the first year's savings in civil staff pension costs.

D. Background papers

The Metropolitan Police Authority: Strategic Review of Pension Options for Civilian Staff by Hymans Robertson (April 2001).

E. Contact details

Report author: Alan Johnson, MPA.

For information contact:

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

Send an e-mail linking to this page

Feedback