Committee ReportDate: 12 October 2010

Subject: The Pension Fund: Its Management, Regulations and Benefits

Summary

This report provides an update to the Committee on the pension benefits of the Council’s staff.

Recommendations

That the Committee note this report, particularly the statutory position of the pension fund and its administration and indicating any issues upon which representations to the Government could be made

That the Committee note this report, particularly the statutory position of the pension fund and its administration.

That the Committee note the governance and management arrangements of the fund, and particularly the Audit Commission’s Annual Governance Statement attached to this report.

City of Westminster

Item No:

Date: 12 October 2010

Classification: For General Release

Title of Report: The Pension Fund: Its Management, Regulations and Benefits

Report of: Barbara MoorhouseStrategic Director, Finance and Performance

Wards involved: All

Policy context: Effective control over Council activities

Financial summary: There are no immediate financial implications arising from this report, although investment performance has an impact on the Council’s employer contribution to the Pension Fund and this is a charge to the General Fund

Report Author: Ian R Woodall

Contact details Tel: 020 7641 1804iwoodall@westminster.gov.uk

Committee Report

1. Background Information1.1 This report provides an update to a report to Committee on 22 September 2009

covering Senior Officer Remuneration, the Committee requested additional information relating to the contribution to the total remuneration of staff that the pension’s entitlements provide.

1.2 Members are asked to review the background to the fund, provided at Appendix 2. This provides an overview of the following: the fund’s regulatory framework; a summary of the fund and its management – including membership statistics an explanation of employee and employer contributions a list of staff benefits under the scheme

1.3 The pension fund as administered by the City Council is formally called the City of Westminster Superannuation Fund (the “Fund”).

2. The Top 25 Pensions2.1 The following is the top 25 past pension reserves, within the Fund

Top 25 Past Service Reserves (PSR) for Westminster Staff

Officer PSR1 1,242,0002 1,242,0003 1,228,0004 1,210,0005 1,050,0006 997,0007 989,0008 984,0009 965,000

10 836,00011 801,00012 795,00013 764,00014 745,00015 733,00016 712,00017 697,00018 681,00019 666,00020 666,00021 657,00022 655,00023 653,00024 618,00025 617,000

21,203,000Source: Hewitt

2.2 The following is the top 25 salaries, within the City Council for 2009/10. These figures show the salary and deferred salary, but exclude benefits such as car leasing and private health insurance.

Top 25 Salaries for Westminster StaffOfficer Salary

1 222,6432 185,0003 144,2234 138,7235 138,7236 138,7237 138,7238 138,4489 128,448

10 121,97711 121,97712 121,97713 121,97714 117,54215 115,60216 109,54217 109,54218 109,54219 109,54220 109,54221 109,54222 103,68923 103,68924 103,68925 103,689

3,166,714Source: www.westminster.gov.ukNote: These figures exclude schools (there are some Head Teachers who would fall

into this bracket). Teachers are in a different pension scheme

2.3 Based on the City Council’s common rate of 15.1% for 2009/10 the top 25 salaries result in an Employers Contribution of £478,174.

2.4 Based on the City Council’s employees rate for salaries over £78,701 of 7.5% for 2009/10 the top 25 salaries result in an Employees Contribution of £237,504. The Council currently has 60 members contributing at this level.

2.5 Based on the accrual of 1/60th per year of service, the top 25 salary earners accrue collectively annual pension entitlements of £52,779 per annum (based on the salaries shown above).

2.5.1 The following is a cost estimation of a person earning £100,000 in terms of pension benefits:

Salary: £100,000Employers’ Contribution £15,100Employees’ Contribution £ 7,500

Annual Accrual of Benefit £1,667

3. Employee Contributions

3.1 Employee contributions are set by Regulation 3(2) of the LGPS (Benefits, Membership and Contributions) Regulations 2007.

3.2 Regulation 3(2) set out the contribution bands appropriate from 1 April 2008 when variable contribution rates first came into effect.

3.4 Regulation 3(3) further sets out that these bands will be uprated on an annual basis, with the first uplift being effective from 1 April 2009. The current value of employee contributions are shown in Appendix 2, Point 3)

4. Comparing public and private – pensions framework4.1 There are inherent difficulties in comparing remuneration packages between the

public and the private sectors. Often results compare data sets that are not like for like. For example private sector benefits can include equity and share options

4.2 As a statutory public service scheme, the LGPS has a different legal status compared with trust based schemes in the private sector. Matters of governance in the LGPS therefore need to be considered on their own merits and with a proper regard to the legal status of the scheme. This includes how and where it fits in with the local democratic process through local government law and locally elected councillors who have the final responsibility for its stewardship and management.

4.3 The LGPS is also different in the respect that unlike most private sector schemes where the accrued benefits payable to members are always subject to the risk of scheme under-performance or even failure, the accrued benefits paid by local authorities are established and payable according to statute and underpinned from local authority revenue and not the pension funds themselves.

4.4 In simple terms, the LGPS fund exists to discharge the pension costs incurred by the local authority. On this basis, it is the local authority itself, and local council tax payers, who bear the financial and investment risks of the scheme.

4.5 The word “trustee” is often used in a very general sense to mean somebody who acts on behalf of other people but in pensions law it has a more specific meaning. Most occupational pension schemes, primarily in the private sector, are established under trust law.

4.6 Under a trust, named people (trustees) hold property on behalf of other people (beneficiaries). Trustees owe a duty of care to their beneficiaries and are required to act in their best interests, particularly in terms of their investment decisions. This is a highly regulated area of English common law.

4.7 Although those entrusted to make statutory decisions under the LGPS are, in many ways, required to act in the same way as trustees in terms of their duty of care, they are subject to a different legal framework, which derives from public law. In particular, local authority councillors are subject to all the normal duties and

responsibilities that come with their office. However they are not trustees in the strict legal sense of that word.

4.8 Trustees of private sector schemes ensure better scheme security, prevent employer-led actions which could undermine a scheme’s solvency and seek to ensure that investment and other decisions are both prudent and fair. While the public law framework applying to LGPS schemes will require similar standards of behaviour and practice by members of pension committees, who in this respect also fulfil a fiduciary role, a key distinction to be made is that LGPS benefits are established and paid under statute.

4.9 Administering authorities are therefore subject to a statutory obligation that they are required to meet, irrespective of their scheme’s investment performance or general funding position.

4.10 Scheme members in the LGPS are not subject to the same type of benefit risk as those in trust-based pension schemes. The entitlements and benefits payable to scheme members in trust based schemes are, potentially at least, more volatile and dependent ultimately on the effectiveness and stewardship of their trustees working as they must under the constraints of the employers’ overall covenant standing behind the scheme.

4.11 The perceived risk to benefit security was the main motivation for the inclusion of the member-nominated trustee provisions in the Pensions Act 1995 as a result of which the principle that scheme beneficiaries should be part of the decision making process became established. But even member nominated trustees must act in the interest of the beneficiaries and must not take decisions out of self-interest or because they have in mind a particular agenda. The Pensions Act 2004 simply extends that status.

4.12 On the one hand, elected councillors have legal responsibilities for the prudent and effective stewardship of LGPS funds and in more general terms, have a clear fiduciary duty in the performance of their functions. However, it is equally clear that the beneficiaries of the scheme have an interest in the beneficial title to the assets and the legal right to require that the assets are held and managed on their behalf in accordance with the governing legal instrument, in this case, the LGPS regulations.

4.13 In this respect, elected councillors have a duty of care that goes beyond the strict fiduciary duty to employers and tax payers. Although there is no one single model in operation throughout the 89 LGPS fund authorities in England and Wales, most funds are managed by a formal committee representing the political balance of that particular authority. Under section 101 of the Local Government Act 1972, a local authority can delegate their pension investment functions to the Council, committees, sub-committees or officers, but there are a small number of LGPS fund authorities which are not local authorities and therefore have their own, distinct arrangements.

4.14 It is also relevant to note that under The Local Authorities (Functions and Responsibilities) (England) Regulations 2000 (SI 2000 No 2853) and The Local Authorities Executive Arrangements (Functions and Responsibilities) (Wales) Regulations 2001 (Welsh SI 2001 No 2291), statutory decisions taken under schemes made under sections 7, 12 or 24 of the Superannuation Act 1972, are

not the responsibility of the executive arrangements introduced by the Local Government Act 2000.

4.15 This means, for example, that the executive cannot make decisions in relation to discretions to be exercised under the LGPS, or make decisions relating to the investment of the pension fund and related matters. These functions have continued to be subject to the same legislative framework as they were before the passing of the Local Government Act 2000, including delegations under section 101 of the Local Government Act 1972. Such delegations vary from local authority to local authority depending on local circumstances.

5. Comparing public and private – salary and benefits by numbers

5.1 The Office for National Statistics (ONS) compared the pay and pensions between the private and the public. The reults of this are sumarised below.

5.2 The report shows that median gross pay in the private sector for full-time employees in the private sector is £604 per week. The equivalent figure in the public sector is £555 per week.

5.3 The 'total reward figure', which is the gross pay and employers' pension contributions, in the private sector is £666 and in the public sector is £644. These figures are for those working in both sectors with pensions.

5.4 The analysis uses data from the Annual Survey of Hours and Earnings (ASHE) in April 2009. ASHE is based on a 1% sample of employee jobs taken from PAYE records of HM Revenue & Customs.

5.5 The full ONS publication is 90 pages long and available at:http://www.statistics.gov.uk/elmr/09_10/downloads/ELMR_Sep10.pdf

5.6 The institute for Fiscal Studies reported that:5.6.1 Public sector pay cost £174 billion of public spending in 2008. The pay bill rose

steadily as a share of national income from 2000 to 2005, partly because of increased employment and partly because of pay increases that were, on average, faster than those seen in the private sector.

5.6.2 The pay bill has been cut modestly since then as a share of national income (although not yet in real terms). The fiscal retrenchment planned by the Treasury will soon require a tighter squeeze.

5.6.3 Overall, pay levels in the public sector are probably not significantly out of line with those of similar workers in the private sector, once you take into account factors such as their age, education and qualifications. However, there are areas of divergence. In particular, there are gaps in favour of public sector workers in regions outside London and the South-East, which remains an area for reform in the long run.

5.6.4 There is evidence that public sector workers have fared better than their private sector counterparts in the recession. A couple of years of pay freezes or other restraint could save significant money in the short run and, in current labour market conditions, would be unlikely to create recruitment problems. But, given the tendency for public sector workers to ‘catch up’ following periods of pay restraint,

further cuts in the public sector workforce are more likely to deliver the lasting reductions in public spending as a share of national income sought by the Treasury.

5.6.5 An anomaly remains with pension provisions enjoyed by public sector workers. With salaries broadly in line with their private counterparts, the large pension advantage they enjoy translates into a total package that is substantially more generous. The only way to access this money in the short run would be to levy additional pension contributions on public sector workers.

5.7 Review of the Directors of FTSE 250 companies shows the following statistics for 2009/10:

5.7.1 The median salary (excluding pension) for the highest paid directors of FTSE 250 companies is currently £445,000; this compares with the average salary of the Council’s directors which is approximately £166,000 (including on costs).

5.7.2 Base Salaryo Of those FTSE 250 companies that disclose current or recent pay

settlements, around 80% of FTSE 250 companies have frozen salary levels this year (compared to around 60% in the FTSE 100).

o The median salary of FTSE 250 highest paid directors is around £445,000. The corresponding figures in the top and bottom halves of the FTSE 250 (by market capitalisation) are around £515,000 and £410,000 respectively.

o The median salary of FTSE 250 finance directors is £295,000 and that of other executive directors £270,000.

5.7.3 Annual Bonuseso The median annual bonus potential for executive directors is 100% of salary.o Actual bonuses earned by all directors in 2008/09 were around 60% of salary.

This compares to around 85% of salary for 2007/08.o Nearly 40% of companies require part of the bonus to be deferred in shares

for a period of time (typically three years).

5.7.4 Long-Term Incentiveso The most common approach is the sole operation of a performance share

plan (nearly 50% of companies).o Last year, FTSE 250 highest paid directors typically received long-term

incentive awards with an 'expected value' of around 80% of salary, which broadly equates to an award of 145% of salary at face value under an LTIP.

o Earnings per share and total shareholder return remain the most common measures used in long-term incentive arrangements.

o Nearly 60% of companies have a formal shareholding guideline. The median level of shareholding required is 100% of salary for executive directors.

5.7.5 Pensionso Defined contribution pension plans remain the most common approach for

directors (50% of directors), and even more so when just newly appointed directors are considered (around two-thirds of all new directors).

o The median contribution to a defined contribution plan is around 15% of salary, whilst the median cash salary supplement is around 25% of salary (although the difference in contribution rates between these two types of

arrangements is more due to a difference in the constituent companies rather than there being a compelling rationale for higher cash supplements).

5.7.6 Total Remunerationo Target total remuneration for highest paid directors is around £1.2m. For

Finance directors and other directors it is around £740,000.

5.7.7 Balance of Packageo Variable pay (that is, annual bonus and long-term incentives) accounts for

around 50% of a typical FTSE 250 executive director’s remuneration package (compared to only 37% in 2003).

o Approximately 55% of variable pay relates to long-term performance (compared to around 45% in 2003).

o FTSE 250 top half CEOs packages are more highly geared, with around 55% of their package performance-linked and around 60% of variable pay based on long-term performance.

5.7.9 Non-Executive Directorso The median non-executive chairman’s fee is £150,000.o Typically, fees for other non-executive directors range between £40,000 and

£50,000 depending on their role.

6. Financial Implications6.1 Attached to this report at Appendix 1 is a copy of the Draft Audit Report on the

Pension Fund for 2009/10.

6.2 A summary of the 2009/10 financial position of the fund (shown within the Income and Expenditure statement) is summarised below.

Statement of Expenditure and Income 2009-10 Expenditure during 2009-10 £ 0001. Pension (or annuities): retired employees and dependants 27,0102. Lump sums: on retirement (including deferred) 10,2722(a) Optional lump sums, for retirements on or after 1 April 2009 03. Lump sums: on death 5285. Transfer values (including apportionments) 6,1016. Pensions Act premiums (less recoveries from employees included in row 5) 0

7. Administration and fund management costs of the fund 5,0258. Other expenditure 389. Total expenditure (sum of rows 1 to 8) 48,974

Income during 2009-1010. Contributions (including those from other employing authorities): employees 9,365

11. Contributions (including those from other employing authorities): employers 28,506

12. Investment income 17,27513. Transfer values (including apportionments) 10,68214. Other income 51

15. Total income (sum of rows 11 to 14) 65,879

Analysis of administration costs budget line

Administration and fund management costs of the fund during 2009-10

£ 000

1. Administration costs (excluding fund management costs ) charged to the fund

1,260

a. Central recharge from General Fund 898b. Actuary costs 52c. Legal and other professional fees 31d. LPFA invoicing 280

2. Fund management costs charged to the fund 3,765

3. Total costs charged to the fund (including fund management costs)

5,025

7. Legal Implications7.1 The critical regulations that apply to the benefits and contributions of the fund are:

7.1.1 The benefits membership and contributions regulations set out the employee contributions in regulation 3 of the LGPS 2008 Regulations (As Amended) (see link http://timeline.lge.gov.uk/LGPS2008Regs/SI20102090/20071166.htm#reg3)

7.1.2 The Administration Regulations covering employer contributions are contained in regulations 39 through 42 of the LGOS Regulations 2008 (As Amended) (see link http://timeline.lge.gov.uk/LGPS2008Regs/SI20102090/20080239.htm).

8. Staffing Implications8.1 There are no immediate staffing implications arising from this report.

9. Business Plan Implications9.1 There are no immediate business plan implications arising from this report.

10. Outstanding Issues10.1 There is still a piece of work requiring a comparison of the total gross salary

package, including pension entitlements, of the Council’s senior officers with equivalent roles in the private sector.

11. Reason(s) for Decision(s)11.1 There are no immediate decisions arising from this report.

If you have any queries about this report or wish to inspect one of the background papers please contact Ian R Woodall on 020 7641 1804, fax 020 7641 2142, email: iwoodall@westminster.gov.uk.

Background Papers

List any background papers used in the writing of the report

1. LGPS Regulations 2008 (as amended)2. CLG Guidance Papers [LGPS Regulations 2008 (as amended)]3. ONS Occupational Pension Schemes Annual Report (October 2009)4. Institute for Fiscal Studies: Public sector pay and pensions report5. ONS Report: Building productive public sector workplaces; chapter: Making

public sector pensions sustainable6. CBI Paper: Getting a grip: The route to reform of public sector pensions (April

2010)

Appendix 1

Attached:2009/10 Annual Governance Report

Appendix 2

Attached:Background – Understanding the FundRegulations, Membership and Benefits

The City of Westminster Superannuation Fund;Understanding the Fund:

Regulations, Membership and Benefits

1. Regulatory Background1.1 The local Government Pension Scheme Regulations 1997 are made under the

1972 Superannuation Act and require the Council to maintain a Pension Fund for certain of its own employees.

1.2 The same regulations empower the Council to admit certain other bodies to the Fund. The regulations also allow for the admission of private sector contractors providing outsourced services. The Fund does not cover teachers and fire fighters for whom separate statutory regulations exist.

1.3 The Fund is financed by contributions from employees and employers, together with income earned from investments. The surplus of contributions and investment income over benefits currently being paid is invested.

1.4 The core benefits payable under the 1997 Regulations are mandatory (these are detailed at point 3.4 below). In addition the regulations have become more flexible to give members and employers the maximum freedom of choice in determining their benefits package.

2. Summary of the Fund and its management2.1 A background and summary of the LGPS, the Fund and its Management

2.1.1 The Local Government Pension Scheme (LGPS) is one of the oldest public sector schemes in operation, having been established as a national scheme in 1922. There are about 1.5 million employees currently contributing to the LGPS in England and Wales; roughly 75% of the local government workforce. They contribute to the LGPS via any one of the 88 regional pension funds spread across England and Wales.

2.1.2 The LGPS is managed by an administering authority (typically a county council or regional administrator) in accordance with regulations approved by Parliament. In Westminster’s case this is the City of Westminster.

2.1.3 Each administering authority is responsible for its own Fund, into which all contributions are paid. Rules by which the administering authorities must operate - the LGPS Regulations - are determined by the Government after consultation with representatives for both employees (trade unions) and employers (Local Government Association, Local Government Pensions Committee). The latter represent a total of 409 local authorities in England and Wales, along with numerous Town, Parish and Community Councils.

2.1.4 Each LGPS administering authority pays its benefits from a dedicated pension fund. Both the scheme member and their employer pay into this fund in order to provide retirement benefits for the member once they reach retirement age (or earlier if the situation demands). Before this time arrives however, the

contributions paid into the scheme are invested in a variety of bonds and shares; all under the watchful eye of the fund’s investment management team. By investing the contributions in this way, rather than leaving them dormant for years on end, the fund can build up enough assets to cover any payments it may be expected to make regarding its scheme members retirement benefits.

2.1.5 The LGPS is contracted-out of the State Second Pension (S2P) and must, in general, provide benefits at least as good as most members would have received had they been members of S2P.

2.2 Facts about the Fund2.2.1 As at 31 March 2010, the net assets of the City of Westminster Superannuation

Fund were valued at £670.3 million. The fund itself currently has 4,038 actively contributing members, employed by 18 employers (including the City Council and Admitted Bodies). Pensions are paid to 4,883 pensioners (and/or dependants) every month. There are currently 5,391members with rights to deferred benefits.

2.2.2 We have a total of 14,312 members with benefits in the Fund. The membership data as at 30 June 2010 is shown below.

As At: 30 June 2010 Active Deferred benefit

Pensioner Dependent Frozen

Westminster City Council 3174 4621 3477 853 925Housing Corporation 0 554 340 45 52I P F 0 3 6 0 1Queens Park F S U 0 6 5 1 1Age Concern 2 14 9 1 1Association of London Government

0 13 6 1 3

Capital Careers Ltd 0 47 10 0 4Independent Housing Ombudsman

28 18 3 1 0

Housing 21 114 58 63 2 1Citywest Homes Ltd 174 105 23 0 1Elonex Ltd 0 3 1 0 0Paddington Academy 32 27 4 0 1Westminster Academy 47 21 2 0 0King Soloman’s Academy 14 2 0 0 0Pimlico Academy 39 3 3 0 2Homes & Communities Agency

213 18 20 2 0

Tenants Services Authority 214 27 33 0 0Day Care Service 5 1 0 0 0Ramesys 2 0 0 0 0Total 4058 5541 4005 906 992

2.2.3 The Fund has 17 Admitted Bodies (employers) in addition to the Council.

2.2.4 The Fund has 7 investment managers, covering 9 portfolios (2 unfunded).

2.3 Management and Advisory Structure of the FundAdministering Authority The City of Westminster

Westminster City Hall16th Floor64 Victoria StreetLondonSW1E 6QP

Fund Administrator The London Pension Fund Authority (LPFA)

Advisers DeloitteActuary HewittLegal Advisers Sharpe Pritchard (Contract Formation)Auditor The Audit CommissionInvestment Managers Hermes

Insight Investment ManagementMajedie Asset ManagementNewton Investment ManagementSchrodersSSgA

Custodian The Bank of New York Mellon B.V.

2.4 Staff benefits under the Local Government Pension Scheme (LGPS)2.4.1 Benefits under the (LGPS) are based on final salary and length of service in the

scheme. This makes it a ‘defined benefit’ scheme, as benefits paid are set out in the LGPS regulations.

2.4.2 The LGPS is a ‘funded’ scheme, which means that the council is required to maintain a separate pension fund comprising investments, from which benefits are paid. These investments provide the growth and income with which to pay the benefits.

2.4.3 The “defined benefits” are guaranteed and do not vary depending on investment performance, which means they are stable and predictable for scheme members, who can plan their retirement around this security.

2.4.4 In contrast to many company schemes and personal pensions (money purchase schemes) where individual pensions are directly related to how well contributions have done when they are invested. Pension benefits in these schemes are not as predictable as the LGPS benefits.

2.4.5 The core benefits of the scheme for staff are: a guaranteed pension based on final pay and the length of time in the scheme a tax free lump sum of three times the annual pension life assurance cover of at least twice members’ yearly pay from the day they

join the scheme a pension for spouses or children an entitlement paid early if a member has to stop work permanently due to ill

health pension increases in line with inflation (measured by RPI)

2.4.6 The fixed nature of the benefits also has important implications for the council if the investment income falls; the council is required to increase its contributions to keep the scheme funded.

2.5 Funding of the Scheme2.5.1 The 2010 triennial valuation is still under way by Hewitt, with final result due out

by March 2011. A result of this will be the setting of the employers contribution rates for 2011/12, 2012/13 and 2013/14.

2.5.2 The last triennial actuarial valuation as at 31/03/07 showed the Council Pension Fund to be 79% funded. The deficit of 21% is to be recovered over a 30-year period to return the funding level to 100%.

2.6 Management and governance of the fund2.6.1 At Westminster the responsibility for the overall direction of the Fund’s

investment is delegated to the Superannuation Committee in consultation with the Strategic Director, Finance and Performance and the Fund’s advisers.

2.6.2 The Superannuation Committee comprises 6 Council members

The following act as advisers to the Committee: The Strategic Director, Finance and Performance, as an adviser to the

Committee 1 professional investment adviser

The Advisers are not trustees to the Fund (technically the Department for Communities and Local Government is the trustee) but the Committee act in a quasi-trustee role, overseeing the Council’s statutory obligation for investment performance, governance, compliance and administration.

2.6.6 The terms of reference of the Superannuation Committee are set by full Council and are currently:

CONSTITUTION6 Members of the Council5 Majority Party Members and one Minority Party Member

TERMS OF REFERENCETo have responsibility for all aspects of the investment and other management of the Council’s Superannuation Fund, including, but not limited to, the following matters:1. To agree the investment strategy having regard to the advice of the

Fund Managers and the independent adviser.2. To monitor performance of the Fund and of the individual Fund

Managers.3. To determine the Fund management arrangements, including the

appointment and termination of the appointment of the Fund Managers, Custodians and Fund Advisers.

4. To agree the Statement of Investment Principles, the Funding Strategy Statement, the Business Plan for the Fund, the Governance Policy Statement, the Communications Policy Statement and the Governance Compliance Statement and to ensure compliance with these.

5. To approve and publish the pension fund annual report.6. To prepare and publish a pension administration strategy.7. To make an admission agreement with any admission body.8. To ensure compliance with all relevant statutes, regulations and best

practice with both the public and private sectors.9. To determine the compensation policy on termination of employment

and to make any decisions in accordance with that policy other than decisions in respect of the Chief Executive, Chief Officers and Deputy Chief Officers of the Council (which fall within the remit of the Appointments Sub-Committee).

10. To determine policy on the award of additional membership of the pension fund and to make any decisions in accordance with that policy other than decisions in respect of the Chief Executive, Chief Officers and Deputy Chief Officers of the Council (which fall within the remit of the Appointments Sub-Committee).

11. To determine policy on the award of additional pension and to make any decisions in accordance with that policy other than decisions in respect of the Chief Executive, Chief Officers and Deputy Chief Officers of the Council (which fall within the remit of the Appointments Sub-Committee).

12. To determine policy on retirement before the age of 60 and to make any decisions in accordance with that policy other than decisions in respect of the Chief Executive, Chief Officers and Deputy Chief Officers of the Council (which fall within the remit of the Appointments Sub-Committee).

13. To determine a policy on flexible retirement and to make any decisions in accordance with that policy other than decisions in respect of the Chief Executive, Chief Officers and Deputy Chief Officers of the Council (which fall within the remit of the Appointments Sub-Committee).

14. To determine questions and disputes pursuant to the Internal Disputes Resolution Procedures.

15. To determine any other investment or pension policies that may be required from time to time so as to comply with Government regulations and to make any decisions in accordance with those policies other than decisions in respect of the Chief Executive, Chief Officers and Deputy Chief Officers of the Council which fall within the remit of the Appointments Sub-Committee).

2.6.4 The fund has external investment managers, who have been appointed to undertake day-to-day decisions on the allocation of investment between types of asset and choices of individual stocks within approved classes under discretionary investment manager agreements (IMAs). The managers are required to take a long-term view, balancing risk against return and are remunerated on scales related to the value of funds under management.

3. Contributions3.1 Employee contributions3.1.1 On 1 April 2008 a new scheme came into force, which meant that employees

now pay pension contributions at a rate determined by their full time equivalent level of pay. This was amended effective 1 April 2009 and is now as follows:

Salary Band(£)

Contribution Rate(%)

Westminster Member in Band

0 – 12,600 5.5 6912,601 – 14,700 5.8 12114,701 – 18,900 5.9 50018,901 – 31,500 6.5 94030,501 – 42,000 6.8 69142,001 – 78,700 7.2 69178,701 or above 7.5 60

3.2 Employer contributions3.2.1 Employers’ contribution rates are set following each Actuarial Valuation. A

valuation of the Fund’s financial position must be made every three years when the Actuary certifies the employers’ rates payable until the results of the next valuation are known.

3.2.2 Under the Regulations employer contributions are determined in two parts. A common rate based on the existing and prospective liabilities of the Fund

having regard to the circumstances common to all the participating employers and to the desirability of maintaining as nearly constant a rate as possible; and

Individual adjustments arising from circumstances peculiar to an individual employer

3.2.3 Pensions paid to retired employees and benefits with a deferred payment date, are subject to mandatory increases under pensions increase legislation. The cost of inflation-proofing benefits is funded through the employers’ contribution rate.

3.2.4 The results of the actuarial valuation undertaken at 31 March 2007 applied for the three years commencing 1 April 2008. The current valuation will apply from 1 April 2010 to 31 March 2013

3.2.5 The common contribution rate payable by each participating body in order to maintain funding for future service at 100% of liabilities is 17.6% of pensionable payroll

3.2.6 The historic Employers’ Contribution rates are shown below (the 2010/11 – are estimated pending the completion of the Actuarial Valuation.

Employer contribution rate and teachers' pension

0.0

5.0

10.0

15.0

20.0

25.0

2007 rate 12.4 12.3 18.0 16.4 16.8 16.4 14.1

2008 rate 13.8 14.9 18.3 17.2 14.5 17.9 21.1 14.1

2009 rate 15.1 17.5 18.6 17.9 14.5 18.6 21.1 14.1

Westminster City Council

Housing Corporation

Housing 21 (1)

Independent Housing

Ombudsman

City West Homes

Other Admitted Bodies

Housing 21 (2)

Teachers

4. Staff benefits4.1 The pension accrual rate in respect of pensionable service from 1 April 2008

increased from 1/80th of final pensionable pay to 1/60th, but there is no provision for the automatic payment of a lump sum. However, a lump sum can be provided for by commuting part of the pension at the rate of £12 of lump sum for every £1 of pension commuted.

4.2 Pension benefits accrued up to March 2008 remain unchanged and will be calculated at the rate of 1/80th pension and 3/80th lump sum. All benefits payable from 1 April 2009 are calculated at 1/60th pension with no automatic entitlement to a lump sum.

4.3 The normal retirement age of 65 remains the same under the new scheme. In cases of normal voluntary retirement before age 65, pension benefits are subject to an actuarial reduction if taken between age 60 and 65. However, if under the old scheme a member would have had the right to receive an unreduced pension between age 60 and 65 under the 85-year rule, they will continue to be able to do so in respect of pension benefits that accrued in respect of service up to 31 March 2008. (The 85-year rule is where the member’s age plus pensionable service in whole years equals or exceeds 85).

4.4 Additional protection applies to scheme members who reach age 60 and satisfy the 85-year rule before 1 April 2016. In these cases a reduction will also not be applied to benefits accrued in respect of service from 1 April 2008 to 31 March 2016.

4.5 Dependant’s pensions4.5.1 Members can now nominate a cohabiting partner to receive a survivor’s pension

in the event of their death. To qualify the couple must have lived together for a minimum of two years, be financially interdependent and not married or in a civil partnership with another person.

4.6 Ill health retirement4.6.1 A three-tier ill health retirement arrangement has replaced the single tier

arrangement of the old scheme. The old scheme provided the same scale of benefits to all members who were retired on permanent ill health grounds,

irrespective of the level of their capability. The intention of the three-tier system is to provide a greater level of benefits to those who are most in need.

4.7 Death benefits4.7.1 The lump sum death in service payment is increased from two to three years

pensionable pay.

4.7.2 The minimum pension payment guarantee will be increased from five years pension to ten years. This means that if a pensioner dies within 10 years of retirement, a lump sum death grant will be paid of ten years pension less the amount of pension paid from retirement to the date of death.

4.8 Purchasing additional pension4.8.1 Scheme members are no longer able to purchase additional periods of service

(added years contract). Instead of buying added years the new scheme provides the facility to purchase specific amounts of additional annual pension from £250 to £5000. Members with added years contracts taken out under the old scheme are permitted to continue with these contracts.