Pensions Committee Wednesday 13 June 2012 at 10.30Am Item 5 - LPFA Pension Fund Administration

HERTFORDSHIRE COUNTY COUNCIL

PENSIONS COMMITTEE

WEDNESDAY 13 JUNE 2012 AT 10.30AM

LPFA PENSION FUND ADMINISTRATION REVIEW

Author of the report: Mike Allen, Director of Pensions (LPFA)

1.Purpose of the report

1.1The following report highlights key statistics relating to the administration of the Hertfordshire County Council (HCC) Pension Fund undertaken by LPFA. The report will also highlight updates on progress made on specific projects and a summary of regulatory proposals and changes which will impact on the Scheme.

2.Summary

2.1Pensions Performance Reports

This report is issued by the LPFAand it is designed to provide the committee with the information they need to confirm assurance around the levels of service being provided to officers, employers and scheme members. This report focuses on key performance areas and relevant scheme information.

2.2Pensions Fund Statistics

Full details of the membership analysis and employer statistics are provided in the following table:

Scheme Membership
As at
30.09.2011 / As at
31.12.2011 / As at
31.12.2011 / As at
31.03.2012
Active contributing members / 27440 / 26792 / 27018 / 26965
Deferred members / 27179 / 27850 / 28328 / 28386
Pensioners / 21127 / 21384 / 21525 / 21670
Total Membership / 75746 / 76026 / 76871 / 77021

The number of active scheme employers in the Pension Fund now stands at174, with a further 87 employers with deferred and pensioner liabilities. Over the last 12 months there has been a significant increase in the number of schools moving to Academy Status, with 42 having successfully converted by the end of March.

2.3LPFA Administration Service Performance Indicators

The Service Level Targetsfor LPFA have been breached twice during the quarter and this is principally due to the backlog of deferred benefit cases which account for 1,273 of the total outstanding processes of 1,713.

If these cases are removed from the statistics the total number of outstanding processes is reduced to 440, significantly below the agreed target of 1,500. The number of such outstanding processes has also reduced significantly from the 676 cases reported at 1st April 2011. These cases will still be completed within Service Level Timescales, and for the most part relate to cases previously on hold awaiting additional information from the employer, member or other body and are currently being processed.

It should also be noted that where needed a number ofdeferred benefit cases continue to be processed; for instance where a member is considering a transfer out of their benefits or is nearing retirement. The backlog of these cases therefore only relates to those cases where no immediate action is required and which will be cleared in due course, post April 2012, as part of the project detailed in the summary report at Appendix 1.

The overall level of cases completed in the quarter is shown in the following table and showsfor the most part the overall level of cases processed has remained broadly similar to previous quarters, although there have been a significant number of deferred benefits processed in the quarter. A number of members continue to apply for passwords to enable them to access their records on-line, bringing the total to approximately 2,500.

Key Processes and Outstanding Processes
Key Processes Completed / 01.4.2011
to 30.6.2011 / 01.7.2011
to 30.9.2011 / 01.10.2011 to 31.12.2011 / 01.01.2012 to 31.03.2012
New Starters / 387 / 544 / 781 / 580
Transfers in to the LGPS / 235 / 253 / 231 / 174
Transfers out of the LGPS / 90 / 147 / 108 / 63
Retirement Estimates / 426 / 501 / 801 / 637
Retirements / 734 / 635 / 686 / 681
Deferred Benefits (Leavers) / 427 / 563 / 392 / 1708
Refunds / Opt-outs / 146 / 133 / 132 / 173
Maintenance of Data / 1419 / 1779 / 1426 / 1464
Miscellaneous Correspondence / 222 / 457 / 287 / 109
MSS Password Requests / Queries / 399 / 196 / 1351 / 575
Deaths / 177 / 271 / 158 / 212
Total Key Processes Completed / 4662 / 5479 / 6353 / 6556
Outstanding processes / 30.6.2011 / 30.9.2011 / 31.12.2011 / 31.03.2012
Outstanding processes (excluding deferred backlog) / 386 / 327 / 327 / 440

2.4Scheme Employer Performance Indicators

There were 16 instances of late payments being made by employers during the quarter to March 2012, and details are provided in the attached table atAppendix 2. Specific details are provided of individual payments made by employers over the last 6 months.

A summary of payment performance over the last 12 months is also included showing the total instances of late payments, together with cumulative totals for days late and amount payable for all relevant employers.

The team continues to take a proactive approach to monitoring late payers, and officers at HCC are provided with a monthly report of late payers so that penalties may be applied where applicable.

2.5Complaints

There were three complaints in the quarter to 31st March as follows:

1)Date of complaint 19th January 2012

An employee elected to opt-out of the scheme and receive a refund of contributions paid in. Unfortunately the employee was incorrectly informed they would not be entitled to a refund as they had been in the scheme for over 3 months. The member complained and on further investigation it was confirmed the length of time in the scheme was less than 3 months and that a refund was properly payable. An apology was sent to the employee and payment made.

2)Date of complaint 6th February 2012

The daughter of one of the Scheme’s pensioners sent in a Power of Attorney(POA) form to enable her to act on her mother’s behalf. Unfortunately a copy of the POA was not kept on file and when the daughter sent in a change of bank details the request could not be actioned, leading to bank charges being incurred by the pensioner. A further copy of the POA was forwarded by her solicitor and the relevant amendments made. The error made had led to a degree of distress for the daughter as well as additional fees and charges being incurred. A formal apology was issued to the daughter and a payment of £50 in compensation was made.

3)Date of complaint March 2012

Following a life certificate exercise for pensioners living abroad a member complained when they received a chase up letter before they had been given adequate time to return the form. It transpired there had been some delays in the Australian postal system that meant the original request was received late by the member. A full response and explanation was provided to the member and HCC. An exercise is also now underway to obtain e-mail addresses for

pensioners living abroad where possible so that any documentation can be sent directly to them.

Any cases taken up through the Internal Dispute Resolution Process or the Pensions Ombudsman are reported in the Administering Authority Report on Pension Fund Administration.

In addition there have been a number of complaints received in relation to the GMP project where action has been taken to reduce the level of pension in payment. Further detail is provided in Appendix 1 under the Due Diligence and Data Improvement Project.

3.Recommendation

The Committee is invited to note the report, and in particular that there has been a significant reduction in the number of outstanding deferred benefit cases (see 2.3) from 2,242 previously to 1,273.

3.1APPENDIX 1:LondonPensions Fund Authority (LPFA)

The following summary provides further information to the committee on the following specific areas:

1)Relevant regulatory changes, including the latest news on the potential scheme changes currently being consulted on.

2)Progress made on the two year integration plan looking to bring LPFA systems and processes into effect.

3)An update on the data improvement plan.

4)Other activity, including communications and staff development undertaken by LPFA to support HCC in delivery of the Pensions Administration service.

Regulatory Update

Local Government Pension Scheme

Unfortunately there has as yet been no official announcement on any formal agreement having been reached between Employers, Unions and the Government around the key elements of the new Local Government Pension Scheme which is anticipated to go live in April 2014 with regulations in place by April 2013.

As detailed previously the core elements of the proposed new scheme are as follows:

• a single solution to both the short and long term issues by the early introduction of the new Scheme in April 2014, with regulations in place by April 2013;

• the single solution to be built on the basis of career average earnings;

• can include zero increases in employee contributions for all, or the vast majority of members, provided that overall financial constraints set by the Government are met;

• some elements of choice to encourage retention of existing membership and encourage new membership; and

• flexible retirement age built around the Scheme’s normal retirement age equal to the State Pension Age or age 65, whichever is later, and applies both to active members and deferred members

The announcement also confirmed it would be crucial that there are robust arrangements put in place to ensure future scheme costs are kept under control and that ensuring there are strong management and governance arrangements in place will form a key part of the discussions around the proposed changes.

LPFA have set up a project team to deal with implementation of the new scheme and will be in a position to react speedily as soon as any further progress is announced. The LPFA have also had officers involved with specific project teams set up by the LGA to look at the administrative and governance arrangements of any new scheme.

Firefighters’ Pension Scheme

Negotiations around a new look fire scheme due to be implemented in 2015 are also continuing, with the main parameters of any new scheme announced by the Government as follows:

• It will be a career average schemewith increases linked to national average earnings
• The accrual rate is proposed to be 1/58.7ths.
• The suggested employee contribution in new scheme would be, on average, 13.2% of earnings. This figure is still the subject of further negotiation.
• The proposed normal pension age is 60.which will be reviewed regularly.and is the subject of ongoing discussion between government, employers and unions.
• There will be full protection of accrued rights and members within 10 years of retirement will remain in the old scheme with tapered protections in place for those between 10 and 14 years of retirement.

An announcement was also made on 28th March of the increased contributions due from firefighters with effect from 1st April. Following detailed preparations and discussions held between HCC and LPFA the new rates have been successfully introduced and members informed accordingly.

Auto-enrolment

The LPFA hasbeen working closely with officers at HCCto help prepare for the arrival of Automatic Enrolment from next year. The assistance we have provided to date has included documents covering the following.

• Guidance for employers

• Draft notification from employers to all staff

• Draft notification from employers to current non scheme member

• An adapted DWP poster to tie in with national campaign

• A document covering Pension myths

• 2 frequently asked questions documents (1 for the employer and 1 for the member)

• A document covering key messages

• A guide to explain Auto Enrolment language

• 10 Good reasons for joining the LGPS

• A spreadsheet of required details for members being auto enrolled.

• A spreadsheet to enable employers to work back from staging date to carry out all communications in timely manner

Additionally the LPFA is creating the following which will be available for HCC to use.

• An electronic opt out form

• A tab on the new website dedicated to Automatic Enrolment

• A dedicated help line for Automatic Enrolment

Auto-enrolment is going to be a key issue for employers in the Hertfordshire pension fund over the next couple of years and the steps being taken so far are designed to ensure employers are fully aware of their responsibilities under this legislation, as well as being equipped with the necessary documentation and guidance to carry out their duties.

Service Improvements Implementation Project

There are now a significant number of developments underway as part of this two year plan to introduce systems and processes to improve performance and reporting around delivery of the service. There are regular meetings between officers from LPFA and HCC to monitor and report on progress.

A number of key elements to this project are currently in progress and include the following highlights due for completion during the year as follows:

• The introduction of LPFA’s Case Management System (CMS) and Document Imaging System (FiSH) by September 2012. This will help ensure consistency of delivery and improve management controls and reporting facilities.

• The server for the pensions administration system (Axise) to be moved to Dexter House on 25th May 2012 This will enable better technology support and maintenance for the team.

• The introduction of the ‘Your fund’ system for HCC employers enabling to submit forms, notifications and end of year returns on-line, including a communications plan and training for all users. A pilot project is planned to be in operation by September 2012with the system being made available to all employers by March next year.

Due Diligence and Data Improvement Project

Phase 1

The current progress made against Phase 1 of the GMP project due for completion by March 2012 is as follows:

1)Nearly 3,000 pension records wereoriginally identified where data relating to the level of Guaranteed Minimum Pension (GMP) notified by HMRC has not been updated onto individual member records. The lack of such information on records will have led to overpayments of pension in payment, given that HCC would not normally be liable for any increases due on these amounts. This exercise will ensure the correct level of pension will be paid to the relevant members in future.

To date2,939 calculations have been completed and letters sent to individual scheme members accordingly. Member records have also been updated to ensure the correct rate of pension is in payment and that future increases are calculated correctly. The total reduction on the annual payroll stands at £382,307.68 at present.

Since the previous report a further 33complaints have been received and responded to.

The second phase of the GMP project is now underway with a further file of 1,022 cases where there appears to be missing information received from HMRC. There are a number of clarifications currently being discussed with HMRC prior to further calculations being undertaken. A further update on progress will be provided in the next report.

Phase 2

Phase 2 of the Data Improvement Project has now been signed off by HCC which will deal primarily with the backlog of deferred benefit cases which had built up previously. Currently arrangements for the project team to have access to relevant payroll records is being agreed with HCC so that relevant calculations can commence.

Status reports for the project are produced every month by the Project Manager, signed off by the Project Sponsor and issued to Senior Customers at HCC.

Communications

The website is regularly monitored in terms of content and form and changes are made according to HCC’s wishes. For example, the section on annual allowance was made more prominent. An easy to use calculator has been added “How much is my pension worth” and all guides have been updated in accordance with recent amendments such as changes to contribution bands. Frequently asked questions on the LGPS have been developed and placed on the homepage.

With regard to scheme reform LPFAhas held meetings with HCC to discuss linking any internal communications exercises with direct access to the LPFA website for HCC members, ensuring current staff can be made aware of and kept up to date with what will be significant changes. Proposals include notifying staff through internal e-mails or payslips of where they can obtain further information on the scheme. This is on hold pending an announcement from CLG on the reforms.

The monthly newsletter updating employers on relevant pensions issues continues to be produced and is now issued to around 600 contacts. Plans are now in place to move employers onto LPFA’s online form system and communications will support these changes. Plans to obtain employer discretionary policies are in place as part of the integration project.

A hard copy pensions increase newsletter was issued to all LG and Fire Scheme pensioners during March 2012. This was issued in good time so pensioners were aware of their increase and it also provided some reassurance statements that the discussions on scheme reform would not impact pensioners.

Staff Development

A number of staff are undergoing specific technical training through the LPFA’s ‘Award and Certificate Programme’.

Four staff who had already passed Award Stage one have been attending Awards Stage two courses - Adjustments to Basic Retirement Benefits, Transferring benefits, Contracting Out of the State Scheme and Increasing Pension Benefits, these courses commenced in April and staff will be sitting their exams on May 22nd.

Other staff have been attending courses dealing with specific aspects of the scheme to ensure their skills and knowledge are kept up to date , including Contracting out of the State Scheme, Death Benefits, Adjustments to Retirement Benefits and Transfers.

A member of staff has also been receiving specific guidance in ‘Delivering Training’ and has taken on the role of a ‘Subject Matter Expert’ providing direct support and training to other staff.

A number of specific sessions have been provided for staff on key issues affecting both the Fire Scheme and the LGPS, including the implications of the new tax regime following the reduction in both Annual and Life Time Allowance limits, and a training workshop on changes to transfer calculations and regulations.

1