Local Government Pension Scheme · CAS-67227-G0R4

CAS-67227-G0R4

Ombudsman’s Determination Applicant Mr N

Scheme Local Government Pension Scheme (the Scheme)

Respondent Cardiff Council (the Council)

Outcome

Complaint summary

Background information, including submissions from the parties The sequence of events is not in dispute, so I have only set out the salient points. I acknowledge there were other exchanges of information between all the parties.

Mr N was born in November 1963. On 18 February 2001, Mr N became employed by the Council.

Between February 2001 and June 2020, Mr N was an active member of the Scheme, which is a public sector defined benefit occupational pension scheme.

As result of having joined the Scheme in 2001, Mr N could potentially benefit from the Rule of 85. This was a test, set out in regulations, that would determine whether a member's benefits would be reduced if they were to retire prior to their normal retirement date. However, that would depend on when and the circumstances in which that member retired. Notably, different provisions would apply depending on the member’s age at the date he requested early retirement, together with the amount of pensionable service accrued. The Scheme is governed by the Local Government Pension Regulations 2013 (the Regulations).

Regulation 30(7) of the Regulations states: CAS-67227-G0R4 “(7) Where an active member who has attained the age of 55 or over is dismissed from an employment by reason of redundancy or business efficiency, or whose employment is terminated by mutual consent on grounds of business efficiency, that member is entitled to, and must take immediate payment of —

(a)retirement pension relating to that employment payable under regulation 16 (additional pension contributions), adjusted by the amount shown as appropriate in actuarial guidance issued by the Secretary of State; and

(b)any other retirement pension relating to that employment payable under these Regulations, without reduction.”

Separately, the Rule of 85 automatically applies in full where benefits are voluntarily drawn by the member under the Regulations when aged 60 or over as provided for in Schedule 2 of the LGPS (Transitional Provisions, Savings and Amendment) Regulations 2014 (the 2014 Regulations).

It is also possible for the Rule of 85 to apply in full where benefits are voluntarily drawn by the member under the Regulations on or after age 55 and before age 60 but, importantly, only if the employer agrees that it should be applied, as provided for in Schedule 2 of the 2014 Regulations. The relevant extracts of the 2014 Regulations are set out in the Appendix.

The Council has a policy document entitled Voluntary Early Retirement/Flexible Retirement and Voluntary Redundancy Policy and Procedure (the Policy). The Policy contains information about the requirements to satisfy the Rule of 85 and the Council’s exercise of discretion. Relevant sections of the Policy are detailed in the Appendix.

On 4 January 2020, Mr N unfortunately suffered a heart attack. He said that this was part of the reason why he decided to retire early.

On 1 April 2020, Mr N sent a resignation letter (the Letter) to the Council. He asked to leave his employment at midnight on 30 June 2020, at the age of 56. He stated:

“I wish to provide three months’ notice, with a view to leaving Cardiff Council’s employment at midnight on 30 June 2020…

I would be grateful if consideration could be given to:

1. Employer’s discretion in waiving pension reduction for early retirement or

2. Discretion to allow me to leave within the Rule of 85 provision as I meet the age and service requirement, but I am not yet 60 years of age.”

On 30 April 2020, the Council informed Mr N by email that it would not exercise its discretion to waive the reduction of his pension. It said that it was not prepared to

2 CAS-67227-G0R4 bear the financial cost of supplementing Mr N’s pension income to limit the reduction to his pension. It also said the Rule of 85 did not apply to him.

On 12 May 2020, Mr N informed the Council that he would like to receive his early retirement pension without the Rule of 85 applying to it, so that he would be able to receive an income in July 2020.

Subsequently, there were exchanges of correspondence between Mr N and the Council concerning why Mr N believed the Rule of 85 was applicable to him, and why the Council believed it was not. Mr N said that he would take further advice on the application of the Rule of 85 and decide whether to apply to The Pensions Ombudsman (TPO) regarding the matter.

On 30 June 2020, Mr N’s employment with the Council ended.

On 12 October 2020, the Council responded to Mr N’s complaint under stage one of the IDRP. The Council said it was satisfied that Mr N’s request for it to apply the Rule of 85 had been fully considered. The Council said it had no obligation to bear the costs of applying the Rule of 85 to Mr N, and that its policies permitted its refusal to do so.

On 13 October 2020, Mr N made a complaint under stage two of the IDRP. He contended that the stage one IDRP response was too brief, delayed, made by a person unlikely to be impartial, and made on the incorrect basis that he had requested entirely unreduced pension benefits. He contended that the evidence supplied had not been sufficiently considered and the response to his stage one IDRP complaint had not been sufficiently explained.

Mr N’s complaint was referred back to the stage one IDRP decision-maker by the IDRP stage two decision-maker, the Principal Pensions Officer of the Council. This was because the Principal Pensions Officer was of the opinion that the stage one IDRP complaint response did not provide enough detail, evidence or explanation for the complaint outcome.

On 10 November 2020, the IDRP stage one decision-maker issued a full response to Mr N’s complaint, stipulating the evidence relied upon. She said that:-

• As Mr N was under the age of 60 when he retired, the Rule of 85 did not apply to him.

3 CAS-67227-G0R4 • The Council’s acceptance of Mr N’s resignation did not amount to an approval of his retirement. The wording of the Policy did not mean the Rule of 85 should apply to him.

• There is no automatic entitlement to voluntary early retirement, as the employment in such cases is ended by mutual agreement between the employer and the employee. An employee should not assume that “employer’s consent” retirement will be granted in each case, because the Council must make a financial decision regarding the matter in each instance. According to the evidence, Mr N was not granted voluntary early retirement.

Mr N was dissatisfied with the updated stage one IDRP decision. So, he progressed his complaint to stage two of the IDRP.

On 24 November 2020, the Council issued its stage two IDRP response to Mr N. It did not uphold his complaint. The stage two decision-maker said:-

• The Council had not exercised its discretion to agree to a “mutually agreed termination and waiver of any reductions”.

• Mr N had not retired under any of the circumstances under which the Policy applied.

• The stage two decision-maker agreed with the stage one IDRP decision not to waive any of the reduction to Mr N’s pension.

Summary of Mr N’s position By refusing to apply the Rule of 85 to him, the Council failed to adhere to the Policy.

His retirement was approved, this approval was recorded on the HR database, and it was not due to redundancy or efficiency considerations. So, his employment was terminated by mutual agreement, and he fulfilled the Policy conditions for “employer’s consent” retirement.

The Council’s refusal to apply the Rule of 85 to him caused him financial loss. This is because if the Rule of 85 were applied to him, the part of his pension accrued until 31 March 2008 would not have been reduced.

The wording of the Policy was not adequately addressed in the Council’s responses to his complaint.

He would like:

the Council to apply the Rule of 85 to him;

his pension lump sum to increase in line with the application of the Rule of 85;

4 CAS-67227-G0R4 payment to make up for the reductions applied to his pension from when he retired on 1 July 2020; and

compensation for the stress caused to him through negotiating with the Council, going through the IDRP process and referring his complaint to TPO.

Summary of the Council’s position There is no automatic entitlement to voluntary early retirement, as it is something a person must seek approval from their employer for. The employment is in such cases ended by mutual agreement. Approval for voluntary early retirement was not given to Mr N. The Council did not exercise its discretion to agree to a “mutually agreed termination and waiver of any reductions”.

Mr N did not retire under any of the circumstances listed in the Policy under which the voluntary early retirement policy applies.

If an employee wants to leave employment on the basis of “employer’s consent”, they should not assume that the Council will grant the option, as it requires the Council to make a financial decision in each instance. Acceptance of Mr N’s resignation did not amount to an approval of retirement.

The Council has no obligation to bear the costs of applying the Rule of 85 to Mr N.

Adjudicator’s Opinion

The Rule of 85 is not a reason for a member to access their benefits from the Scheme. It is only used to determine whether or not to apply reductions in the event of a member’s early retirement.

5 CAS-67227-G0R4

The Adjudicator took the view that the Council had acted in accordance with the Regulations and followed its Policy so the complaint should not be upheld.

Mr N did not accept the Adjudicator’s Opinion and the complaint was passed to me to consider. Mr N provided his further comments, which I have noted but they do not change the outcome. Mr N said in summary:-

The Local Government Pension Scheme factsheet he received states “The ability to apply the 85 year rule to voluntary retirement between age 55 and 60 is at the discretion of the Employer. Your Employer will have a policy on this matter”. So, the Policy must contain a section applicable to his personal circumstances. Of the types of retirement the Policy lists, the only one which fits his circumstances is “employer’s consent” retirement.

Before the legislation underpinning the Rule of 85 was amended, employees who had the required number of years of service were allowed to retire under the Rule of 85. He retired under similar circumstances, so the Policy must apply to him.

The Policy states “where the rule of 85 is met before the age of 60… there will be a cost to the pension fund”. It does not specify that there will be a cost to the service only if the Council exercises its discretion to waive reductions.

Ombudsman’s decision

6 CAS-67227-G0R4

1 It is common ground that Mr N was not leaving employment by way of redundancy or on the grounds of business efficiency, and so Regulation 30(7), which also provided for an unreduced pension, would not apply. 7 CAS-67227-G0R4

I do not uphold Mr N’s complaint.

Dominic Harris

Pensions Ombudsman 4 May 2023

2 See the Appendix 8 CAS-67227-G0R4

Appendix

The Local Government Pension Scheme (Transitional Provisions, Savings and Amendment) Regulations 2014

Schedule 2

1.—(1) Paragraph 1(3) applies where a member of the description in paragraph 3(1) or (2) makes a request to receive immediate payment of retirement benefits under—

(a) regulations 30(1) (choice of early payment of pension) or 30A (choice of payment of pension: pensioner member with deferred benefits)(1) of the Benefits Regulations;

(b) regulation 30(5) (retirement benefits: early retirement) of the 2013 Regulations if the member was aged 60 or over at the date of making the request;

(c) regulation 30(5) (retirement benefits: early retirement) of the 2013 Regulations if the member is aged 55 or over but aged under 60 at the date of making the request and the Scheme employer agrees that paragraph 1(3) of this Schedule should apply; or

(d) regulation 30(6) (retirement benefits: flexible retirement) of the 2013 Regulations.

(2) Paragraph 1(4) applies where paragraph 1(1)(c) would otherwise apply, but the member’s Scheme employer does not agree that paragraph 1(3) of this Schedule should apply.

(3) Where this sub-paragraph applies—

(a)if the member satisfies the 85 year rule, that part of the member’s retirement benefits which is calculated by reference to any period of membership before the relevant date shall not be reduced in accordance with regulations 30(4) or 30A(4) of the Benefits Regulations or regulation 30(5) or (6) of the 2013 Regulations; and

(b)if the member does not satisfy the 85 year rule, that part of the member’s retirement benefits which is calculated by reference to any period of membership before the relevant date is reduced by reference to the period between the date of the request and the date the member would satisfy the 85 year rule, or age 65 if earlier.

(4) Where this sub-paragraph applies—

(a) if the member satisfies the 85 year rule, that part of the member’s benefits which is calculated by reference to any period of membership before the relevant date is reduced by reference to the period between the date of the request and age 60; and

(b) if the member does not satisfy the 85 year rule, that part of the member’s benefits which is calculated by reference to any period of membership before the relevant date is reduced by reference to the period between the date of the request and the date the member would satisfy the 85 year rule, or age 65 if the member would not satisfy the 85 year rule before that time, or age 60 if later…

9 CAS-67227-G0R4 4.—(1) For the purposes of this Schedule, a member satisfies the 85 year rule if the sum of—

(a)the member’s age in whole years on the date the request is made under paragraph 1;

(b)the member’s total membership in whole years;

(c)in a case where the request is made after the member’s local government employment ends, the period beginning with the end of that employment and ending with the date the request is made; and

(d) in the case of a person who was a member of the 1995 Scheme immediately before 1st April 1998, any qualifying period counted by virtue of regulation 123 of the 1997 Regulations (rights as to service not matched by credited period) which was awarded before 1st April 2008,

is 85 years or more.

Relevant sections of the Policy

Page 5:

“The policy applies in any of the following circumstances: a. employment is terminated by reason of redundancy b. employment is terminated in the interests of the efficient exercise of the employing authority’s functions c. employment is terminated by mutual agreement, but there is not a case for redundancy or “interests of the efficiency” retirement, herewith referred to as an “employers consent” retirement. d. flexible retirement is agreed.”

“Although employees may apply for voluntary early retirement, flexible retirement or redundancy, approval of any applications will be at the sole discretion of the Council in accordance with the provisions of this scheme.”

Page 7:

““Employers Consent” will apply where there is not a business reason for the retirement but the employee wishes to retire for personal reasons. …as the employee is receiving their pension early it is likely to be subject to a reduction. … Under the regulations the Council has the discretion to waive such reductions but should only do so in exceptional circumstances. (e.g. on compassionate grounds)

“Although in some cases employers consent retirement will be cost neutral, where the rule of 85 is met before the age of 60, or where it is agreed to waive the pension reduction, there will be a cost to the pension fund which will have to be met by the directorate…”

Page 13:

10 CAS-67227-G0R4 “With effect from 1 April 2010 any employee aged 55 or over, with 3 months or more pensionable membership may request retirement. Where the member is under 60 it is at the employers discretion whether to approve the request or not. Pensions paid under these circumstances may be subject to a reduction depending on the total pensionable membership accrued. The employer may waive the reduction on compassionate grounds.”

Page 20:

“The 85 year rule is satisfied where an employee’s age and service (in whole years) added together equates to 85 or more. … Employees who meet the 85 year rule before the age of 60 will receive accrued benefits with no reduction and therefore there will be an additional cost to the pension fund.”

“It is possible to waive a pension reduction in appropriate cases.”

11