Discretions

The Local Government Pension Scheme (LGPS) regulations require you have a discretions policy. The policy must be published and kept under review. In formulating and reviewing your discretion policies you are required by the regulations to have regard to the extent to which the exercise of your discretionary powers unless properly limited, could lead to a serious loss of confidence in the public service, and be satisfied that the policy is workable, affordable and reasonable having regard to the foreseeable costs.

A copy of your published discretions policy must be sent to the North Yorkshire Pension Fund (NYPF). Any subsequent amendments to the policy must be sent to the NYPF within one month of the amendment and no change can come into effect until one month has passed since the date the amended policy was published. 

A number of the discretions are mandatory, and you must have a written policy for these. For the others you should determine which discretions would be useful to include in your policy document. A further detailed guide and list of discretions can be found in the LGPS Technical Guide.

Points for employers to consider when setting policies

Exercising the major discretions may result in a cost to the employer (commonly called ‘pension strain’). You can request an estimate of the strain cost from the NYPF before making a decision about whether to apply a particular discretion or not. This is only an option if you have stated in your policy that you may allow discretion or make a decision on a case by case basis. You should be mindful of the ‘Anti-discrimination laws’ below when considering pension strain costs as part of your decision.

Anti-discrimination laws

In drafting any policy, you should have regard to the age regulations. The policy should be free of age influence, or if you use any criteria that could be indirectly age discriminatory, you should be reasonably assured that the policy falls within the exceptions provided by the age regulations. If not, you would need to be able to defend any claim of age discrimination by satisfying a tribunal that your policy is objectively justified. In order to do so, you would have to demonstrate that the policy pursues a legitimate aim and that it is proportionate. In other words, it is an appropriate and necessary means of achieving that aim.

Care also needs to be taken to make sure that the criteria do not discriminate on other grounds, such as:

  • Gender
  • Race
  • Disability
  • Sexual orientation
  • Religion, or
  • Belief

The NYPF discretions templates (below) are coded as follows:

  • Mandatory: the employer must formulate, publish and keep under review a policy on these discretions.
  • Recommended: there is no requirement for employers to publish a written policy on these discretions. However, as these matters arise fairly frequently it may be appropriate, so that members can be clear on their employer’s policy.
  • Less common: there is no requirement for employers to publish a written policy on these discretions.
Mandatory discretions in accordance with the LGPS Regulations 2013 (members who ceased active membership after 31 March 2014)
  • Whether to share the cost of buying additional pension (Shared Cost Additional Pension)
    Pension awarded is actuarially reduced (for early payment) on redundancy / business efficiency retirement and the full cost has to be paid to the Pension Fund while the member is still active.
  • Whether to permit flexible retirement
    In addition to completing the discretions policy template you must also formulate, publish and keep under review a separate policy on flexible retirement.
  • Whether to waive any actuarial reduction to pension benefits brought into payment early on ‘compassionate grounds only’ or ‘on any grounds’
    Actuarial reductions can be waived for employees who voluntarily retire before their normal pension age (not on flexible retirement). Any strain costs would be met by the employer. See the ‘NYPF discretions templates’ for further details.
  • Whether to grant extra annual pension
    Pension bought is not actuarially reduced (for early payment) when brought into payment when the member is retiring on redundancy / efficiency grounds, so incurs an additional strain cost. This regulation can be exercised within 6 months of the employee leaving on redundancy or business efficiency grounds.
  • Whether to ‘Switch on’ the 85 year rule for early payment of deferred benefits
    Under the LGPS (Transitional Provisions and Savings) Regulations 2014 you must complete the discretions policy template to confirm whether you will ‘switch on’ the 85 year rule for a scheme member wishing to voluntarily draw (non-flexible retirement) benefits on or after 55 and before age 60. The earliest age that the 85 year rule applies is age 60 except under flexible retirement when the 85 year rule has to be applied from age 55 onwards. However, you can agree to switch on the 85 year rule from age 55 but would have to meet any strain on the Fund cost (as under the 2008 Scheme). If you do not switch on the 85 year rule, the scheme member would meet any strain on the Fund cost through an actuarial reduction applied to their pension.
Mandatory discretions in relation to members who ceased active membership between 1 April 2008 and 31 March 2014
  • Whether to ‘Switch on’ the 85 year rule for early payment of deferred benefits.
  • Whether to ‘Switch on’ the 85 year rule for early payment of a suspended tier 3 ill health pension.
  • Whether to waive any actuarial reduction to deferred benefits brought into payment early on compassionate grounds.
  • Whether to waive (on compassionate grounds) any actuarial reduction on a suspended tier 3 ill health pension brought back into payment early.
Mandatory discretions in relation to members who ceased active membership before 1 April 2008
  • Local Government Pensions Scheme Regulations 1997
    You must complete the discretions policy template in relation to scheme members who ceased active membership before 1.4.2008.
  • Local Government Pensions Scheme Regulations 1995
    You must complete the discretions policy template in relation to scheme members who ceased active membership before 1.4.1998.
  • Local Government (Early Termination of Employment) (Discretionary Compensation) (England and Wales) Regulations
    Under the Discretionary Compensation Regulations 2006 and 2000 you must complete the discretions policy template in relation to compensation. These regulations exclude admission bodies. If you are an admission body you may use these regulations by analogy but will need to have a separate written policy on compensation that does not quote these regulations (i.e. do not complete the discretions policy template).
  • Local Government (Discretionary Payments) (Injury Allowances) Regulations 2011 Under the Injury Allowances Regulations, you must complete the discretions policy template in respect of leavers, deaths and reductions in pay that occurred after 15 January 2012. These regulations exclude admission bodies. If you are an admission body you may use these regulations by analogy but will need to have a separate written policy on compensation that does not quote these regulations (i.e. do not complete the discretions policy template).
NYPF discretions templates

The discretions policy template contains all of the ‘legacy’ discretions for the scheme rules prior to 1 April 2014 as well as the current discretions from 1 April 2014

NYPF discretions template (for non-Admission Body)

NYPF discretions template (for Academy Trust on or after 1.4.2014)

NYPF discretions template (for Admission Body pre and post 1.4.2014)

NYPF discretions template (for Admission Body on or after 1.4.2014)