<p>HERTFORDSHIRE COUNTY COUNCIL Agenda Item No:</p><p>PENSIONS COMMITTEE</p><p>WEDNESDAY 30 NOVEMBER 2011 AT 10.00AM 2</p><p>REVIEW OF PENSION FUND ADMINISTRATION</p><p>Report of the Director Resources and Performance</p><p>Author of the report: Patrick Towey (Telephone: 01992 555148)</p><p>1. Purpose of the report</p><p>1.1To provide the Pensions Committee with a quarterly report reviewing the administration of the Pension Fund. </p><p>2. Summary</p><p>2.1 This report is set out in two parts as follows:  Part 1 reports on the performance of the Administering Authority and Scheme Employers in managing and administering the Pension Fund measured against performance indicators set out in the Administration Strategy  Part 2 reports on performance and activities of the pensions administration service provided by the London Pensions Fund Authority (LPFA) for the quarter 30 September 2011.</p><p>2.3 Administering Authority Performance Indicators There were no breaches of the Administration Strategy. </p><p>2.4 LPFA Administration Service Performance Indicators The Service Level Target (SLT) for the LPFA has been breached twice. The breaches relate to a membership process and the volume of outstanding processes at 30 September.</p><p>At 30 September, the number of outstanding processes was 2,442 which are 942 above the SLT of 1,500. 2,115 of the outstanding processes relate to the provision of deferred benefit statements. This backlog of work will be resolved as part of the Data Improvement Programme which is reported in Appendix 2 in the LPFA report.</p><p>2.5 Scheme Employer Performance Indicators No penalty charges were levied against scheme employers during the period to 30 September. 2.6 LPFA activities during the quarter July to September 2011. LPFA activities during the quarter focussed on completion of audit work for financial year end. A life certificate exercise was also conducted to establish the entitlement to the receipt of pension. LPFA continued transition work on schools converting to academies; there were 17 in the last quarter. 1 3. Recommendations</p><p>3.1 That the Pensions Committee notes the quarterly administration and performance review of the Pension Fund. The Committee are also invited to comment on the content of the report highlighting any areas where it is felt further information or analysis may be useful in the future.</p><p>4. Background</p><p>4.1 Quarterly reports are provided to the Pensions Committee to:</p><p> report statistical data and performance data that is measured against agreed performance indicators; and </p><p> provide commentary on key administration activities carried out by HCC and the LPFA pensions administration service.</p><p>4.2 This quarterly report covers the period 1 July to 30 September 2011. </p><p>4.3An update on the LPFA Transition Arrangements and Data Improvement Programme is provided in Appendix 2 of the LPFA report (part2). </p><p>5. Part 1 Performance of the Administering Authority and Scheme Employers.</p><p>5.1 Administering Authority Performance Indicators (Appendix 1) There were no breaches to the Administration Strategy. The Annual Governance Report (AGR) of the Audit Commission was issued during the quarter. The AGR provided a positive report with only one recommendation relating to a reconciliation process. The LPFA has responded to this recommendation and implemented quarterly reconciliations to avoid a similar problem in the new financial year. </p><p>5.2 During the period an existing internal dispute resolution (ID) complaint progressed to stage 2 and the complainant also reported this matter to the Pensions Ombudsman. This related to the application of the Administering Authority’s discretionary policy of recovering overpaid pension in the event of the re-employment of pensioners’ where they are eligible to rejoin the LGPS. Legal Services are hearing the stage 2 ID and responding to the Pensions Ombudsman. </p><p>5.3 The Administration Strategy sets out a range of penalty charges that may be incurred by scheme employers for non-compliance with targets and required performance standards set out in the Strategy. No penalty charges were raised for the period to 30 September. All penalty charges raised to date have been paid.</p><p>2 6. Part 2 LPFA Pensions Administration Service Performance Indicators </p><p>6.1 As part of the transition programme, LPFA is implementing a new workflow system that will provide enhanced data for performance measurement of case workloads. The workflow system will be operational by 31 March 2012 and key performance indicators will be revised once this system is in place. In the meantime, the pensions administration service is measured by Service Level Targets (SLT) set out in the specification to the Contract Management document.</p><p>6.2 There were 2 breaches of the SLT where the timescales for one process has been exceeded and the agreed level of outstanding processes of 2,442 is in excess of the SLT target of 1,500. These breaches relate to the processing of Deferred Benefit statements (DBs) that HCC instructed to be put on hold whilst the administrator (Serco at the time) could meet the deadlines on the production of estimates and retirements that resulted from the redundancy exercise earlier this year.</p><p>6.3 The issues associated with the processing of DBs are being addressed as part of the Data Improvement Programme of work and a progress report is provided in appendix 2 of the LPFA report.</p><p>3 4 APPENDIX 1: Review of Pension Fund Administration and Performance Statistics</p><p>The following table is an analysis of performance data relating to the performance of the Administering Authority and Scheme Employers in managing and administering the Pension Fund measured against performance indicators set out in the Administration Strategy.</p><p>1. Administering Authority Performance Indicators </p><p>Administering Authority Administration The following indicators measure performance and compliance with statutory requirements placed on Administering Authorities for the administration of Pension Funds. Breaches of Administration Strategy Measured by Comments Periodic Internal Audit reviews and The annual audit of the Pensions Fund Report Annual District Audit and Accounts was carried during the quarter. The Audit Commission issued a positive Annual Governance Report with one recommendation relating to a reconciliation between systems holding data Scheme Administration Complaints and Internal Disputes (IDs) IDs may be raised by members where they are dissatisfied with a decision concerning their membership benefits. IDs may be raised either against the Administering Authority, for decisions relating to LGPS regulations, or, against the Employing Authority (for HCC staff) where there is some discretion about the final decision. Type Issue Resolution Administering Recovery of Response to the original complaint provided an Authority (AA) overpaid pension for explanation of the AA’s discretionary policy and ID re-employed the regulations requiring enforcement. The pensioner complainant has escalated their case via the ID and this has progressed to the second stage and the complainant has reported this matter to the Pensions Ombudsman. Legal Services are responding to this IDRP. Scheme Employer Administration The following indicator measures performance of scheme employers in the administration of the LGPS against targets set out in the Administration Strategy. Scheme Employers Incurring Penalty Charges Date Scheme Employer Reason for Penalty Amount Paid No penalties were charged for the period to 30 September 2011.</p><p>5 PENSION FUND ADMINISTRATION REPORT – PART 2</p><p>Author of the report: Mike Allen – Director of Pensions (LPFA)</p><p>1. Purpose of the report</p><p>1.1 The 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.</p><p>2. Summary</p><p>2.1 Pensions Performance Reports This is the first amended report issued by the LPFA and 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 revised report has been agreed with officers at HCC and focuses on key performance areas and relevant scheme information. </p><p>2.2 Pensions Fund Statistics</p><p>Full details of the membership analysis and employer statistics are provided in the following table. There is a slight increase in the level of the deferred pensioners from previous figures to take account of those currently awaiting processing as part of the agreed project on data improvement. </p><p>Scheme Membership As at As at As at As at 31.12.2010 31.03.2011 30.06.2011 30.09.2011 Active contributing members 28027 28020 27440 26792 Deferred members 26558 26552 27179 27850 Pensioners 20562 20754 21127 21384 Total Membership 75147 75326 75746 76026</p><p>The number of active scheme employers in the Pension Fund now stands at 178, with a further 73 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 27 having successfully converted by the end of September.</p><p>2.3 LPFA Administration Service Performance Indicators</p><p>The Service Level Targets for LPFA have been breached twice during the quarter and this is principally due to the backlog of deferred benefit cases which account for 2,115 of the total outstanding processes of 2,442. </p><p>6 If these cases are removed from the statistics the total number of outstanding processes is reduced to 327, 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.</p><p>It should also be noted that where needed a number of deferred benefit cases continue to be processed, for instance where a member is considering a transfer out of their benefits or are 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 2. </p><p>The overall level of cases completed in the quarter is shown in the following table and shows for the most part the overall level of cases processed has remained broadly similar to previous quarters although scheme retirements continue at a relatively high level. A number of members continue to apply for passwords to enable them to access their records on-line and a further push to encourage take up will form part of this years Annual Benefit Statement exercise. </p><p>Key Processes and Outstanding Processes 1.10.2010 1.1.2011 01.4.2011 01.7.2011 Key Processes Completed to to to to 31.12.2010 31.3.2011 30.6.2011 30.9.2011 New Starters 797 623 387 544 Transfers in to the LGPS 202 307 235 253 Transfers out of the LGPS 141 121 90 147 Retirement Estimates 962 972 426 501 Retirements 474 566 734 635 Deferred Benefits (Leavers) 590 563 427 563 Refunds / Opt-outs 219 165 146 133 Maintenance of Data 1185 1540 1419 1779 Miscellaneous Correspondence 421 504 222 457 MSS Password Requests / Queries 0 0 399 196 Deaths 146 253 177 271 Total Key Processes Completed 5137 5614 4662 5479 Outstanding processes 31.12.2010 31.3.2011 30.6.2011 30.9.2011 Outstanding processes (excluding 395 676 386 327 deferred backlog)</p><p>7 2.5 Scheme Employer Performance Indicators</p><p>There were 19 instances of late payments being made by employers during the quarter to September 2011 and details are provided in the attached table at Appendix 3. You will note that no employer was guilty of more than one breach in this period and that all but two of the late payments were 3 days late or less. The team continues to take a proactive approach to monitoring late payers and officers at HCC are kept informed of relevant statistics in order that appropriate action can be taken. </p><p>Details are attached at Appendix 3 providing statistics of all late payments made by employers over the last 12 months. Since May the statistics have been broadly encouraging with only 1 late payment in August and 2 in September, albeit in August there were a number of employers, including a significant number of schools, who were a day or so late in making payment.</p><p>2.6 Complaints</p><p>No complaints were received in the last quarter. Any cases taken up through the Internal Dispute Resolution Process or the Pensions Ombudsman are reported at 5.2 in Part 1 of the report. </p><p>8 APPENDIX 2: London Pensions Fund Authority (LPFA) </p><p>The following summary provides further information to the committee on the following specific areas:</p><p>1) Relevant regulatory changes, including the latest news on the potential scheme changes currently being consulted on.</p><p>2) Progress made on the two year integration plan looking to bring LPFA systems and processes into effect. </p><p>3) An update on the data improvement plan.</p><p>4) Other activity, including communications and staff development undertaken by LPFA to support HCC in delivery of the Pensions Administration service.</p><p>1. Regulatory Update</p><p>The last few months have been some of the busiest ever for the LGPS particularly as a result of the Hutton report on the future of public service pensions and the government’s signalled intent to reduce the cost to employers of providing benefits through an increase in member contributions.</p><p>Consultation on contributions</p><p>On 7th October DCLG published a consultation paper on the options for achieving the £900M savings required by government in the period 2012 to 2015. The consultation paper included two options put forward by DCLG plus one proposed by the LGA on 21st September. </p><p>The DCLG recommendations propose a mixture of an increase in contributions to members coupled with a reduction in the rate of accrual over the next 3 years. Alternatively the LGA propose maintaining the current accrual rate of the scheme and maintaining the level of current contributions for members earning under £15,000 with increases of between 1.5% and 2.5%, depending on earnings for members earning above this amount. LGA additionally propose that members should be allowed to opt out of paying the higher rate of contribution and instead elect for a lower accrual rate for future benefits. </p><p>The proposals put forward confirm that the Government recognises that the funded nature of the scheme puts it in a different position to other public sector schemes and that there are alternative ways to deliver some or all of the savings other than through the increase in contributions.</p><p>The consultation is due to close on 6th January 2012, although there remains the possibility of additional discussions taking place as a consequence of further announcements.</p><p>9 Scheme change</p><p>The cost ceilings for the new look LGPS and other public sector schemes as well as details of the proposed reference scheme were also announced on 7th October. These proposals will form part of the ongoing negotiations between the government, employers and trade unions as to the precise detail of any new scheme. Since the initial proposals a further announcement was made by the Treasury proposing increased protections for existing members of the scheme. </p><p>Further clarification is expected in due course around the relevant proposals and the extent to which the proposed short-term changes in contribution rates can be accounted for in any long-term changes.</p><p>HMRC changes to Annual Allowance and Life-time Allowance</p><p>A number of changes have been made around the maximum level of pension benefit a scheme member can accrue on an annual basis and over their career as a whole. Where specific levels are exceeded the member will suffer a tax charge on any excess benefits. Annual pension growth over a 12 month period has now been reduced to £50,000 from April 2011 onwards against £255,000 previously and the Life-time allowance is due to be reduced from £1.8m to £1.5m with effect from April 2012. It is anticipated that only a small number of higher earning staff will be impacted by these changes and LPFA will be monitoring individual records to ensure these are identified and notified as appropriate.</p><p>LPFA have already contacted a number of senior staff at HCC who are likely to be affected by the changes providing information on the potential impact on their pension situation and are due to be involved in further discussions in due course. </p><p>Auto-Enrolment</p><p>From October 2012 the Government is introducing new legislation, making it compulsory for employers to enrol eligible workers into a ‘qualifying workplace pension scheme’ and make contributions to that scheme. </p><p>Although the LGPS is already deemed a ‘qualifying workplace pension scheme’ there remains a number of administrative and legal requirements placed on scheme employers in particular, to ensure compliance with the new rules.</p><p>Representatives of LPFA attended a meeting with HCC and The Pensions Regulator to discuss the next steps in the process and will continue to work closely with relevant stakeholders over the next 12 months to ensure a smooth take on at the appropriate staging date for HCC, likely to be February 2013.</p><p>2. Service Improvements Implementation Project</p><p>In the previous report it was confirmed that a number of improvements had already been introduced including access to the LPFA website and monthly newsletters being provided to employers as well as members being able to access their own records on- line.</p><p>10 The next stages in this process are to ensure the improvements put forward by LPFA in their Project Initiation Document and the proposal to transfer IT systems and support to a server at LPFA are successfully agreed with HCC. Relevant documentation has been consulted on and final sign off of the agreed plans is expected shortly.</p><p>Once agreement is in place it will be possible to start to introduce LPFA systems which will include improved reporting procedures on administration performance and the ability for employers to submit member information and end of year contribution returns on-line through a secure website.</p><p>Further detail on specific tasks, timelines and achievements will be provided in future reports.</p><p>3. Due Diligence and Data Improvement Project</p><p>Phase 1 of the project due for completion by March 2012 is now underway and LPFA have recruited the additional staff needed to ensure successful completion. The two main elements of phase 1 of the project are as follows:</p><p>1) The merging of the current pension payroll system with the administration system to enable on-line access for pensioner members and improving the accuracy of data provided to the actuary as part of the triennial valuation process. Such an exercise will also remove the need for duplication of entry between the two systems, reducing the risk of any inputting errors. A provisional merge of the relevant data has now been completed identifying a total of 1,030 errors that require correction of which 662 have been corrected to date. Once all errors are cleared it will be possible to complete the merge on the live systems.</p><p>2) Nearly 3,000 pension records have been 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. </p><p>To date nearly 300 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. A number of enquires have been received from pensioners regarding the reduction in their pension and these have been responded to by the team. </p><p>Phase 2 of the project due to commence in April 2012 will address the backlog of deferred benefit calculations referred to elsewhere in the report as well as identifying other pensioner records where a GMP may be missing even though a notification has not been received from HMRC.</p><p>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. 11 4. Other activity.</p><p>Communications</p><p>With regard to scheme reform LPFA have 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 pay slips of where they can obtain further information on the scheme. Newsletters for pensioners are also due to be sent in December and March.</p><p>Annual Benefit Statements are due to be sent to all members shortly which will also include additional information around the ongoing consultation on potential changes to the scheme as well as advertising the Axis on-line facility allowing members to view their pension record through a secure website. Automatic Annual Benefit Statements will also be issued to Councilor Members of the Scheme for the first time with more detailed information available on request.</p><p>The monthly newsletter updating employers on relevant pensions issues continues to be produced and is now issued to around 600 contacts. Once relevant improvement plans are agreed and introduced allowing for improved connectivity and systems access a communications campaign with employers will commence to highlight the benefits of on-line notifications being used. LPFA are also working with HCC on the employer forum due to take place in January 2012, in particular looking at ways to increase attendance at what is a crucial time for the scheme.</p><p>Staff development </p><p>The welfare and development of the staff working for the LPFA at Hertfordshire are seen as key to successful delivery of the contract and a number of initiatives are underway to ensure this is achieved.</p><p>During September the mid-year appraisal process was successfully completed, a two way process enabling staff to discuss performance and be clear of what is expected of them and what support that can be provided to help them in their role. The appraisal has also proved useful in commencing the process of drawing up more detailed job descriptions for the team, and identifying development potential.</p><p>A management development programme for all relevant staff is due to commence in December in conjunction with colleagues across the whole of the LPFA.</p><p>12</p>