Agenda item

The purpose of this report is to determine the Fund’s approach to Ill Health Early Retirements.

The Head of Pensions introduced this report which requested the PCB determine the Fund’s approach to Ill Health Early Retirements – specifically the way that the, often large, liabilities arising from these are apportioned to employers who participate in the fund. The PCB were taken through the report and appendices as set out.

In response to questions on the report, the following information was provided:

·         The existing external ill health liability insurance provided a blanket insurance policy to all employers of the Fund, with the exception of Haringey Council, which was self-insured. Prior to 2016, employers were able to choose their own ill health liability insurance provider, but this was too great an administrative burden to maintain.

·         There were approximately 70 employers in the Fund.

·         It would be possible to manage the risks of ill health retirements without external insurance if the Fund pooled all employers and adopted a self-insured approach across the whole Fund, with the costs shared evenly amongst the employers proportionally. However, there would be a risk if there was a local spike of ill health early retirements which, at the next valuation, would increase employer contribution rates.

·         It was difficult to predict costs of ill health early retirement because they tended to be random in their frequency and varied year on year. It was noted that for the for the three financial years 2016/17 – 2018/19, for all employers (other than Haringey Council) there were 8 cases of ill health early retirements.

·         Regarding 8.4 of the report, it was possible that were a member to refuse to be assessed by a doctor, then the Fund would not be able to pay their pension.

·         Regarding the paying of the external insurance, it was noted that each employer’s contribution to the Fund was increased by the amount of the premium and so the other contributions they paid were still the same. If the self-funded approach were to be adopted for all employers, then those contributions that previously went to the external insurance would be collected by the Fund which would then pay out the ill health early retirement payments as and when they occur.

·         All ill health early retirements had to go through a rigorous process to confirm their legitimacy, with a doctor having the final sign off.

·         If the Council had external insurance to cover the ill health early retirement payments over the previous three years and paid the same premium as the other employers, it would have paid around £3mil. The actual strain costs for that period were around £2.35mil. However, Officers accepted that the frequency of ill health early retirements was statically random and therefore some years would cost more than others if there were to be a spike in some years.

·         The PCB in 2016 decided to self insure the Council as opposed to attaining external insurance to cover ill health early retirement payments.

·         Regarding the frequency of reviewing a decision to adopt the self-insured approach across all employers, Officers suggested that this remain every three years as, due to the lack of frequency of ill health early retirements, it would not be meaningful to review this in a shorter period as there was unlikely to be any significant statistical information within that period.

RESOLVED

1.    That the Committee and Board note the contents of this report, and any other verbal updates provided by officers, the fund actuary and the fund’s Independent Advisor in the meeting.

2.    The Committee and Board agree to adopt a ‘self insured’ approach to ill health retirement liabilities from 1 April 2020, with a proportion of all employers’ contributions being pooled to fund ill health early retirement costs when they materialise.