Discretionary policies | Avon Pension Fund

Employers under the Local Government Pension Scheme (LGPS) must create, publish, and review policies regarding how they exercise certain mandatory discretions for current and past employees.

These discretions include decisions on contributions to shared cost APC schemes, flexible retirement benefits, waiving actuarial reductions, applying the 85-year rule, and granting additional pensions.

Employers should ensure their policies comply with anti-discrimination laws and do not undermine public confidence. While some discretions require written policies, others are optional but beneficial for consistent decision-making.

Policy requirements

Dependent on when you became a scheme employer, all participating employers should have a discretions policy in place for the relevant sections (01/04/1998 to 31/03/2008, 01/04/2008 to 31/03/2014, and after 31/03/2014).
New employers must create their policies within 3 months of joining the fund.
Employers must formulate, publish, and review their policy on mandatory discretions and send a copy to Avon Pension Fund.
Employers must send any amendments to Avon Pension Fund within one month of the decision and publish its statement as revised.

Regulations that require a policy statement

Under Regulation 60, Scheme employers must prepare a written statement of their policy in relation to its function under each regulation:

Funding of additional pension (Regulations 16(2)(e) and 16(4)(d)).
Flexible retirement (Regulation 30(6)) .
Waiving of actuarial reduction (Regulation 30(8)).
Award of additional pension (Regulation 31).
Transitional Regulations 2014 (Schedule 2, 1(1)(c) and 2(1)).

View a full list of mandatory discretions under the 2014, 2013, 2007, and 1997 Regulations.

Preparing a policy statement

Employers must prepare a statement for each regulation and include the extent to which they will adopt and exercise these discretionary functions.

The policy must not:

Specify the outcome: a decision must be determined in each case.
State that the decision will be the same in all cases, known as fettering.
Assume that regulatory discretion functions will not be taken up: an exception may occur.

The policy must support the decisions to be made for each case as to:

Whether the regulation is to be adopted.
What extent the regulation will be adopted (e.g. whether to waive all or part of an actuarial reduction or how much additional pension to award).
Specify who will make the decision and what factors to consider.

The comments of The Court of Appeal in Edge v Pensions Ombudsman 1999 are regarded as the classic formulation for trustee exercises of discretionary powers:

The essential requirement is that the trustee address themselves to the question what is fair and equitable in all the circumstances. The weight to be given to one factor as against another is for them. The duty to act impartially is no more than the ordinary duty which the law imposes on a person who is entrusted with the exercise of a discretionary power – that he exercises the power for the purpose for which it was given, giving proper consideration to the matters which are relevant and excluding from consideration matters which are irrelevant. If pension fund trustees do that, they cannot be criticised if they reach a decision which appears to prefer the claims of one interest – whether that of employers, current employee’s or pensioners – over others. The preference will be the result of a proper exercise of the discretionary power.

- The Court of Appeal in Edge v Pensions Ombudsman 1999

Considerations and decision making

Who makes the discretion decision?

The policy should specify who makes the decisions and what factors to consider. Larger employers like Unitary Authorities and Universities may delegate decisions to senior management, HR, or Finance, while smaller employers like Town and Parish Councils may use a committee or council.

Whoever is specified to make the decision must:

Have all the information within the policy to make the decision.
Have all relevant information regarding the case in question. This could be a financial or operational report or if compassionate grounds are being considered, details of the circumstances where compassion may be shown.
Ensure that in making a decision, the determination has not been more stringent than the regulations allow. For example, to only allow a decision on “exceptional compassionate grounds” when the regulation only stipulates “compassionate grounds”.

Considerations when making a discretionary decision

This will be determined in most cases by the regulation requiring the decision but the type of employer could have an influence. Where a larger employer has a greater resource or larger workforce, it might have greater capacity to consider decisions on financial or operational grounds than a small employer with a very small workforce.

Some regulations do not specify any reason as to why a decision under that regulation should be adopted on Operational or Compassionate Grounds.

However, some regulations stipulate that it can only be decided on compassionate grounds. It is common practice to set out the norm and then specify where any exceptions could occur and what criteria needs to be considered in such cases.

Help preparing discretions

The Fund can provide employers with a toolkit to assist the preparation of their discretionary policies. The toolkit provides a standardised template including mandatory and non-mandatory discretions which is populated by the employer and prepared for publication.

Example discretionary policies

Each policy for each required regulation could be drafted as follows:

[Employer] will as a general rule not normally make use of the provision under [state regulation] to [insert content of regulation requiring decision]. [Employer] may consider using this discretion on [State which grounds], which might include but not be limited to where [give example(s) of when such condition may be considered].

For example for Regulation 30(8) the policy could be:-

ABC Ltd will as a general rule not normally make use of the provision under LGPS 2013, regulation 30(8) to waive any reduction in pension benefits for an employee aged 55 to SPA. ABC Ltd may consider using this regulation on…

a) Compassionate grounds, which might include but not be limited to

where the member is needed to care for a dependant relative full time.

Care must be taken when specifying an exception. For example in the above case, if you introduce a restriction on the grounds of compassion to say only terminally ill dependants, it could have adverse consequences. Because if the dependant dies after one month, the member would continue to get the higher pension. However someone caring for an incapacitated dependant would get a reduced pension, even though they may need to provide constant care for a considerable period of time, undermining the compassion given.

b) Financial / Operational grounds, which might include but not be limited to

where it can be shown to be in the interest of the organisation.

Waiving or partially waiving a reduction might be a mechanism employers would wish to consider to encourage members to retire early to, for example, help achieve a balanced age profile within the workforce or to avoid possible redundancies later (which have attendant greater costs). Whilst also exercising the discretion to waive actuarial reductions would be more expensive than just switching back on the 85 Year rule, it would in most cases be less expensive than redundancy.

Smaller employers

For very small employers like parish councils where resources are limited and the number of LGPS members small, the likelihood of ever operating these policies is slight. So it might seem appropriate to set up an all-inclusive policy for all relevant regulations and list possible exceptions.

Example - When would a parish council award extra pension or waive a reduction?

It would entail a cost; however, there may be an occasion where a very long-standing employee is approaching retirement and as a compassionate gesture the council may consider the options available to reward the individual for services rendered. The council could when assessing its budget, allocate an amount to pay into the pension fund to either purchase pension under reg 31 or waive/partially waive a pension reduction under reg 30(8).

Mandatory discretions

Table 1 outlines the mandatory employer discretions subject to a written policy under the Local Government Pension Scheme Regulations 2013 [prefix R] and the Local Government Pension Scheme (Transitional Provisions and Savings) Regulations 2014 [prefix TP]:

Table 1: Mandatory discretions under the 2013 & 2014 Regulations

Employer discretion	Regulation
Whether, how much, and in what circumstances to contribute to a shared cost APC scheme.	R16(2)(e) & R16(4)(d)
Whether all or some benefits can be paid if an employee reduces their hours or grade (flexible retirement).	R30(6) & TP11(2)
Whether to waive, in whole or in part, actuarial reduction on benefits paid on flexible retirement.	R30(8)
Whether to waive, in whole or in part, actuarial reduction on benefits which a member voluntarily draws before normal pension age.	R30(8)
Whether to “switch on” the 85-year rule for a member voluntarily taking benefits on or after age 55 and before age 60.	TPSch 2, para1(2) & 1(1)(c)
Whether to waive, on compassionate grounds, the actuarial reduction applied to benefits from pre 1/4/2014 membership for a member voluntarily taking benefits on or after age 55 and before age 60.	TPSch 2, para 2(1)
Whether to grant additional pension to an active member or within six months of ceasing to be an active member by reason of redundancy or business efficiency.	R31

Table 2 outlines the mandatory employer discretions subject to a written policy under the Local Government Pension Scheme (Benefits, Membership and Contributions) Regulations 2007 (as amended) [prefix B]:

Table 2: Mandatory discretions under the 2007 Regulation

Employer discretion	Regulation
Whether to “switch on” The 85 year rule for a member voluntarily drawing benefits on or after age 55 and before age 60.	TPSch 2, para 1(2) & 1(1)(c)
Whether to waive, on compassionate grounds, the actuarial reduction applied to deferred benefits paid early under B30 (member).	B30(5) TPSch 2, para 2(1)
Whether to waive, on compassionate grounds, the actuarial reduction applied to benefits paid early under B30A (pensioner member with deferred benefits).	B30A(5) TPSch 2, para 2(1)

Table 3 outlines the mandatory employer discretions subject to a written policy under the Local Government Pension Scheme Regulations 1997:

Table 3: Mandatory discretions under the 1997 Regulations

Employer discretion	Regulation
Grant application for early payment of deferred benefits on or after age 50 and before age 55.	31(2)
Whether to “switch on” the 85 year rule for a member with deferred benefits voluntarily drawing benefits on or after age 55 and before age 60.	TPSch 2, para 1(2) & 1(1)(f) & R60
Waive, on compassionate grounds, the actuarial reduction applied to benefits paid early for a post 31/3/1998 / pre 1/4/2008 leaver or a councillor leaver.	31(5)

A full list of discretions together with more information on the key discretions on which employers should have a published policy is available on the employer guides and documents section of www.lgpsregs.org