Correspondence

Circular: police pension scheme - updated guidance (10/2008)

Police pension scheme: updated guidance - Home Office circular 010/2008

• From: Home Office
• Published: 28 May 2008

Details

Police pension scheme:updated guidance

• Broad subject: Police service

• Issue date: Wed May 28 00:00:00 BST 2008

• From:
  Crime Reduction and Community Safety Group (CRCSG), Police Reform and Resources

• Linked circulars:
  54/2005 - Police pension scheme - new police pensions financing arrangements

• Copies sent to:
  Clerks to the police authorities

• Sub category: Police pensions

• Implementation date: Sat Apr 01 00:00:00 BST 2006

• For more info contact:
  John Gilbert – 020 7035 1880; Louise Treves – 020 7035 1878; Ian Moir – 020 7035 1879

• Addressed to:
  Chief Officers (England and Wales)

Section one: introduction

Who is this guidance for?

1.1 This circular is intended to provide updated guidance for police authority treasurers, force directors of finance, pension administrators and other practitioners to explain the requirements of the Police Pension Fund Regulations 2007 (SI 2007 No 1932) and help them to administer the new financial arrangements for police officer pensions which were introduced with effect from April 2006.

1.2 Until the end of March 2006 each police authority was responsible for paying the pensions of the officers who retired from its force on a ‘pay-as-you-go’ basis. This meant that officers’ contributions were paid into police authorities’ operating accounts, from which pensions were paid. That system has now been replaced. Under the new pensions financing system, police authorities no longer have to meet the cost of pensions in payment out of the police fund (operating account). This cost is now paid out of the police pension fund (pension fund), into which officers’ contributions and a new employer’s contribution are paid. The new system ensures that the cost of pensions in payment is kept separate from the cost of running a police force.

What is the legal position now?

1.3 The Police Pension Fund Regulations which came into force on 1 August 2007, with backdated effect from 1 April, put on a statutory footing the requirement that police authorities:

• set up a pension fund
• pay the employer contributions and officer contributions into the pension fund
• make other specified payments into and from the pension fund
• transfer funds between the police fund and the pension fund as necessary to balance any audited deficit or surplus in the pension fund

and for the Secretary of State to:

• adjust grant funding to police authorities upwards to match the amounts transferred by them out of their police fund to balance their pension fund
• require police authorities to pay to the Secretary of State an amount to match the sums transferred from the pension fund to the police fund to balance their pension fund account

Who is responsible for what?

1.4 Police authorities:

continue to have legal responsibility for paying police officer pensions administer the new financing system and operate their pension fund in accordance with legislative requirements ensure the pension fund is balanced at the end of each financial year ensure that they meet all accounting and audit requirements including FRS17 requirements

1.5 The Home Office will for each financial year liaise with each police authority to increase its total police grant, or require payment to the Secretary of State for that year as necessary, to match what the police authority has transferred to or from its pension fund in order to balance any audited deficit or surplus in the pension fund account.

How should police authorities use this guidance?

1.6 This guidance replaces and updates HO 54/2005. Police authorities will need to act on this and ensure that any adjustments that need to be made as a result of this new guidance are put in place. Unless specifically stated otherwise the adjustments will have effect from 1 April 2006.

1.7 Contact names, numbers and email addresses are provided at the end of the guidance if further clarification or other support is required.

Section two: summary of new arrangements including top-up grant

2.1 The financial arrangements introduced in 2006 apply to both the old and new police pension schemes – i.e. the Police Pension Scheme 1987 (PPS 1987) and the New Police Pension Scheme 2006 (NPPS 2006). However, they have no impact on the benefit structure of either scheme. A full account of the purpose of the new arrangements was set out in chapter 2 of the consultation document available on the Home Office website at http://www.homeoffice.gov.uk/docs4/Consult_frwg.html

2.2 With specific and limited exceptions, awards payable under the Police (Injury Benefit) Regulations 2006 continue to be paid from the police authority’s police fund (operating account).

2.3 Officer contributions and the new employer’s contribution are now paid into the pension fund from which pension payments are made. The police authority is required to use its police fund to top up its pension fund on an annual basis if the contributions and other payments into the pension fund are insufficient to meet the cost of pension payments and other payments out of that fund. Any surplus in the pension fund account will be recouped by the police fund on the same annual basis. In this way police authorities retain responsibility for both the administration and payment of police officer pensions.

Top-up grant

2.4 In order to ensure that the cost of pensions in payment is kept separate from police operating costs the Home Office will top-up the grant paid to it to match any payments that a police authority has had to transfer from its police fund into its pension fund in order to balance a deficit. By the same token, the Home Office will recover from a police authority any surplus transferred out of the pension fund.

2.5 The underlying principle of the new system of pensions financing has two key elements:

• police authorities’ employer contributions and officer contributions together meet the full future costs of the pensions being accrued by serving officers
• in return, central government pays the authorities top-up grant as necessary to help them cover the cost of pensions in payment to former officers and their dependants without any further impact (over and above the cost of pensions contributions) on the cost of operational policing

2.6 The level of top-up grant will vary from year to year according to need, as first estimated by each police authority and finally as evidenced by its audited accounts. Payments to and receipts from each police authority are made and collected by the Home Office in three stages for each financial year:

• in July of the relevant year - an initial payment or receipt to match 80% of the deficit or surplus estimated by the police authority
• in July of the relevant year plus one - a second payment or receipt to complete or adjust the first payment or receipt on the basis of the police authority’s un-audited accounts
• in July of the relevant year plus two - a final payment or receipt to complete or adjust the previous payments or receipts on the basis of the police authority’s audited accounts

2.7 These payments and receipts will be made and collected by the Home Office on the basis of data given by each police authority about their pension fund in the following cycle for each financial year:

• in November* of the relevant year minus one - an estimate of the deficit or surplus in the pension fund for the relevant financial year
• in May of the relevant year plus one - a figure for the actual deficit or surplus for the relevant year on the basis of its unaudited accounts
• in November* of the relevant year plus one – a figure for the actual deficit or surplus for the relevant year on the basis of its audited accounts

2.8 An asterisk has been placed against November in the paragraph above since the date by which the returns involved are required back by the Home Office may need to be deferred. This is particularly likely when November falls in a year when authorities are informed of the new employer contribution rate for the following three years and extra time is needed for estimates to be made on the basis of the new rate.

2.9 A police authority needs to do the following in order to meet its obligations under these arrangements:

• send in an estimate of the deficit/surplus in the pensions account using the form provided (See Annex A)
• the form provided at Annex A shows the all the factors that should be considered when making this estimate
• ensure that the estimates are true and accurate and have the authority’s Statutory Financial Officer certify them as such

2.10 In November 2006 each police authority was required to send the Home Office estimates of the deficit or surplus for 2007/08 and 2008/09. In order to help central government financial planning, there will be a change to this process with effect from 2008/09. Police authorities will now be required to send the Home Office projections for their pension accounts for a three year period: e.g. the next exercise (delayed from November 2007 to May 2008) will require data for 2008/09, 2009/10 and 2010/11.

Section three: police authorities’ pension fund accounts

3.1 The Police Pension Fund Regulations 2007 require each police authority to open and maintain a pension fund.

Status of the pension fund

3.2 The regulations refer to the new account as a ‘pension fund’ since its legal status is that of a fund for the purposes of Section 30 of the Local Government Finance Act. The pension fund accounts, which must be included in the police authority’s statement of accounts as separate statements, comprise a fund account and net assets statement The fund account must be ring-fenced to prevent unauthorised transfers taking place. It is through the fund account that each police authority discharges its responsibility for paying the pensions of retired officers and their survivors.

3.3 Under the new financial arrangements the funds payable into and out of police authorities’ pension fund account will be:

Income:

• officer contributions (including those of officers seconded elsewhere)
• employer contributions (incl. those for officers seconded elsewhere)
• incoming transfers from other pension schemes
• inter-authority adjustments for 1966 and 1974 reorganisations
• re-instatement of pensions – mis-selling charges
• capital-equivalent charge payments for ill-health early retirements
• reimbursements of pension payments which could have been withheld under regulation K4 of the PPR 1987 and regulation 52 of the PPR 2006
• payments by an officer under regulation 84(3) of the PPR 2006
• other authorised income – to be specified by the PA in the accounts
• top-up from the police fund (operating account) to meet any deficit

Expenditure:

• pension payments to retired police officers and other beneficiaries
• inter-authority adjustments for 1966 and 1974 reorganisations
• refund of pension contributions
• outgoing transfers to other pension schemes
• payments by the authority to HMRC on behalf of an officer under regulation 84 or regulation 85 of the PPR 2006
• other authorised expenditure – to be specified by the police authority in the accounts
• payments to the police fund (operating account) to clear a surplus at the end of the accounting year

3.4 See the financial information form attached at Annex A for the full list of items to show in accounts.

Inter-authority adjustments

3.5 The old ‘recharging’ arrangements for previous force reorganisations which are still extant will continue for the time being. Recharging payments should be made out of and into the pensions account. It is proposed to review them among other issues to be reviewed when the new arrangements have been in place for five years.

Guidance on specific items of approved income and expenditure

3.6 The following sections explain in more detail the following key features of income and expenditure for the pension fund:

• approved expenditure – section four
• officer and employer contributions – section five
• capital-equivalent charge payments for ill-health early retirements – section six
• reg K4/reg 52 reimbursements – section seven
• transfers and secondments – section eight

Section four: approved expenditure from the pension fund

4.1 Expenditure from the new pension fund must either comprise or be related to police pension scheme benefits under either the PPR 1987 or the PPR 2006.

4.2 All pension and lump-sum payments made under PPS 1987 or NPPS 2006 should be made out of the pension fund. Please note that injury awards are not pension scheme payments and are subject to the separate procedures set out below.

Injury awards

4.3 Injury awards, including awards payable on death attributable to a qualifying injury, are not part of either PPS 1987 or NPPS 2006 and are payable irrespective of whether an officer is a member of the pension scheme. Tax rules from April 2006 prevent injury awards from being part of the regulations for either scheme. In order to comply with this requirement injury awards have, with effect from April 2006, been set out in the Police (Injury Benefit) Regulations 2006 which are entirely separate from the PPR 1987 and the PPR 2006.

4.4 The following injury awards are covered by the separate Injury Benefit Regulations and cannot be regarded as pension scheme benefits:

Personal awards:

• an injury gratuity and injury pension paid to a former officer who is disabled as a result of an injury
• a disablement gratuity paid to a former officer who is totally and permanently disabled as a result of an injury

Survivor awards:

• a special pension plus gratuity paid to a surviving spouse or civil partner
• an augmented pension plus gratuity paid to a surviving spouse or civil partner
• a child’s special allowance plus any gratuity
• an adult dependent relative’s special pension
• a death gratuity paid to a surviving spouse or civil partner/child/ adult dependent relative
• any gratuity paid instead of one of the above pensions or allowances where that is small enough to be commuted

4.5 Please note that an injury pension to a former officer is the periodical payment made to top up any other police pension (whether ill-health, ordinary, short service or early deferred pension) to bring his or her income from relevant pensions and benefits (as defined by the regulations) up to the minimum income guarantee laid down by the injury benefit regulations. In many cases an injury pension may therefore be only a small amount paid in addition to another police pension. However, the injury pension is distinguishable from any other periodical payments in that it is exempt from income tax.

4.6 For the purpose of determining which payments can and cannot be made out of the pensions account, injury awards are divided into four categories:

• injury awards made on or after 1 April 2006 – new personal injury awards
• continuing injury pension payments in respect of personal awards for officers made before 1 April 2006 – old personal injury pensions
• injury-related survivor awards made on or after 1 April 2006 – new injury-related survivor benefits
• continuing survivor pension payments in respect of awards made before 1 April 2006 – old injury-related survivor pensions

4.7 No payments may be made out of the pension fund in respect of new personal injury awards. All payments under such awards must be paid out of the police fund.

4.8 No continuing payments in respect of old personal injury pensions may be made out of the pension fund. All continuing payments of injury pensions must be paid out of the police fund. This is because injury pensions, as explained in 4.5 above) are flagged up as exempt from income tax and can therefore be identified by the payroll section.

4.9 New injury-related survivor benefits (i.e. awarded on or after 1 April 2006) must be paid out of the police fund but need to be funded entirely out of that fund only if the survivor is not also entitled to a PPS 1987 or NPPS 2006 benefit. Where a recipient receiving a new injury-related survivor benefit also qualifies for a smaller pension scheme award, regulation 7 of the Police Pension Fund Regulations provides, with effect from 1 April 2006, that the PPS 1987 or NPPS 2006 pension (including the pension scheme lump sum death grant) is to be paid out of the pension fund and only the amount by which the injury-related pension exceeds the scheme pension is to be borne by the police fund. In such a case the recipient of the pension should have the entire payment due to him or her paid out of the police fund, with the amount payable in respect of the pension scheme benefit transferred out of the pension fund into the police fund as a contribution towards the total cost. Such transfers to the police fund should be accounted for as pension payments to retired police officers and other beneficiaries so that they are taken into account for FRS17 purposes.

4.10 Continuing payments in respect of old injury-related survivor pensions may be made entirely out of the pension fund. This is because it is recognised that it is not possible to identify whether continuing pension payments to a widow are being made under a widow’s special pension or a widow’s ordinary pension. Because of the severe practical difficulties of identifying other injury awards pre-dating 1 April 2006 HMRC have agreed that authorities are able to pay injury-related survivor pensions pre-dating April 2006 out of the pension fund. In view of this these old injury-related survivor pensions should be included in the estimates of payments into and out of the pension fund that authorities are asked to submit to the Home Office each year.

Other payments which cannot be made out of the pensions account

4.11 In addition to injury awards please note that expenditure from the pension fund cannot include administration charges or interest added on to a pension payment unless such interest is a requirement of the Police Pension Regulations.

Section five: officer and employer contributions and pensionable pay

Officer contributions

5.1 Each officer who has not opted out of PPS 1987, or NPPS 2006, must have his or her pension contributions deducted from pensionable pay and paid into the pension fund.

5.2 The rate of contribution paid by the officer will depend on whether he or she is a member of the old or new scheme. Members of PPS 1987 pay 11% and members of NPPS 2006 pay 9.5%. (Those excluded from ill-health benefits pay at a rate of 7.5% for PPS 1987 and 6% for NPPS 2006.) Some officers will be paying additional pension scheme contributions (e.g. for added 60ths or added years). Additional Voluntary Contributions (AVCs) should be paid to the AVC provider.

Employer contributions

5.3 Under the new arrangements police authorities meet all the operating costs of a police officer, including the cost of future pension liabilities, incurred during the time the officer is engaged as a member of the force. In return for that police authorities no longer have to bear the cost of paying the pensions of retired officers out of their police fund.

5.4 The employer contribution rate - or accruing superannuation liability charge - for each serving officer is common to both PPS and NPPS and is based on the cost of accruing benefits which falls to the police authority, averaged out across the membership of both schemes. With effect from 1 April 2006, that cost was estimated at 25.9% and included the estimated cost of ill-health retirements. Under these arrangements the actual employer contribution rate was reduced by 1.3% to 24.6% in order to take account of the additional charge to be paid by individual authorities for each ill-health retirement falling on or after 1 April 2006.

5.5 The initial rate for the accruing superannuation liability charge covered the first two years of the new arrangements. With effect from 2008-09 the value of serving police officers’ accruing pensions is subject to review every three years to ensure that the contribution rates reflect the true cost of accruing pensions. This ties in with the triennial review of the Local Government Pension Scheme. It is intended that the rate for a new three-year period will be announced no later than at the same time as the Police Grant Settlement for the first of those three years.

5.6 With effect from 1 April 2008 the employer contribution rate payable by authorities has been set at the reduced rate of 24.2%. This reflects the fact that the composite cost of both PPS 1987 and NPPS 2006 is now estimated at 25.5% and that the reduction to allow for the additional charges paid by individual authorities for each early ill-health retirement is to remain at 1.3%. An amendment will be made to the Police Pension Fund Regulations 2007 in due course.

5.7 In line with other public service pension schemes the SCAPE methodology (superannuation contributions adjusted for past experience) will be used to determine changes in the employer contribution rates. A central feature of SCAPE is that the costs charged to employers are adjusted to reflect genuine influences on pensions such as changes in mortality/longevity assumptions; trends in pay and rates of pay progression, retirement age, and incidence of ill-health retirement. For example, if it is concluded at the three-yearly review that police officers are living longer than assumed, the employers’ contribution rate going forward will be increased to cover the extra costs.

5.8 In broad terms having a combined accruing superannuation liability charge for both schemes means that it will start at a level based almost entirely on the long term cost of the current scheme since almost all officers will still be members of that scheme. After 30 years or so the rate should have fallen to the level when it is based almost entirely on the cost of the new scheme.

Pensionable pay

5.9 Clarity over what constitutes pensionable pay is a key requirement in administering and financing a pension scheme. Pensionable pay means the annual rate of pay to which an officer is entitled at any given time under regulation 24 of the Police Regulations 2003 and the Secretary of State’s determination related to it. Pensionable pay also includes London weighting and Competency Related Threshold Payments. Overtime is counted as an allowance and therefore is not pensionable, but see paragraph 5.10 below for an explanation of the pensionable status of the additional hours worked by part-time officers.

5.10 In the case of a part-time officer the pensionable pay is pay for the determined hours (ie the number of hours which the Chief Officer has determined as the officer’s normal period of duty in the relevant period of time). Any hours worked by a part-time officer in addition to his or her determined hours are pensionable only when they are paid at the plain-time rate. No officer can be given pensionable pay for more than 40 hours in any relevant week. Hours worked at overtime rates, in whatever circumstances, are not pensionable. Time off in lieu does not involve pay and is therefore not pensionable. The details of these new arrangements are set out in Home Office Circular 22/2007. These arrangements have effect from 1 July 2007, with a time-limited option for officers and former officers to pay extra contributions to make pensionable some or all the qualifying additional hours worked between 1 July 2000 and 30 June 2006 inclusive.

5.11 The guidance set out in HOC 22/2007 will be supplemented in due course with an explanation of the position of part-time officers working Variable Shift Arrangements (VSAs). Any changes in relation to part-time officers on VSAs are not expected to be back-dated.

5.12 Additional pay on temporary promotion is pensionable in all cases however short the period concerned. Any additional salary paid for periods of acting up (i.e. temporary salary) will not be pensionable except where an officer has been acting up for a continuous period of more than 56 days, in which case the officer’s temporary salary on acting up will become pensionable starting at day 57. Where an officer is given temporary promotion after a period of acting up, only the period of temporary promotion is pensionable. The arrangements governing the pensionable status of additional salary paid for periods of acting up will be set out in more detail in a forthcoming PNB Circular, with effect from 1 June 2008.

Section six: capital-equivalent charge payments for early ill-health retirements

6.1 Under the new financial arrangements ill-health pensions are paid from police authorities’ pension funds. In order to ensure equity between police authorities, some of which have lower levels of ill-health retirement than others, employer payments towards the cost of ill-health pensions will come from a combination of a flat-rate element in the new employer contribution, applicable to all police authorities, and from an individual charge payable by the relevant police authority where an ill-health early retirement occurs.

6.2 A payment of a charge for each early ill-health retirement is required since medical retirement with immediate payment of a pension is more expensive for the pension scheme than the same officer leaving the service at that point with a pension deferred until the age of 60 or 65. The capital-equivalent charge is a payment to make up for the extra capital costs involved for the scheme in each case, averaged out and standardised across all such cases in order to avoid undue complexity. The capital-equivalent charge paid by a police authority for each early ill-health retirement is set at twice the average pensionable pay for the officer concerned. The charge is payable in full in the financial year in which the retirement occurs – the date of retirement being the day after the officer’s last day in service.

6.3 In view of the charge being twice average pensionable pay the employer’s contribution rate has been reduced by 1.3% to avoid double counting of forces’ ill-health retirement costs. This ties in with the current target level of ill-health retirement has been set at 6.5 retirements per 1,000 officers in service.

6.4 At each actuarial valuation of the scheme there will be a reassessment of the target level of ill-health retirements with a view to assessing the correct level of reduction in the employer contribution rate compared with the scheme cost for the employer.

What is early ill-health retirement?

6.5 In the case of officers who are members of PPS 1987 a charge for ill-health retirement is payable where they are retired before the date on which they reach the point at which they could have retired with a maximum pension after 30 years’ pensionable service or, if earlier, reach what would have been the compulsory retirement age (CRA) for their rank and force, had pre-October 2006 CRAs remained unchanged. For example no charge is payable for any constable or sergeant who is medically retired on or after the age of 55, whether or not they have built up 30 years’ pensionable service.

6.6 In the case of officers who are members of NPPS 2006 a charge for ill-health retirement is payable where they are retired before the date on which they reach the age of 55. For example no charge is payable for an officer in any rank who is medically retired on or after the age of 55, whether or not they have built up 35 years’ pensionable service.

What arrangements are made for officers with part-time service?

6.7 Where an officer has part-time service in the police his or her average pensionable pay , when used as the basis of the charge, will be pro-rated by means of the following formula:

P x R Q

where:

a. P is amount of average pensionable pay without any pro-rating b. R is the period in years of his or her actual reckonable pensionable service c. Q is the period that R would have been if the officer’s periods of part-time service had been reckonable as periods of full-time service

6.8 In the case of an officer with part-time service ill-health retirement will not be treated as early if the officer could have retired with a maximum pension after 30 years’ pensionable service had he or she been serving as a full-time officer throughout his or her police career.

Section seven: K4/reg 52 reimbursements

7.1 Where a person in receipt of a police pension re-joins the force or joins another force as a regular police officer any pension payable to him or her is subject to abatement under either regulation K4 of the PPR 1987 or regulation 52 of the PPR 2006. The decision whether or not to abate is a matter for the police authority, taking account of public sector policy and guidance. In any case where a pension which could be abated under regulations K4 or 52 is not being abated in full, the police authority paying the pension must reimburse the pension scheme (whether PPS 1987 or NPPS 2006) for the pension paid by making a transfer of that amount from the police fund into the pension fund.

Reimbursements under the 30+ scheme

7.2 A feature of the 30+ scheme is that an officer of below Association of Chief Police Officers (ACPO) rank can retire from the Force and take his or her pension lump sum and then resume service after an interval of at least a day. Under the new arrangements the police authority uses the pension fund to make the following payments in a 30+ case:

a. the pension lump sum b. the pension for any gap between leaving the force and returning on 30+ c. during participation in 30+ that part of the pension which is not abated to substitute for the replacement allowance which ceased on retirement d. the resumed full pension on leaving the 30+ scheme

7.3 Under the previous pay-as-you-go system of financing, all payments would have come out of the police fund and the payment at C would have impacted equally on the Force whether or not the officer had not taken up the 30+ scheme (and thus whether or not the force was still paying the replacement allowance and not a pension instead). However, under the new financial arrangements it would be to the advantage of a police authority to pay a pension out of the pension fund instead of the replacement allowance out of their police fund.

7.4 In the circumstances, in order to safeguard the pension scheme (whether PPS or NPPS), a police authority must make a payment out of their police fund to reimburse the pension fund for the amount they have paid a 30+ officer in the form of the reduced monthly pension in compensation for the loss of his or her replacement allowance (the expenditure at C above).

Section eight: transfers and secondees

Transfers

8.1 Where a police officer transfers to another force, the police authority for the sending force provides the police authority for the receiving force with a certificate of pensionable service accrued so far. The responsibility for paying employer contributions and the liability for the officer’s pension will pass to the receiving police authority and its pensions account at the point of the inter-Force transfer.

8.2 A police officer who transfers out of the PPS 1987 or NPPS 2006 to another pension scheme is entitled to ask for a Cash Equivalent Transfer Value (CETV) to be paid across, equivalent to the value of their pension rights on leaving the PPS or NPPS. This will be paid out of the police authority’s pension fund. Similarly an inward CETV from employment prior to being a police officer will be paid into the police authority’s pension fund.

Secondments

8.3 Detailed guidance on the financial arrangements for secondments was given in HOC 28/2006. The following paragraphs are mainly in general terms but update guidance on secondments to Scottish forces and the Police Service of Northern Ireland (PSNI).

Secondments to other forces

8.4 Where officers are seconded to other Forces in England and Wales the police authority for the sending Force will retain responsibility for paying employer contributions in respect of the officer into its pension fund and for collecting the officer’s contributions. However, the sending authority should recover these costs from the receiving authority as part of their employment costs. From 1 April 2006 the sending authority should invoice the receiving authority in any case of a seconded officer who is a member of PPS 1987 of NPPS 2006 for the employer pension contribution in the respect of that officer at the rate of 24.2% (24.6% between 1 April 2006 and 31 March 2008), as well as for full salary costs including the 11% or 9.5% officers’ contribution. These reimbursements should be paid into the sending authority’s operating account. Forces do not pay the extra 1.3% to each other since they are all liable for paying early ill-health retirement charges.

8.5 The above arrangements do not apply as yet where officers are seconded to a Scottish force or the PSNI. (Whereas Scotland does not have employer contributions at all the PSNI pays employer contributions at the rate of 20.25 %.) It is intended to bring in formal reimbursement arrangements in due course on the basis of reciprocity. In the mean time sending and receiving Forces should reach their own agreements as to reimbursements on a case-by-case basis.

8.6 The decision to retire an officer early on grounds of ill-health will be taken by the sending police authority since it is a matter of retirement on grounds of permanent disablement, not just for the duration of the secondment. The pension costs (commuted lump sum and recurring element) of seconded officers who retire early on grounds of ill-health will be met by the sending authority’s pension fund and the central government top-up grant. The sending authority will pay the ill-health charge into their pension fund.

Secondments on relevant service under section 97(1) of the Police Act 1996

8.7 Up to 30 March 1996 inter-force transfers of officers who were members of the Police Pension Scheme were accompanied by the payment of a transfer value. This stopped with effect from 31 March 1996, and was replaced by the system described at 8.1 above but with employer costs reimbursed at a rate, since 1 April 2008, of 25.5% of pensionable pay instead of 24.2% (25.9% instead of 24.6% between 1 April 2006 and 31 March 2008).

8.8 Because a central organisation receiving the secondee will not have to meet the cost of any ill-health retirement, the authority for a sending force should recover the full employer contribution cost of 25.5% (25.9% between 1 April 2006 and 31 March 2008) in each case. 24.2% (24.6% previously) will be payable to make good the police authority’s payments into its pension fund with the 1.3% put either towards the police authority’s operating costs or into a reserve for ill-health retirement. This arrangement reflects the fact that the sending police authority retains responsibility for the officer’s pension and for any charge for early ill-health retirement.

Section nine: accounting procedures, FRS 17 and audit

9.1 The Statement of Recommended Practice (SORP), which governs local authority (including police authorities) accounting practice, is prepared and updated by a joint committee of the Chartered Institute of Public Finance and Accountancy (CIPFA) and the Local Authority (Scotland) Accounts Advisory Committee (LASAAC), and is subject to a negative assurance process by the Accounting Standards Board (ASB). The 2006 SORP was written in terms of Home Office top-up payments being made directly into the pensions account and of surpluses being paid out of the account directly to the Home Office, reflecting HOC 54/2005. These arrangements for the police pensions account have now been superseded by the Police Pension Fund Regulations 2007.

9.2 This circular does not seek to lay down requirements for how the 2006/07 accounts should have been presented, since these will have already been approved by auditors. However police authorities should prepare their pension fund for 2007/08 to comply with the requirements of the 2007 regulations (as set out in paragraph 9.3 below).

9.3 The 2007 regulations require that where the employer and officer contributions which are paid into an authority’s pension fund are not sufficient to meet pensions payments for that year, the deficit must be met by a transfer-in from the police authority’s police fund. Where the police authority’s audited accounts show that they have transferred an amount into the pension fund to make good a deficit in the pension fund the Home Office will pay an equal amount to the police authority for it to reimburse its police fund. Similarly, any surplus in the authority’s pension fund will be transferred into its police fund. Where the authority’s audited accounts show that they have transferred a surplus from the pension fund into its police fund the authority will pay an equal amount from the police fund to the Home Office.

9.4 It is expected that CIPFA/LASAAC will issue guidance to point out this difference in the 2007 SORP Guidance Notes for Practitioners in time for the 2007/08 accounts.

FRS 17

9.5 Both the PPS 1987 and NPPS 2006 are classified by the SORP as a defined benefit scheme. The new finance arrangements continue to place on police authorities the legal responsibility for paying pensions under both schemes, albeit under conditions which enable these payments to be kept separate from force operating costs. The SORP therefore continues to require police authorities to comply with Financial Reporting Standard (FRS) 17 on ‘Retirement Benefits’ and to show their liability under FRS 17 for all future retirement benefits in their pensions accounts.

Audit

9.6 Authorities are required to set up and maintain a police pension fund in order that pensions transactions be kept separate from the rest of police financing. Under the 2006 SORP police authorities are required to prepare pension fund accounts, which must be included in the authority’s statement of accounts as separate statements. The pension fund accounts will be audited along with the rest of the statement of accounts and will not require a second audit opinion but will be audited as part of the opinion on the financial statements, and this will be reflected in the wording of the audit opinion.

Section ten: arrangements in HMIC, SOCA and NPIA

10.1 Almost identical arrangements and requirements apply to HMIC, SOCA and NPIA in so far as they appoint inspectors and assistant inspectors or employ staff who have retained their entitlement to membership of either PPS 1987 or NPPS 2006. In particular these organisations will need to make suitable arrangements for maintaining a pension fund for the purpose of receiving contributions in respect of their active members of the PPS 1987 and NPPS 2006 and for paying the pensions of their police pensioners in the same way as police authorities.

10.2 The only points of difference to note are:

• the pension fund is subject to central government financial regulation, not local government regulation
• the employer contribution rate for HMIC and NPIA is set at 25.5% instead of 24.2% (25.9% instead of 24.6% between 1 April 2006 and 31 March 2008), since it is impracticable to apply an early ill-health retirement charge in an organisation with very few active scheme members
• the rate at which sending forces are reimbursed for employer costs of officers seconded to HMIC and NPIA is 24.2% (24.6% between 1 April 2006 and 31 March 2008) plus 1.3% and that for officers seconded to SOCA is 24.2% (24.6% previously) without a supplement

For further enquiries, please contact:

• John Gilbert – 020 7035 1880 (johnalexander.gilbert@homeoffice.gsi.gov.uk)

• Louise Treves – 020 7035 1878 (louise.treves@homeoffice.gsi.gov.uk)

• Ian Moir – 020 7035 1879 (iancharles.moir@homeoffice.gsi.gov.uk)

Published 28 May 2008