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Investigation Report on the delay by the MWHB in calculating arrears of superannuation payable by two Public Health nurses for previous service

4. Analysis

4.1 The adverse affect - the loss incurred

4.1.1 The remuneration for the grade of Public Health Nurse at the time of the appointment of Ms Dillon and Ms O'Sullivan was as follows:

IR£20,397; £20,707; £21,056; £21,403; £21,633; £22,248; £22,863; £23,478; £24,093; £24,708 per annum.

4.1.2 Ms Dillon's salary at the date of her appointment was £21,403 (€27,176). The arrears in respect of reckonable superannuation service was payable at a rate of 1.5% of her pensionable remuneration plus 3.5% of net pensionable remuneration. (i.e. pensionable remuneration less twice the annual rate of social insurance old age contributory pension payable at the maximum rate to a person with no adult dependent or qualified children). Based on her salary at the date of her appointment i.e. £21,403 (€27,176) and the old age contributory pension rate applicable at that time, the arrears due for one year of reckonable service amounted to £785.25 (€997.06). Ms Dillon had a total of 9.329 years reckonable service. Accordingly her total arrears bill, at the date of her appointment, would have come to £7,325.57 (€9,301.56).

When the actual calculation of arrears in Ms Dillon's case were made, they were based on her salary as at April 2000 which was £27,366 (€34,710). On the basis of this salary and the old age contributory pension rate applicable in May 2000 the arrears due for one year of reckonable service amounted to £1,017.65 (€1,292.15). This amounted to a total £9,493.66 (€12,054.46) being due in respect of her of 9.329 years reckonable service an increase of £2,168 .09 (€2,752.91) when measured against the arrears due at the date of her appointment.

4.1.3 Ms O'Sullivan's salary at the date of her appointment was £22,248 (€28,249). The arrears in respect of reckonable superannuation service was payable at a rate of 1.5% of her pensionable remuneration plus 3.5% of net pensionable remuneration (i.e. pensionable remuneration less twice the annual rate of social insurance old age contributory pension payable at the maximum rate to a person with no adult dependent or qualified children). Based on her salary at the date of her appointment i.e. £22,248 (€28,249) and the old age contributory pension rate applicable at that time, the arrears due for one year of reckonable service amounted to £809.23 (€1,027.51). Ms O'Sullivan had a total of 10.132 years reckonable service. Accordingly her total arrears bill, at the date of her appointment, would have come to £8,199.12 (€10,410.73).

When the actual calculations of arrears in Ms O'Sullivan's case were made they were based on her salary as at April 2000 which was £31,859 (€40,452.59). Using this salary and the old age contributory pension rate applicable in May 2000, the arrears due for one year of reckonable service amounted to £1,242.28 (€1,577.37). This amounted to a total £12,586.78 (€15,981.91) being due in respect of her 10.132 years reckonable service, an increase of £4,387.66 (€5,571.18) when measured against the arrears due at the date of her appointment.

4.2 The Health Board Superannuation Section

4.2.1 In accordance with Articles 63, 64 and 80 of the Local Government (Consolidation) Scheme and Circular letter S1/97, the Health Board was obliged, in respect of all fully insured officers appointed by the Board, to collect superannuation contributions due on all reckonable temporary part-time and whole-time health board nursing service posts. Appointees also had the option of having their relevant nursing service in voluntary hospitals reckoned for superannuation purposes subject to payment of the necessary contributions. The purchase of such service was not compulsory. The superannuation contributions owing to the Board in respect of this service were calculated on the same basis as the contributions owing on health board service.

4.2.2 The Board said that it had to verify that the appointee had the relevant qualifying service. Obtaining verification could be reasonably straightforward with a short turnaround time but could also be the subject of lengthy and complex enquiries particularly in relation to verification of part-time service.

4.2.3 In the Mid-Western Health Board, Superannuation Section notified relevant personnel of the cost of purchasing this service following their appointment. The objective was to inform individuals of the cost of the arrears purchase as soon as possible following appointment. However during this period there had been substantial increase in numbers of service related posts filled with end of year figures increasing from 4,403 in 1999 to 6,216 in 2002.

4.2.4 The Board said that between 1999 and 2003, the staff situation in the Superannuation Section had contributed to delays in verifying qualifying service. In this period four permanent staff left on promotion. The consequent vacancies took time to fill and new appointees required a period of training of up to six months to become proficient in the work of the section. In addition during this period staff were absent on maternity leave, unpaid special leave, sick leave and annual leave for which locum cover could not be provided because of the specialised nature of the work.

4.2.5 In order to facilitate staff awaiting statements of superannuation contributions, the option was made available of making contributions by way of deductions from salary pending notification of the final amount due. The Board also asked the Department of the Environment and Local Government whether concessions could be made in respect of delays but the advice received was that the provisions of the Scheme could not be breached.

4.3 The actions of the Mid-Western Health Board

4.3.1 By arrangement with the Board, the arrears due in respect of Ms Dillon's and Ms O'Sullivan's reckonable service could have been payable in either a lump sum or alternatively, by paying contributions, as an addition to standard main scheme contributions, over a period corresponding to the actual length of previous service.

4.3.2 Following her appointment, Ms Dillon had approached the Board to request that a deduction be made from her salary in respect of arrears of superannuation contributions. The deductions commenced in April 1998 at the rate of £150 per month and by the time the actual calculation of arrears was made in October 2000, Ms Dillon had paid £3,900 to the Board. As was mentioned earlier, the arrears due for one year of reckonable service amounted to £1,017.65 based on her uprated salary at the time of calculation and the £3,900 paid to the Board equated to 3.83235 years service. This left a balance of 5.497 years arrears to be paid. However, this arrangement was of little benefit to Ms Dillon because when the arrears due were determined, they were based on her uprated salary at the date of calculation and the advance payments made were translated into credits for service, the costing for which, reflected her uprated salary.

4.3.3 Recognising the problem which had arisen from the delay in dealing with the backlog of cases the Board's Superannuation Section consulted with the DoELG to see if any concessions could be made. In a letter dated 28 November 2000, the Board wrote:

"In view of the fact that the Superannuation Section received 290 New Appointments in 1998, 370 New Appointments in 1999 and 277 New appointments this year, resulting in a substantial delay in dealing with these appointments, I would be grateful if you could advise if there could be any concession given to deal with this backlog. A substantial portion of the New Appointments are covered by Class A1 PRSI and possibly have been promoted since original appointment"

On 5 December 2000, DoELG replied that

"in the case of previous temporary part-time and temporary wholetime service contributions payable by fully insured officers are levied on the person's pensionable pay at the time the contributions are being paid. This is a statutory requirement and the Department is not in a position to allow authorities to depart from the statutory provisions"

In light of the Department's advice the Board concluded that it had no discretion to waive the additional costs incurred by the complainants.

4.4 The Department's advice

4.4.1 Article 80 (2) (b) of the Local Government (Superannuation) (Consolidation) Scheme, 1998, provides that, in the case of fully insured officers, superannuation contributions in respect of temporary wholetime service with a local authority, including a health board, prior to becoming pensionable, are levied on a person's pensionable pay at the time the contributions are paid. In the case of fully insured officers, the method of levying contributions is almost invariably consistent with how such contributions are levied in other public sector pension schemes.

4.4.2. The text of Article 80 (2) (b) of the Local Government (Superannuation) (Consolidation) Scheme, 1998 is as follows:

"A registered officer of a local authority who is fully insured and who, pursuant to sub-articles (4) and (5) of article 63, becomes entitled to reckon a period or periods of wholetime service as a temporary officer of a local authority shall contribute to his or her employing local authority for the purposes of the said sub-articles (4) and (5) at the rate of -

(i) three and one-half per cent. of the amount by which, at the date of payment of the contribution" (my emphasis)

4.4.3 The Department advised me that in 1997, arising from the introduction of full PRSI for officer grades and following queries received from local authorities and health boards, it had issued a number of circular letters clarifying issues which had arisen. In particular, it addressed how the contribution liability in respect of temporary wholetime and part-time service prior to becoming pensionable was calculated and how such liability could be paid.

4.4.4 The relevant circulars are S.1/97 of 31 January 1997 (paragraph 6) and S.7/97 of 13 May 1997. Paragraph 6 of S. 1/97 says:

"In relation to main scheme benefits, contributions for previous temporary wholetime service in respect of members covered by the provisions of the circular letters should be levied on uprated salary and emoluments i.e. the rate of remuneration the person is in receipt of at the date of payment of the contributions"

The Circular gave an example of how the liability could be calculated.

4.4.5 Circular letter S7/97 was issued by the Department as a consequence of some further enquiries having been received concerning the application of paragraph 6 above. Included in the letter was the following comment:

"Notification to officers concerned of contributions liability in respect of previous temporary wholetime service and part-time service should be made as soon as possible after the officer becomes pensionable and should make it clear that contributions liability will increase in line with increases in the officer's pay. A copy of this circular should be given to each officer concerned."

By use of examples the Circular outlined the ways in which the liability could be paid.

4.5 Comment

4.5.1 It is clear from the discussions held by the DoELG with the Health Boards and the Circular Letters S.1/97 and S.7/97 which were issued by DoELG,

• that the Mid-Western Health Board was aware of the need to notify those concerned of their contributions liability in respect of previous temporary wholetime service and part-time service as soon as possible after they became pensionable and to clarify that each officer's contributions liability would increase in line with increases in the his/her salary;
• that it was also aware that, because of the number of appointments involved, the perceived need to verify previous experience and the inexperience and limited number of staff available in Superannuation Section, the administrative arrangements it had in place to facilitate the making of the relevant calculations in respect of contribution liability were totally inadequate; and
• that it was further aware that any delay in calculating arrears would result in increased costs to the officers involved.

While those affected by the contribution liability may have been aware that delays in calculating the level of liability would have implications for the amount they would ultimately have to pay, effectively there was nothing they could do about it. It was open to them to initiate a personal payment arrangement but ultimately, as is mentioned earlier, this was of no benefit to them in real terms.

4.5.2 The fallout from the failure of the Board to make the relevant calculations in respect of contribution liability in reasonable time has undoubtedly adversely affected the two complainants financially. It might be argued that, in the case of Ms O'Sullivan, she had received an advantage, arising from the delay on the part of the Board in calculating her superannuation liability, in that her salary was not subject to any deductions on appointment and as a consequence, her actual income and consequent spending power was increased. However, this marginal advantage was more than offset by the level of deductions made later on her uprated salary. In Ms Dillon's case, she had, as is mentioned at paragraph 4.2, arranged to have deductions made from her salary at the rate of £150 (€190.46) per month with effect from April 1998.

4.5.3 The question arises as to what other options, if any, were open to the Board to lessen the adverse affect arising out of its inability to advise individuals of their exact liability. The only options exercised by the Board was to make a facility available whereby deductions could be made from salary pending notification of the final amount due and to ask the Department of the Environment and Local Government whether concessions could be made in respect of delays. Neither of these options resulted in any positive benefit to the complainant.

4.5.4 In the course of my investigation of the complaint I asked the Department to indicate whether there was a statutory obligation on the Health Boards, under the Local Government (Superannuation) (Consolidation) Scheme, 1998, to verify all relevant qualifying service before commencing superannuation arrears deductions. In other words could a Health Board commence deductions on appointment on the basis of the qualifying experience claimed by the appointee and make whatever adjustments, where necessary, at a later date to the deduction rate in respect of non-qualifying or additional qualifying service when verification has been completed?

In its response the Department said:

"Under the Local Government Superannuation Scheme (LGSS) there is no statutory obligation on health boards to verify all relevant qualifying service before commencing the deduction of arrears of superannuation contributions. However, generally speaking the practice would be to verify the service before billing the person concerned."

This suggests that the Board could have assessed the amount payable in respect temporary wholetime and part-time service on the basis of the amount of service actually claimed by each individual. In this context payment could have commenced at a much earlier date with verification of the service to follow. Under such an arrangement the onus would be on the individual to ensure that details of all reckonable service were provided and in the course of the verification process adjustments, where applicable, in the form of refunds could be made to cater for non-reckonable service claimed and extra contribution payments in respect of reckonable service not claimed.

4.5.5 I raised a second issue with the Department. This concerned persons who made advance payments of their contribution arrears, prior to their service being verified, by arrangement with the Mid-Western Health Board. In such cases, I asked whether the actual contributions, when finally calculated, should be based on the salary payable at the time the advance contributions commenced or when the qualifying service was verified. This was a relevant issue given that contributions were calculated on a person's salary at the time contributions were being made.

According to the Department there is no provision under the LGSS which allows for the contribution method used by the Mid-Western Health Board i.e pending verification of service, the person can contribute a fixed sum per paydate which is ultimately offset against the liability calculated on the pensionable pay applicable at the time the service is verified, and allow the person to pay the outstanding balance over the total period of reckonable service in question. Accordingly, it would seem to me, that the question of basing contributions on the salary payable at the time the advanced contributions commenced, does not arise.

The Department also advised me that it had been contacted by the trade union Impact, in 2003, in connection with the delays by the Board in notifying certain members of their contribution liability. The Department examined the matter and wrote to the Board stating that, while the Board had indicated that the delay in such cases had arisen due to a large number of appointments, high levels of turnover of experienced staff and long training times for new staff, it was unacceptable that individual employees should be penalised for such delays.

The Department advised that every effort should be made by the Board to notify fully insured officers of their contributions liability as soon as possible after they become pensionable and added that, as an interim measure, pending verification of previous temporary service, the Board should give such officers an estimate of their contributions liability and give them the option of paying for this by lump sum method or by paying extra periodic contributions. The Department indicated to the Board that the only information required to determine the lump sum contribution is pensionable pay on appointment, rate of Old Age Contributory Pension on appointment and length of previous service (estimate of same if necessary). Any necessary adjustment could be made on verification of the previous service. As an alternative, the person should be given the option of paying a multiple of their standard superannuation contribution. For example, a decision to double the standard contribution would mean the liability would be paid off in a period of time equal to the length of the previous service. Once again, any necessary adjustments could be made when the actual length of previous service was verified.

In conclusion, the Department said that the Board should take the necessary steps to ensure that contributions liability is assessed and notified to new staff immediately following appointment, even on an interim basis as outlined above.

Responding to my draft investigation Report, the Board advised me that calculating such an estimate would have been as time-consuming as producing the complete bill. However I do not accept this contention, as, in my view, it would have been a relatively straightforward procedure to give newly appointed staff an estimate of their potential contribution profile based on the service claimed by each appointee. Any shortfalls or overpayments made could have been rectified when service had been verified without any significant financial loss to the person appointed or the Board. It also represented good administrative and accounting practice in that it would have provided much needed revenue to the Board at an early stage.

4.5.6 In light of the above I asked the Department whether, to its knowledge, the Board had implemented a system of deductions based on the interim measure suggested above pending verification of previous temporary service. The Department was informed by the Board on 29 November 2004 that such a system had not been implemented. The Department indicated it had recently been informed that, following changes to the payroll system in use by the Board, an arrangement had been put in place which enabled staff, who notify the Board that they wish to commence paying contributions towards their temporary/part-time service pending official notification of their bill, to have additional periodic deductions made from their salaries. These deductions take the form of a set percentage of pensionable remuneration/net pensionable remuneration per pay date, the payment of which decreases, in part or in full, the periods of service that is owed for. This arrangement is in accordance with paragraph (d) of Circular Letter S. 7/97.

I also asked the Department why it had not suggested alternative interim arrangements for deductions pending verification of previous temporary service when the Board had enquired in November 2000 whether any concession could be given to deal with the backlog of cases. I was advised that the main stumbling block was the limitations of the Board's payroll system in not being able to cater for the payment of periodic contributions. I was further advised that subsequent to the issue of Circular Letter S1/97, a meeting between the Department and the Personnel Officers of health boards on a range of superannuation matters took place on 26 February 1997. Because of the difficulties associated with implementing the new contribution arrangements in respect of health board staff paying Class A rate PRSI, mainly due to the number of staff appointed since April 1995, it was agreed that the new system of paying contributions for past temporary/part-time service on current pay would apply to all those appointed on a full PRSI basis since 31 January 1997. The old system whereby contributions are paid on historic rates of pay would apply to all those appointed on a full PRSI basis between 6 April 1995 and 30 January 1997 provided such staff were notified of their liability (i.e. billed) before 31 May 1997. This was a once-off, interim arrangement specific to the health area that was put in place to clear the backlog of cases which had arisen. However, there had been little progress in the matter. In November 2000 the Department took the view that it was being asked whether the Board could deviate from the requirements of the Scheme. The Department's view was that

• it was not in a position to allow the health boards to depart from the statutory provisions of the scheme;
• it already had made a concession on the health side, at the February 1997 meeting; and
• to make any further concession to the Board in terms of the application of the Scheme would not only have implications for the local authority and health area generally, but also in the wider public service where the same contribution arrangements generally prevail in relation to fully insured officers.

4.6 Conclusions

4.6.1 Given that the Board was aware that its actions in delaying calculations of superannuation arrears due would have serious cost implications for its own staff the evidence suggests that it displayed no urgency in making efforts to ameliorate the damage resulting from its inaction.

4.6.2 I acknowledge that staffing difficulties in the Superannuation Section did not help the situation and I would be slow to attribute blame to the Section for what happened. Rather, the evidence suggests that what happened here is more attributable is an overall failure of management systems within the Board which were unable to deal with a problem the Board had been forewarned about on numerous occasions.

4.6.3 The Board chose to ignore the implications of its inactions for its own staff who were effectively helpless in the circumstances. The scheme eventually put in place by the Board for early payment of the arrears was of no practical value to persons affected.

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