Transcript LGPS 2014 Changes for Employers

LGPS 2014
Overview
Changes for Employers
Presented by
Shirley Cuthbert
Catherine Drew
Viv Ray
Emma Shand
Overview Agenda
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New Benefits
Employee Contributions
50/50 Option
New Pensionable Pay definition
CARE Pension
Retirement Options and actuarial reductions
Additional Pension Contributions and AVCs
Absences
Leaver Options
Protections and underpin
Comparison Table
New Benefits
• Effective from 1st April 2014
• Career Average Revaluation Earnings scheme
(CARE)
• Members will have a personal account
• Contribution year will be April to March
• Accrual rate is at 49th, better than 60th
• Actual pensionable pay used in calculation – not FTE
• Accruing pension is increased each year in line with
CPI
Employee Contributions
• 9 different pay bandings (to be confirmed)
• Most members will pay the same or lower contributions
in the new scheme
• Pay bandings based on actual pay not FTE, therefore
part-timers may pay less contributions
• Pay bandings increased each April in accordance with
Pensions Increase
50/50 Option
• New option for member to pay 50% employee
contributions
• Benefits for period in 50/50 scheme will be half of full
scheme
• However, Death Grant and Ill-health cover will remain
at full rate
• Member reverts to 100% scheme/contributions every
3 years on re-auto enrolment date and if member
goes onto no pay sickness/injury. Member can then
opt again for 50/50 scheme
New Pensionable Pay definition
• New definition of pensionable pay to include non
contractual overtime
• New definition of pensionable pay to include
additional hours
• No longer required to uprate pensionable pay to fulltime
• Pensionable pay is now applicable to when it was
paid, not to period of work it relates to.
CARE Pension
Pension Calculation
Pension = 1/49th of Actual Pensionable pay
for the year
Example
£15,000(actual PP) x 1/49th = £306.12 pension
(50/50 scheme accrual rate = 1/98th)
Following year in April above pension will increase with
revaluation adjustment (see next slide for examples)
CARE Pension – Year on Year
Date
Transaction
Year 1
Deposit
£15,000 X 1/49
£306.12
£306.12
Year 2
Interest
£306.12 X 0.03
£9.18
£315.30
Deposit
£15,600 X 1/49
£318.37
£633.67
Interest
£633.67 X 0.03
£19.01
£652.68
Deposit
£16,000 X 1/49
£326.53
£979.21
Interest
£979.21 X 0.03
£29.38
£1,008.59
Deposit
£16,000 X 1/49
£326.53
£1,335.12
Year 3
Year 4
Total
Retirement Options
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Normal pension age (NPA) is now the same as the state retirement
pension age. No actuarial reduction or increase.
Late retirement if taken after NPA the benefits will be increased
(currently 0.014% per day)
Redundancy and Efficiency retirement – no change
Flexible retirement – no change except post 2014 benefits will be
actuarially reduced if taken before NPA
Ill-Health retirement – no change except Tier 1 enhancement is to NPA
based on benefits calculated using APP, Tier 2 will be 25% Tier 1
enhancement. Slight change in ill-health certificate wording.
Voluntary retirement between age 55 – 60, however member will suffer
full actuarial reduction, 85 year rule does not apply. (See next slide for
actuarial reductions)
Early retirement reductions
Current Actuarial Reductions when retiring before NPA
(Subject to change)
Additional Pension and AVCs
• Member can buy extra pension by paying Additional
Pension Contributions (APC)
• APC doesn’t include survivor’s pension
• APC calculated in accordance with awaited GAD
guidance
• Member can pay by lump sum or regular contributions
• Regular contributions must be paid over a minimum
period of 1 year.
• Additional pension limit is £6,500 p.a. (Increases in line
with PI each year)
• Members can now contribute up to 100% of pay (after
statutory deductions) to AVCs.
Absences
• Member no longer required to pay pension contributions
for first 30 days of unpaid absence.
• If member opts to pay for period of unpaid leave/child
related leave within 30 days of returning to work, then
employer must pay 2/3rd of Additional Pension
Contribution (APC) costs with employer paying the
remaining 1/3rd.
• If member elects after 30 days then member pays full
amount themselves unless employer has policy
discretion to pay part
• Strike – Member can pay for missed period by paying
full APC cost
Leaver Options
• Refund of contributions can now be paid if member has
under 2 years service.
• Employer still refunds through payroll if member has < 3
months service; over 3 months service Peninsula
Pensions will refund.
• Member can’t have refund if has another continuing
concurrent employment.
• Members with > 3 months and < 2 years service have
choice of refund or deferred benefit, however must claim
refund within 12 months of leaving or defaults is deferred
benefit.
Protections and Underpin
• Member with pre 2014 service will have full protection on <
2014 benefits including the age they can take them unreduced.
• Protection can be lost if member has break in any public
service pension scheme > 5 years and then joins former DB
benefits with current membership.
• UNDERPIN – Members who meet following criteria get highest
benefits between 2008 and 2014 scheme:
 Active member on 31st March 2013, and
 Within 10 years of NPA on 1st April 2012, and
 Receive benefits on or after NPA, and
 No break > 5 years from any public service pension
scheme
 Has not received payment of any benefits before NPA
Comparison Table
Basis of Pension
LGPS 2014
LGPS 2008
Career Average Revalued Earnings
(CARE)
Final Salary
1/49th
Accrual Rate
1/60th
(1/98th for 50/50 scheme)
Revaluation Rate
Revaluation adjustment
(section 9(2) of the Public Service
Pensions Act 2013)
Based on Final Salary
Pensionable Pay
Pay including non-contractual
overtime and additional hours for part
time staff
Pay excluding non-contractual overtime and non-pensionable
additional hours
See LGPS 2014 Employee
Contribution Rate on next page
See LGPS 2008 Employee Contribution Rate on next page
Employee Contribution Rates
Yes
Contribution Flexibility
Normal Pension Age
members can pay 50% contributions
for 50% of the pension benefit – death
grant and ill-health benefits paid at
100%
Equal to the individual member's State
Pension Age
No
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Comparison Table (cont)
LGPS 2014
Voluntary Early Retirement
Age 55 – 60
(Full actuarial reduction)
LGPS 2008
Age 60 earliest can retire
Full protection for all < 2014 benefits
Protection and underpin
Lump Sum Trade Off
Death in Service Lump Sum
Death in Service Survivor Benefits
Ill Health Provision
Indexation of Pension in Payment
Vesting Period
None
Underpin if within 10 years of NPA at 31/03/2012
(comparison between old and new scheme)
Trade £1 of pension for £12 lump sum
Trade £1 of pension for £12 lump sum
3 x Actual Pensionable Pay
3 x Actual Pensionable Pay
1/160th accrual based on Tier 1 ill
health pension enhancement
1/160th accrual based on Tier 1 ill health pension enhancement
Tier 1 - Immediate payment with
service enhanced to Normal Pension
Age
Tier 2 - Immediate payment with 25%
service enhancement to Normal
Pension Age
Tier 3 - Temporary payment of
pension for up to 3 years
Tier 1 - Immediate payment with service enhanced to Normal
Pension Age (65)
Tier 2 - Immediate payment with 25% service enhancement to
Normal Pension Age (65)
Tier 3 - Temporary payment of pension for up to 3 years
CPI
CPI (RPI for pre-2011 increases)
2 years
3 months
Questions
Changes for employers
What does this means for employers?
Agenda
• Contributions
• Pensionable Pay and exclusion list
• Assumed Pay
• 50/50 scheme option
• Additional Pension Contributions (APC & SCAPC)
and AVCs
• Absences
• Data requirements
• Action List
Employee Contributions
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New pay bandings to be confirmed
Average contribution is 6.5%
Most members will pay the same or
lower contributions in the new
scheme
Higher earnings will pay more
Pay bandings based on actual pay
not FTE, therefore part-timers may
pay less contributions
Ensure you keep up to date with
correct pay bandings and their
increases each year.
LGPS 2014
EMPLOYEE CONTRIBUTION RATE
From
To
Gross Rate
Up to £13,500
5.5%
£13,501 to £21,000
5.8%
£21,001 to £34,000
6.5%
£34,001 to £43,000
6.8%
£43,001 to £60,000
8.5%
£60,001 to £85,000
9.9%
£85,001 to £100,000
10.5%
£100,001 to £150,000
11.4%
More than £150,000
12.5%
Pensionable Pay
BENEFITS > APRIL 2014
• New definition of pensionable pay – see next slide
for exclusion list in new regulations
• Employers need to provide actual pensionable pay
for each contribution year (April to March) or part
thereof if left during year.
• Employers no longer required to uprate pensionable
pay to full-time equivalent
• Need to exclude any pay that relates to pre April
2014.
Exclusion list (Extract from regulations)
But an employee’s pensionable pay does not include—
a) any sum which has not had income tax liability determined on it;
b) any travelling, subsistence or other allowance paid in respect of expenses incurred in
relation to the employment;
c) any payment in consideration of loss of holidays;
d) any payment in lieu of notice to terminate a contract of employment;
e) any payment as an inducement not to terminate employment before the payment is made;
f) any amount treated as the money value to the employee of the provision of a motor vehicle
or any amount paid in lieu of such provision;
g) any payment in consideration of loss of future pensionable payments or benefits;
h) any award of compensation (excluding any sum representing arrears of pay) for the
purpose of achieving equal pay in relation to other employees;
i) any payment made by the Scheme employer to a member on reserve forces service leave;
j) returning officer, or acting returning officer fees other than fees paid in respect of—
i. local government elections,
ii. elections for the National Assembly for Wales,
iii. Parliamentary elections, or
iv. European Parliamentary elections.
Pensionable Pay
BENEFITS <APRIL 2014
• Old pensionable pay figure still needed to calculate pre
2014 benefits, including best of last 3 years and if pay
reduced in previous 10 years the best 3 year average in
last 13 years.
• Pensionable pay figure remains as 2008 regulation
definition
• Employers therefore will need to hold 2 different
pensionable pay figures for employees with pre 2014
service.
• Employers need to continue to inform pensions of old
pensionable remuneration figure when member leaves.
Assumed Pensionable Pay
• If member on reduced or no pay due to sickness, injury; or
on statutory child related leave or reserve forces leave,
employer needs to calculate Assumed Pensionable Pay
(APP) for the applicable period.
• APP is calculated at an annual rate based on the
pensionable pay received in the 3 months directly before
the start of the applicable period. The annual figure is then
apportioned to the applicable period and replaces any pay
received in that period.
Assumed Pensionable Pay (cont)
• Ignore any lump sum payments made in the previous 3
month as will already have been included in PP.
• APP calculations need to be done each month so that it is
included in the end of year annual pensionable pay for
member.
• Examples in LGA payroll guide
50/50 Option
• Member can opt to pay 50% employee contributions
• Employer will continue to pay full 100% amount effect of
this will be reflected in valuation
• Employer is responsible for informing member of effects
on changing to 50/50 scheme
• Member reverts to 100% scheme/contributions every 3
years on re-auto enrolment date and if member goes on
to no pay sickness/injury. Member can then opt again for
50/50 scheme
• Peninsula Pensions will create notes and form for 50/50
option for employer to give to member, also same if
member wishes to revert to 100% scheme.
Additional Pension and AVCs
• Member can buy extra pension by paying Additional Pension
Contributions (APC)
• APC calculated in accordance with awaited GAD guidance
• Employer can choose to pay the APC in full or part, this is called
Shared Cost APC. Will need employer discretion to be able to
do this.
• Regular contributions must be paid over a minimum period of 1
year.
• Additional pension limit is £6,500 p.a. (Increases in line with PI
each year)
• Members can now contribute up to 100% of pay (after statutory
deductions) to AVCs.
Absences
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Pension contributions for first 30 days of unpaid absence no longer
required.
If member opts to pay for period of unpaid leave/child related leave
within 30 days of returning to work, then employer must pay 2/3rd of
Additional Pension Contribution (APC) costs with employer paying the
remaining 1/3rd.
If member elects after 30 days then member pays full amount
themselves.
Strike – Member can pay for missed period by paying full APC cost
Retirement Options
• Redundancy and Efficiency retirement – no change
• Flexible retirement – no change except post 2014
benefits will be actuarially reduced.
• Ill-Health retirement – no change except Tier 1
enhancement is to NPA based on benefits calculated
using APP, Tier 2 will be 25% Tier 1 enhancement.
• Slight change in ill-health certificate wording – check
our website for amended certificate
• Voluntary retirement between age 55 – 60, however
member will suffer full actuarial reduction, 85 year
rule does not apply.
Employer Discretions
• Employers must publish new discretions by 1st July
2014 for the following:
a) Funding of additional pension (Reg 16(2)(e) &
16(4)(d)) Employer can choose to pay for APC in whole
or part
b) Flexible Retirement (Reg 30(6)) Same as existing
discretion
c) Waiving of actuarial reduction (Reg 30(8)) Flexible
Retirement and Early retirement (55-60)
d) Award of additional pension (Reg 31) Employer
APC for active member or member leaving on
redundancy/efficiency
Employer Discretions (Cont)
• Employers must still retain old discretions to cover pre
2014 benefits
• Employers must regularly review discretions
• Don’t forget to send copy of discretions to Peninsula
Pensions
New Data requirements
• New data requirements in addition to what is
currently provided
• Data for 2013/14 will be same as previous years
• Need to provide separate data for each job
• Need to provide separate data for MAIN scheme and
50/50 scheme
• Provide actual pensionable pay figures to include any
assumed pay
• End of year data? Or monthly or quarterly or biannually – to be decided.
New Data requirements (conts)
• Currently looking at our system requirements
• Need Transitional Regulations to confirm exact data
needed for future
• Peninsula Pensions will contact all employers asap
with data specifications. (see next slide for some
detail)
• Essential to read the LGA payroll guidance which
gives details of what employers will need to record
each month.
Data details
CPP1:
• Cumulative pensionable pay received in the employment
during the Scheme year whilst in main section (including the
assumed pensionable pay the member was treated as
receiving during the Scheme year whilst in the main section)
CEC1:
• Cumulative employee contributions (if any) deducted from
pensionable pay in previous field
Data details
CPP2:
• Cumulative pensionable pay received in the employment
during the Scheme year whilst in 50/50 section (including the
assumed pensionable pay the member was treated as
receiving during the Scheme year whilst in the 50/50 section)
CEC2:
• Cumulative employee contributions (if any) deducted from
pensionable pay in previous field
Section of the scheme the employee was a member of in the employment at the
end of the Scheme year (or at the date of cessation of active membership in the
employment if on or after the start of the Scheme year and before the end of the
Scheme year)
Data details (continued)
CRC:
• Cumulative employer contributions deducted from
pensionable pay in respect of the employment
EAPC CAC:
• Cumulative additional pension contributions (APCs), if any,
paid in respect of the employment by the employee
RAPC CARC:
• Cumulative additional pension contributions (APCs), if any,
paid in respect of the employment by the employer
Data details (continued)
EAVC CAC:
• Cumulative additional voluntary contributions (AVCs), if
any, paid in respect of the employment by the employee
RAVC CARC:
• Cumulative additional voluntary contributions (AVCs), if
any, paid in respect of the employment by the employer
For employees with membership of the LGPS prior to
1/4/14
• FTE Final pay for year
Action List
Ensure payroll system is able to deal with the following
required data:
 New pay bandings
 New definition of pensionable pay
 Separate records for MAIN and 50/50 pension
schemes
 Calculation of Assumed Pay
 Shared Cost Additional Pension Contributions
Action List (Cont)
• Formulate new discretion policy for 2014 pension scheme
• Amend discretions for old pension scheme
• Procedure for informing employee of options when on
unpaid leave or effected child related leave due to 30 day
timescale
Useful Links
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LGA Website
LGA Payroll guidance on LGPS 2014
LGA HR guidance on LGPS 2014
LGPS 2014 Website
LGPS regulations and guidance
Peninsula Pensions website
Questions