Transcript What are main points? - Derbyshire County Council

Derbyshire Pension Fund
Annual General Meeting
12 November 2013
Ian Howe
Pensions Manager
Copyright © Derbyshire County Council 2006
2014 Where are we at?
Regulations are at various stages.
• The third consultation closed 2 August on the revised
main scheme regulations that were laid before
parliament 19 September 2013 and come into force on
1 April 2014
• Consultation closed on 24 May on the transitional and
miscellaneous regulations. Amendments have since
been included. Revised regulations are now expected
“before Christmas”
• Councillors consultation closed 5 July 2013
• Informal consultation results between June and August
2012 resulted in support ; 93% of employers,
90% Unison, 95% GMB and 84% Unite.
Copyright © Derbyshire County Council 2006
What are main points?
• Start date 1 April 2014
• Career Average Revalued Earnings (CARE)
scheme and actual pensionable pay. Referred to as
a “Pension Account”
• 1/49th accrual (currently 1/60th – previously 1/80th)
• No automatic right to a retirement lump sum but
may still give up pension to achieve a lump sum
• Revaluation of active members’ benefits in line with
consumer price index (CPI)
• Normal pension age linked to state pension age –
i.e. if a member’s state pension age rises, then their
normal pension age will do so to (but only for post
2014 CARE service element).
Copyright © Derbyshire County Council 2006
What are the main points?
• A low cost 50/50 option – allows active members to
pay 50% contributions for 50% of main benefits.
Once in the 50/50 scheme the person stays in this
scheme until the person opts back into the main
scheme or hits a triggers under auto enrolment. Once
“re-auto enrolled” the person is brought into the main
LGPS scheme, but of course they can opt out and opt
back into the 50/50 scheme. Not simple for the
person/payroll/HR and pensions admin!
• Death in service and ill health still on main scheme
benefits
• Pensions in payment to increase in line with CPI
Copyright © Derbyshire County Council 2006
What are the main points?
• Average member contributions yield 6.5% with tiered
contributions (assuming everyone stays in the main
scheme and there is not a “drift” to the 50/50 scheme)
• Contribution bandings are calculated on actual
pensionable pay for part timers. Scheme members
may pay a lower rate.
Example
– Now. Person works 18.50 hours per week earning
£15,000 per year. Banding is calculated 37.00/18.50 x
£15,000 = £30,000 whole time salary, therefore = 6.5%
contributions
– 1/4/2014. Person works 18.50 hours per week. Banding
is based on £15,000, therefore = 5.8% contributions
Copyright © Derbyshire County Council 2006
What are the main points?
• Contributions are taken on non-contractual overtime
and additional hours for part time scheme members
and used in the calculation of CARE benefits from 1
April 2014.
• However, the calculation of benefits accrued to 31
March 2014 are still based on final pay as defined
within the regulations (excluding non-contractual
overtime and additional hours for part time scheme
members).
Copyright © Derbyshire County Council 2006
What are the main points?
2014 LGPS employee contributions
From
To
Gross rate
Up to £13,500
5.5%
£13,501
£21,000
5.8%
£21,001
£34,000
6.5%
£34,001
£43,000
6.8%
£43,001
£60,000
8.5%
£60,001
£85,000
9.9%
£85,001
£100,000
10.5%
£100,001
£150,000
11.4%
More than
£150,000
12.5%
Copyright © Derbyshire County Council 2006
What are the main points?
• Optional lump sum commutation at a rate of £12
of lump sum for every £1 of pension (as now)
• A member may leave employment voluntarily at
age 55 or over and elect to receive immediate
payment of pension (with an actuarial reduction
on all service)
• Early/late retirement factors from age 55 on an
actuarially neutral basis.
• A vesting period of 2 years (no longer 3
months).
• Minimum age of 55 still applies for early
payment of unreduced benefits on redundancy
or efficiency.
Copyright © Derbyshire County Council 2006
What are the main points?
• Ill health retirement pensions to be based on the
current 3 tier ill health provisions.
• Spouse and partner pensions to continue on a
1/160th accrual
• Death in service lump sum is 3 x pensionable
pay
• Benefits accrued to 31 March 2014 are still
based on protected final pay at leaving.*(Note Transitional Regulations later)
Copyright © Derbyshire County Council 2006
What are the main points?
• Additional voluntary contributions (AVCs) may
not be taken as 100% tax free cash from 1 April
2014. Instead, 25% may be taken as tax free
cash bringing the LGPS into line with all other
public sector schemes. This is currently being
challenged by Fund AVC providers.
• Members who leave the LGPS on or after 1
April 2014 and re-join the LGPS within 5 years
(either in the same Fund or different Fund)
would have their membership automatically
aggregated (combined/transferred).
• Members who have a break of more than 5
years do not have an automatic aggregation but
may elect Copyright
to do© Derbyshire
so. County Council 2006
What about Protection?
The Transitional Regulations provide the
“protection link” between the current scheme and
the 2014 CARE scheme. As these are not yet
written these are our “current understanding” but
may change.
• All accrued rights to 31 March 2014 would be
calculated using protected final pay at date of
leaving, or best of the last three years, or
previous higher pay periods if additional
protection already applies (if leaves within 10
years of reduction)
• Scheme members who suffer a permanent
reduction to pensionable pay (on or after 1 April
2014) may still apply for pay protection for the
calculation of their pre 2014 benefits. This is a
positive change to our previous understanding.
Copyright © Derbyshire County Council 2006
What about Protection?
• A protection underpin applies to scheme
members age 55 or over at 1 April 2012 who
retire at or after 65. The underpin allows the
higher of either,
• Current scheme benefits accrued to 31
March 2014 plus benefits from 1 April 2014
based on the CARE calculation, or
• Current scheme benefits accrued to 31
March 2014 plus benefits from 1 April 2014
based on protected final pay and 60th
accrual
• Rule of 85 remains as in the current scheme but
not for the new voluntary retirement at age 55
Copyright © Derbyshire County Council 2006
How are benefits calculated?
A Simple Example
The following example is a retirement where the
person is retiring voluntarily and is;
• Full time throughout (no part time service or
breaks in service)
• Has no 50/50 service
• Has no extra contracts “AVCs or ARCs”
• Has no conversion of annual pension to lump
sum
• Has no pay protection
• Has no transfers in
• Has no annual allowance or life time allowance
HMRC tax implications
Copyright © Derbyshire County Council 2006
How are benefits calculated?
A Simple Example
Born 1/7/57, Joined LGPS 1/4/93, Retires 31/3/19
Age 61 at retirement, Total service 26 years
From
To
Pen Pay
Accrual
Membership
Pension
Lump Sum
Revalued
Pension
1/4/93
31/3/08
16,750
1/80
+3/80
15
3,140*
9,421
n/a
1/4/08
31/3/14
16,750
1/60
6
1,675*
n/a
n/a
1/4/14
31/3/15
15,000
1/49
1
306
n/a
344
1/4/15
31/3/16
15,500
1/49
1
316
n/a
345
1/4/16
31/3/17
16,000
1/49
1
326
n/a
346
1/4/17
31/3/18
16,500
1/49
1
336
n/a
346
1/4/18
31/3/19
17,000
1/49
1
346
n/a
346
= 1,727*
9,421
6,542*
Assumes
CPI @ 3%
pa
Copyright © Derbyshire County Council 2006
How are benefits calculated?
A Simple Example …..or is it?
Born 1/7/57, Joined LGPS 1/4/93, Retires 31/3/19
Age 61 at retirement, Total service 26 years
From
To
Pension
Lump
Sum
Normal
Retirement
Age
%
Reduction
Lump
Sum
Final
Pension
1/4/93
31/3/08
3,140
9,421
60
n/a
9,421
3,140*
1/4/08
31/3/14
1,675
n/a
65 (ish)
8.103%
n/a
1,539*
1/4/14
31/3/19
1,727
n/a
State
Pension
Age
21.013%
n/a
1,364*
9,421
6,043*
Total
Copyright © Derbyshire County Council 2006
Any questions?
Copyright © Derbyshire County Council 2006