Transcript COUNTY COUNCIL SEMINAR

‘New Look’
LOCAL GOVERNMENT
PENSION SCHEME
Presented by
Charlotte Thompson
Deputy Pensions Manager
Agenda
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April 2008 scheme design
Eligibility
Pensionable pay & Contribution bands
Final Pay calculations
Accrual rates – New V Old
Ill Health Retirements
Death and Survivors’ benefits
Additional Regular Contributions
Wave goodbye!
Old V New
• Final salary based pension benefits
• Maximum cash option remains
• Voluntary retirement from 60
– Earlier with employers consent
– Earlier on redundancy
• Ill health retirement benefits
• Death benefits
• Benefits are index linked
Eligibility
Right of membership and method of entry
Whole time
Part Time
‘MO’ Casual
Scheduled
Body
Employee Right
Automatic Entry
Employee Right
Automatic Entry
Employee Right
Automatic Entry
Designating
Body
Employer Choice
Automatic Entry
Employer Choice
Automatic Entry
Employer Choice
Automatic Entry
Admission
Body
Employer Choice
By Election
Employer Choice
By Election
Employer Choice
By Election
Eligibility - Casuals
• Big change – contract of employment
must be for more than 3 months
• Will exclude some casual employee who previously
enjoyed membership of scheme
• Mutuality of Obligation – obligation to provide and accept
work
• Casuals without mutuality of obligation will cease to be
members on 1 April 2008 (except those who are working
on 1 April who will come out of scheme on first day that
they are either not offered work or do not accept work)
Eligibility
• Auto enrolment for all eligible employees
except those who have opted out and
admitted bodies
• Police-Fire-Teachers – will fall into LGPS
if, for whatever reason, they cannot get into
their scheme
Pensionable Pay
• Both old and new regulations define the
meaning of pensionable pay as
“all the salary, wages, fees and other
payments paid to him for his own use in
respect of this employment” and “any other
payment or benefit specified in his contract
of employment as being pensionable
emolument”
Pensionable Pay
• New scheme regulations spell out the following
exclusions
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Non contractual overtime
Travelling, subsistence or other allowance paid
Any payment in consideration of loss of holidays
Any payment in lieu of notice
Any payment as an inducement not to terminate
employment before payment made
• 1997 regulations - three further exclusions, one
being lease cars. These exclusions not revoked.
Contribution Bands
Band
Range (2008/09)
Contribution rate
1
2
3
4
5
6
7
£0 - £12,000
>£12,000 - £14,000
>£14,000 - £18,000
>£18,000 - £30,000
>£30,000 - £40,000
>£40,000 - £75,000
>£75,000
5.5%
5.8%
5.9%
6.5%
6.8%
7.2%
7.5%
Contribution Bands
• Full time Equivalent salary
• Term time employees – full time term time rate
• Bands will be revised every year – unclear at
present how this will be achieved
• 5% manual workers brought into line
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5.25% on 1 April 2008
5.5% on 1 April 2009
6.5% on 1 April 2010 (or relevant band if lower)
Same as everyone else 1 April 2011 onwards
Contribution Bands
• Which band?
– Employer decision
– Current benefit regulations – based on pay in
previous year
– Proposed Benefit regulations
• Rate of pay at 01/04/08 or start of employment if
later
• Changes in contractual terms – employer can reattribute the payband
• Initial attribution and subsequent changes can only
be done on a reasonable basis
Final Pay Calculations
• New regulations drafting errors
• Final pay period – last year ending on day
of leaving
• Member may choose either of the two
preceding years
Certificates of Protection
• Not feature of 2008 scheme
• No new certificates of protection can be
issued in respect of drops/restrictions in pay
occurring after 31 March 2008
• Existing certificates will continue to be
valid for their 10 year life span
Certificates of Protection
• Replaced
– Member pay reduced because of choice to take
lower grade/less responsibility can have his
final pay calculated as the average of his annual
pensionable pay in any three consecutive years
ending 31 March within the period of 10 years
• Doesn’t cover flexible retirements
• Many issues and errors in new regulations
Certificates of Protection
• COP issued for forced drops
– New scheme extended to unforced drops
– Potential extra costs to employers
• New scheme doesn’t specify when drop had
to occur
– CLG confirm last 10 years and only drops from
1 April 08 or later
• COP also issued for restrictions in pay
– CLG confirmed that no policy change intended
Membership
• Aggregation
– Current regulations state the member ceases
employment and subsequently rejoins, the
previous membership will automatically be
aggregated with current period of membership
– This is an error that will be corrected
– Intention is that where member opts to
aggregate, pre 1st April 08 service will remain
on 80ths plus cash basis
Membership
• Term Timers
– Intention is that membership of term time
employees is to be pro rated even if they are
full time term time.
– Full time employee working 37/37 X 44/52
would have membership recorded as 84.6%
– CLG will be amending regulations to reflect
this
Accrual Rates
• Old Scheme
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1/80th Pension + 3/80ths Lump Sum
Member retires on 31 March 2008
40 years’ membership
Final pay of £12000
Pension 40/80 X £12k = £6000
Lump Sum 120/80 X £12k = £18000
Accrual Rates
• New Look
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1/60th Pension only
Member retires 31 March 2048
40 years’ membership
Final pay of £12000
Pension 40/60/ X £12000 = £8000
Lump Sum = £0
Accrual Rates
• Want same cash as under the old scheme?
– Need to commute (12:1 basis) £1500 pension
p.a
– Leaving pension of £6500
– Plus lump sum of £18000
Accrual Rates
• Want the same pension as the old scheme?
– Need to commute (12:1 basis) £2000 pension
– Leaving pension of £6000
– Plus Lump Sum of £24000
• Either way you look at it, you are better off!
Flexible Retirement
• Employer must agree to reduction in hours/grade
and agree to early release of benefits
• Drafting error in new scheme benefit regulations –
CLG confirmed that this will be amended
• New Look permits member to elect to receive part
of his benefits
• CLG have confirmed that guidance covering this
will be produced
Ill Health Retirement
• New Look Scheme
– Multi Tier system
– 2 tiers in LGPS with a 3rd lower tier outside the
scheme
– Another tier is needed for those with >3 months
service but <2 years as these currently not
provided for
– Protections in place for active members aged 45
and over on 31/03/08
Ill health Retirement
• How ill? –
– If an employing authority determines, in the case of a
member who has at least two year’s total membership– A) to terminate his local government employment on
the grounds that his ill health or infirmity of mind or
body renders him permanently incapable of discharging
efficiently the duties of his current employment; and
– B) that he has a reduced likelihood of obtaining gainful
employment (whether in local government or
otherwise) before his normal retirement age,
Ill health Retirement
• How Ill? – Never work again?
– If the authority determine that there is no
reasonable prospect of his obtaining gainful
employment before his normal retirement age,
his benefits are increased –
– A) as if the date on which he left local
government employment were his normal
retirement age: and
– B) by adding to his total membership at that
date the whole period between that date and his
actual retirement age.
Ill Health Retirement
• How Ill? – Could work again?
– If the authority determine that, although he cannot
obtain gainful employment within a reasonable period
of leaving local government employment, it is likely
that he will be able to obtain gainful employment
before his normal retirement age, his benefits are
increased –
– A) as if the date on which he left local government
employment were his normal retirement age; and
– B) by adding to his total membership at that date 25%
of the period between that date and his actual normal
retirement age.
Ill Health Retirement
• Old Scheme
Total Membership
Less than 5 years
Between 5 and 10 years
Between 10 and 13 1/3
years
Over 13 1/3 years
Total after enhancement
Actual total membership
only
Total membership
doubled
Total membership
increased to 20 years
Total membership
increased by 6 2/3 years
Ill Health Retirement
• Old John – retires on ill health on his 33rd birthday
having just 5 years membership. His final pay is
£24,000
– Accrued Membership = 5 years
– Enhancement = 5 years
– Total Membership = 10 years
• Pension 10/80 X £24,000 = £3000
• Lump sum 30/80 X £24,000 = £9000
(Pension 10/60 X £24,000 = £4000)
Ill Health Retirement
• New John 1- retires on his 33rd birthday
having just 5 years of membership. Final
pay is £24,000
– Accrued membership = 5 years
– Enhancement = 32 years
– Total Membership = 37 years
• Pension 37/60 X £24,000 = £14,800
Ill Health Retirement
• New John 2 – Retires on his 33rd birthday
with 5 years service and final pay of
£24,000
– Accrued Membership = 5 years
– Enhancement = 8 years
– Total membership = 13 years
• Pension 13/60 X £24,000 = £5200
Death and Survivors’ benefits
• Death grants
– Death in service lump sum increased to 3 times
final pay
– Deferred members now receive 5 X pension
– Pensioners – 10 year guarantee (no lump sums
payable after age 75)
Death and Survivors’ benefits
• Survivors’ pensions
– Short term pension removed
– Death in service, 1/160th of final pay X total
membership had member retired on ill health
grounds on the day they dies
– Pensioners, 1/160th of final pay X total
membership
– Deferred member, 1/160th of final pay X total
membership
Death and Survivors’ benefits
• Nominated Cohabiting Partners
– Declaration has to be signed by both parties
– For at least a continuous period of 2 years
• Financial dependence by the nominee or
interdependence between the parties must have
existed
• Free to marry or enter a civil partnership
• Cohabiting as husband and wife or as civil partners
Additional Regular Contributions
• Replaced purchase of added years
• Buy extra scheme pension in multiples of £250 up
to maximum of £5000
• Contributions start from payment period following
member request
• Contributions payable up to a date specified by
member (before normal retirement date)
• Administering authority can refuse request on
medical grounds
• Outstanding ARCs are treated as paid if member
retires with immediate ill health benefits
Wave Goodbye!
• Commutation on exceptional ill health
• Short term survivor pensions
• Minimum membership requirement for survivor’s
benefits
• Certificates of protection
• Minimum membership requirement for ill health
enhancement (reduced to 2 years)
• Councillor Members – CLG intention issue
separate CARE provisions outside LGPS
• 1997 regulations – not all but most
Summary
• New employees must have contract of
employment > 3 months
• Existing members move to new scheme 01/04/08
• Pension 1/60th of final pay for each year of
membership after 31/03/08
• Up to 25% of the capital value can be taken as
lump sum
• Employee contribution level depend on pay band
• Certificate of protection removed
• Normal retirement age 65 with right to take
pension from 60
Summary
• Can remain in scheme beyond 65 but must take
benefits by 75
• Immediate payment of unreduced benefits
following redundancy / efficiency on or after age
55 or from age 50 for existing members leaving
before 31/03/10
• Two tier ill health system
• Death grant 3 X final pay
• Survivors’ pensions continue to be based on
1/160th
• ARC’s – purchase multiples of £250 up to
maximum £5000
Any Questions?
Devon Pension Services
Estuary House
Peninsular Park
Rydon Lane
EXETER
www.devon.gov.uk/pensions
Email – [email protected]