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Pension Liaison Officers Group New Look LGPS Presented by Charlotte Thompson/Viv Ray Shirley Cuthbert
Agenda • • • LGE DVD Employer discretions What’s changing/what’s not/what’s gone? Contribution bands Certificates of protection or lack of them Employer’s checklist Flexi Retirement strain costs Communication AOB
Award of additional membership and/or pension by Employer • Employer has discretion to award additional membership and/or pension to member. • Additional membership to active member can be up to maximum of 10 years. • Additional pension of up to £ 5000. 00 per annum can be awarded on any type of retirement or later. • Either or both awards can be made. • Award given at discretion of Employer. • Awaiting details of cost to the employer, Actuary may need to do the calculations.
EMPLOYER DISCRETIONS (A) = Administration Regulations (B) = Benefit Regulations 2007 REGS A 1997 REGS DISCRETION Discretions on which Employers must make Policies 30 B 31 Early payment of pension benefits at the request of a member 18 B 35 Flexible retirement 25(3) A 67 The establishment of Shared Cost AVC scheme 12 B 52 Increase membership of an active member up to 10 years 13 B Award of additional pension up to £ 5000 per annum Please note cost of providing additional membership and/or pension under Regulations 12 & 13 are yet to be supplied by the Government Actuary Department.
Other employer discretions 22 A 18(6) & (7) A scheme member may elect to pay optional contributions to cover a period of absence from duty providing the otpion is made within 30 days of return to work/cessation of employment or such longer period as the employer allows. 42 B 34(1)(b) Where a scheme member would be entitled to a pension or retirement grant under two or more regulations by reason of the same period of scheme membership the employer can choose which benefit is to be paid if the member does not make a choice within 3 months of becoming entitled to elect. 47(2) A 88 A scheme member who meets the normal criteria for a refund of pension contributions is not entitled to such a refund if he/she ceased employment due to an offence of a fraudulent character or due to grave misconduct unless the employer directs that a total or partial refund may be made. 45 A 89 The employer may deduct the pension contributions due under the LGPS from a person's pay. 49 A 92 Where a scheme member is paid a refund of pension contributions, the employer must pay a Contributions Equivalent Premium (CEP). An element of this is recovered from the refund paid to the scheme member. The balance may be recovered from the Fund. 72 A 111 If a scheme member is convicted of, and ceases employment as a result of, an offence in connection with his/her employment which was gravely injurious to the State of liable to lead to a serious loss of confidence in the public service, the employer can apply to the Secretary of State for the issue of a forfeiture certificate. If the Secretary of State issues a certificate the employer may direct that any of the person's rights be forfeited.
73 A 112 Where the Secretary of State has issued a forfeiture certificate but the employer has not applied the certificate nor notified the scheme member of an award of benefits under the LGPS the employer may direct that interim payments are made out of the Pension Fund until such time as it decides to apply the forfeiture certificate or to make an award of benefits. 74 A 113 1) Where a member ceases employment in consequence of a criminal, negligent or fraudulent act or omission in connection with that employment and 2) has incurred a monetary obligation arising out of that act or omission, to the employing authority and 3) is entitled to pension benefits under the LGPS, the employer may recover the amount of the monetary obligation or the value of the members pension rights, if less (other than transferred in pension rights) from the Pension Fund and reduce the members benefits accordingly. 76 A 115 1) Where a member ceases employment in consequence of an offence involving fraud or due to grave misconduct in connection with that employment, and 2) the employer has suffered a direct financial loss arising from the offence or misconduct, and 3) the member is entitled to benefits under the LGPS and a forfeiture certificate has been applied, or the pension member is entitled to a refund of contributions the employer may direct that the amount of the direct financial loss (or the refund of contributions, if less) be recovered from the Pension Fund. 83(8) A 121 (8) If a scheme member wishes to transfer pension rights into the LGPS he/she must opt to do so within 12 months of joining the LGPS or such longer period as the employer may allow.
What’s changing? • Eligibility – Auto enrolment – 3 month contract of employment with mutuality of obligation • Accrual rates – Pension earned after 01/04/08 – 60 ths – No automatic lump sum • Minimum Retirement age – 55 for new members after April 2008 – 50 for existing members but will rise to 55 in April 2010
What’s changing? • Ill Health benefits – Minimum service for enhancements now 3 months – 3(? ) tiers – 100 % prospective service – never work again – 25% prospective service – could work again – Accrued benefits only – able to work again • Death in Service lump sum – Now 3 X salary
What’s Changing? • Death after Retirement – Lump sum on death before age 75 now 10 times pension less pension already paid • Flexible Retirement – Option to take ‘part’ of your benefits • Additional Regular Contributions – Buy extra pension in £ 250 pa. steps – Maximum £ 5000 • Survivors pensions – Now available to nominated co habiting partners
What’s not changing? • • Definition of pensionable pay Definition of final pensionable pay Level of survivors long term pension Pre 2008 pension and lump sum benefits already accrued Ability to take extra cash at retirement in exchange for a smaller pension at a rate of 12: 1 Normal Retirement age – still 65 Option to retire from 60 Additional voluntary Contributions
What’s gone? • • • Certificates of Protection Serious ill health commutation option Short term survivors pension Added years 1997 regulations (most of them!)
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 • 5% manual workers brought into line – 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 • Councillors remain on 6%
Contribution Bands • Which Band? – Fixed annual salary - fairly straight forward – Variable hours/bonus • £ 16, 000 fixed salary with variable bonus historically of £ 3 k. Do you put him in 5. 9% band or 6. 5%? • Average contribution rate of 6. 3% • Any shortfall in employee contributions will inevitably fall to the employer following the next valuation.
Contribution Bands • Reattribution of bands – Once a year? – Pay increases/decreases? – Contractual change only? • Employer must be satisfied that they can justify their decision and have acted reasonably • Notify members of any changes to bands • Any queries regarding attribution of bands must be directed at the employer
Contribution Bands • Rate of pay at 01/04/08 or at joining • Full time equivalent pay • Employee with more than one job, need to look at each post • Term timers – full time term time rate • Bands will be revised each year in line with inflation
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 – ‘A member whose pensionable pay has been reduced because he has chosen, within the period of ten years ending with the last day he was an active member, to continue in local government employment at a lower grade, on restricted pay or with less responsibility than his previous post, may choose to have his final pay calculated as the average of his annual pensionable pay in any three consecutive years ending 31 st March within that period of 10 years’.
Certificates of Protection • Does not cover flexible retirement events on subsequent retirements • Only covers drops/restrictions after 1 st April 2008 • All three 31 st March’s need to be within 10 years of leaving. – Member leaves November 2020 – OK to use 1 April 2010 – 31 st March 2011
Certificates of Protection • Member’s pay drops 1 st April 2010 • Member could leave as late as 31/03/2020 and qualify for the 10 year protection rule • Which salaries can we use? – 1 st April 2010 – 31 st March 2013 – All these years are after the drop in pay!
Certificates of Protection • Member’s pay drop 1 st April 2010 • To use a 3 year average of higher salary, member needs to leave by 31 March 2017 • Average 3 years – 1 st April 2007 – 31 st March 2010
April 2008 Checklist • Casual employees – Identify those without mutuality of obligation – Identify those with contracts less than 3 months – Remove them from LGPS on 31 st March 2008 or first non ‘working’ day after 1 st April 2008 • New employee information – Eligible casuals auto entry – Scheme information to other casuals - remove • Check to see if your current scheme policies and discretions need revisiting
April 2008 checklist • Contribution bands – Payroll systems amended to accommodate the new bands including new rates for manual workers – Agree a policy on when to change bands (immediately or next April)? – Inform members of new bands • Communicate new scheme to employees
Communication • LGE DVD – one copy per employer • Main changes and nomination forms out later this month • Employers handbook overhaul – summer 08 • Updating forms and letters to accommodate new scheme. • Annual benefit statements – Postponed to summer 2008 – Review layout – Include detail changes on the scheme
Flexible Retirement • From age 50 (55) reduce hours or grade with employers consent, may with the employers consent receive his benefits. The employer may waive in full or part any reductions in the benefits due to early payment.
Between age 50 - 60 • 85 year rule met - Strain Cost to employer no cost to the employee. (Example 1) • EXAMPLE 1 = Age 50, Salary £ 25000, DOL 31/03/08 No reduction to member’s benefits. Strain cost to employer = £ 40277. 51
Between age 50 - 60 • 85 year rule would have been met between date of leaving and age 60 - Strain Cost to employer plus actuarial cost to member. (Example 2) • EXAMPLE 2 = Age 50, Salary £ 25000, DOL 31/03/08, 85 yr rule would have been met at age 57. Member’s pension would reduce by 32. 2604% & lump sum by 17. 5069% Strain cost to employer would be £ 4923. 40 ( if employer waives member’s reduction strain increases to £ 48319. 80)
Between age 50 - 60 • EXAMPLE 3 = Age 53, Salary £ 25000, DOL 31/03/08 • 85 year rule would Member’s pension never have been would reduce by met before age 60 - 27. 2959% & lump No Strain Cost to sum by 14. 1973% employer but ( if employer waives actuarial cost to member’s reduction member. (Example strain increases to 3) £ 34532. 91)
Age 60 + • 85 year rule met - No cost to employer or employee • 85 year rule would never have been met before age 65 - No Strain Cost to employer but actuarial cost to member. (Example 4) • Example 4 = Age 60, Salary £ 25000, DOL 31/03/08 Member’s pension would reduce by 22. 0138% & lump sum by 11. 2603% ( if employer waives member’s reduction strain increases to £ 13510. 86)
Caution • AVCs- as a general rule currently cannot be paid when a member takes flexible retirement. • Added Years – member has choice to continue contract, cease contract with option to start new one. • Earmarking Orders – if early retirement affects amount to be paid to ex-spouse, they need to be informed as can take back to court to adjust %.
Caution • Age 50 changes to 55 – transitional regs protect earliest retirement date as 50 until 31/03/2010. Anyone who retires after that date or who has joined LGPS wef 01/04/08 earliest date is 55. • Partial payment of benefits – in Regs but currently no guidance from DCLG on how to be calculated.
Devon Pension Services Estuary House Peninsular Park Rydon Lane EXETER www. devon. gov. uk/pensions Email – [email protected] gov. uk