‘New Look’ LOCAL GOVERNMENT

PENSION SCHEMEPresented by

Charlotte ThompsonDeputy Pensions Manager

Agenda• 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

EligibilityRight 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– 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 £0 - £12,000 5.5%

2 >£12,000 - £14,000 5.8%

3 >£14,000 - £18,000 5.9%

4 >£18,000 - £30,000 6.5%

5 >£30,000 - £40,000 6.8%

6 >£40,000 - £75,000 7.2%

7 >£75,000 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

– 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 re-attribute 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– 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– 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 Total after enhancement

Less than 5 years Actual total membership only

Between 5 and 10 years Total membership doubled

Between 10 and 13 1/3 years

Total membership increased to 20 years

Over 13 1/3 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 – pensions@devon.gov.uk