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Hampshire Pension Fund “What about my pension?” A presentation to staff. Phil Villiers Pensions Communications Officer Pensions Services. Government proposals for reforming the Local Government Pension Scheme (LGPS). This presentation reflects the current structure of the LGPS
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Hampshire Pension Fund“What about my pension?”A presentation to staff Phil Villiers Pensions Communications Officer Pensions Services
Government proposals for reforming the Local Government Pension Scheme (LGPS) • This presentation reflects the current structure of the LGPS • The Government is currently reviewing public sector pension provision, which will lead to changes to the LGPS in the future. • At this stage we are unable to advise what changes will be made and when. However, the latest Government proposals include the following: • Member contributions • To increase, particularly for higher earners? • Retirement age • To fall in line with state retirement age • eg 66 from 2020? • Pension calculation • Change from 60ths to……..? • Switch to ‘career average’? • Will only apply to future service • We will advise you as soon as any changes are announced.
Summary • Scheme overview • “What if I’m made redundant? I’m under 55” • Deferred benefits • “What if I’m made redundant? I’m over 55” • Immediate pension benefits • Remaining in service • Reducing hours • Flexible retirement • Re-deployment • Where can I get more information?
Scheme overview Final salary (currently!) • Pension/tax free lump sum • Pre-April 2008 service: • 80ths pension + 3/80ths tax-free lump sum • Post-April 2008 service: • 60ths pension • Option to give up some pension to increase tax-free lump sum • Normal retirement age 65 • Leaving service before age 65: • Can retire early from age 55 • Employer consent needed for retirement below age 60 • Benefits reduced for early payment – unless • protected under ’85-year rule’ • leaving on account of redundancy • If not retiring, ‘deferred benefit’ paid at age 65 • See our website for more details (www.hants.gov.uk/finance/pensions)
“What if I’m made redundant? I’m under 55” Deferred benefits – no special terms • leaving benefits built-up in scheme, based on • final pay and • completed membership • at date of leaving • payable from age 65 • deferred benefits are ‘index-linked’ from date of leaving to retirement • they can be paid from age 60 • but will be reduced if 85-year rule not satisfied • they can be transferred to another scheme before retirement • eg new employer’s scheme, personal pension • can use ‘non-statutory’ redundancy pay to increase deferred pension • See our website for more details under past member
“What if I’m made redundant? I’m under 55” Deferred benefits – example Employee aged under 55: • Leaving on 31 March 2012 • Final pay of £20,000 • 20 years completed membership Deferred benefits – payable from age 65: • Pension: • Pre-April 2008: 1/80 x 16 years x £20,000 = £ 4,000.00 per year • Post-April 2008: 1/60 x 4 years x £20,000 = £ 1,333.33 per year • Total pension £ 5,333.33 per year* • Tax-free lump sum: • Pre-April 2008: 3/80 x 16 years x £20,000 = £12,000.00* • * these benefits will be • ‘index-linked’ from date of leaving to retirement • reduced if paid from age 60, unless protected under 85-year rule.
“What if I’m made redundant? I’m over 55” Retirement on enhanced benefits • Immediate payment of benefits built-up in scheme • pension plus tax-free lump sum • option to give up some pension for more tax-free lump sum • Based on • final pay and completed membership at date of leaving • Noreduction for early payment • You cannot take deferred benefits instead – if you’re over 55 you must draw immediate benefits!
“What if I’m made redundant? I’m over 55” Immediate retirement benefits – example Employee aged over 55: • Leaving on 31 March 2012 • Final pay of £20,000 • 20 years completed membership Retirement benefits – payable immediately: • Pension: • Pre-April 2008: 1/80 x 16 years x £20,000 = £ 4,000.00 per year • Post-April 2008: 1/60 x 4 years x £20,000 = £ 1,333.33 per year • Total pension £ 5,333.33 per year • Tax-free lump sum: • Pre-April 2008: 3/80 x 16 years x £20,000 = £ 12,000.00 • Employee can give up some of the pension to increase the tax-free lump sum (£12 lump sum per £1 pension given up)
“What if I’m made redundant? I’m over 55” Retirement on enhanced benefits • Additional contributions • cease at date of leaving • Added years • Option available to pay remaining contributions in contract • ARCs • No option to pay remaining contributions in contract • Reduced benefit paid, based on contributions paid to date of leaving • AVCs • Fund used to increase pension and/or tax-free lump sum • Redundancy payment • Option to use non-statutory element of redundancy payment to increase pension • ‘Ready reckoner’ available
“What if I’m made redundant? I’m over 55” Retirement on enhanced benefits • Pension in payment • subject to income tax, not N.I. • pensions increases • annual review in April • based on annual increase in Consumer Prices Index (‘CPI’) at previous September • may be ‘abated’ if you are subsequently employed by an employer that participates in the LGPS: • your LGPS pension will be reduced (‘abated’) if • your new annual pay + LGPS pension exceeds your pay when you retired. • example on next slide
“What if I’m made redundant? I’m over 55” ‘The abatement rule’ – an example: • You retire from LGPS • Rate of pay upon retirement £ 20,000 per year • LGPS pension, after any ‘commutation’ £ 5,000 per year • You get a new job with an LGPS employer • New rate of pay £ 16,000 per year • Add LGPS pension £ 5,000 per year • New pay + LGPS pension £ 21,000 per year • Abatement: • New pay + LGPS pension £ 21,000 • Less rate of pay upon retirement £(20,000) • Pension will be reduced by £ 1,000 • Revised ‘abated’ LGPS pension £ 4,000 per year For more details see our website: • ‘Got a question A-Z’ -> (R)e-employment
Remaining in service – reducing working hours Pension benefits are linked to • ‘Whole-time equivalent’ membership and • ‘Whole-time equivalent’ final pay So if you reduce your working hours • your completed period of membership is not reduced • your future ‘part-time’ membership will be converted to a ‘whole-time equivalent’ period • at retirement, all your benefits are linked to your ‘whole-time equivalent’ final pay • For more details see our website: • Got a question A-Z • (P)art time working/membership
Remaining in service – reducing working hours Example Employee reduces working hours from 1 April 2012 • age 61 at 31 March 2012 • 20 years whole-time completed membership • whole-time pay = £18,000 a year • reduces hours to 18½ hours a week (50% whole-time) • Part-time pay = £9,000 a year Retires at 65 in 2016 • last year’s part-time pay = £10,000 Membership/final pay at age 65: • Total membership at 65: • 20 years plus 2 years (4 years x 50%) = 22 years • Final pay at 65: • (10,000 x 2) = £20,000
Remaining in service – flexible retirement • Available if over 55 • With employer consent, • drawing benefits early and • continuing working on reduced hours/lower grade* • *level of reduction included in employer discretionary policy • Retirement benefits payable: • as if leaving service voluntarily and retiring with employer consent, • so reduced for early payment, unless 85-year rule applies • ‘Abatement rule’ does NOT apply on flexible retirement • Can continue paying into LGPS to build up additional benefit
Remaining in service -re-deployment Remain in same job with pay freeze or reduction: • Remain in current membership: • On leaving service, alternative final pay definitions may apply: • Best of the last 3 years • Average of best 3 consecutive years in the last 10 • If employer allows, defer existing membership: • cease existing membership and defer benefits • re-join scheme for future service. • May not be best course of action – several factors to be considered • For more details see our website: • Got a question A-Z • (R)eduction in pay
Where can I get more information? • ‘Any questions?’ • Employee guide • Website:www.hants.gov.uk/finance/pensions • Pensions Services: • Email pensions@hants.gov.uk • Tel 01962 845588 • You can find details of local independent financial advisers at www.unbiased.co.uk