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LOCAL GOVERNMENT PENSION SCHEME

LOCAL GOVERNMENT PENSION SCHEME. Presented by Charlotte Thompson Deputy Pensions Manager. Agenda. Proposals for April 2008 scheme Ill Health and the 3 tier proposal Compensation Regulations Removal of 85 year rule What’s new. New Look scheme - April 2008. Costed options consultation

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LOCAL GOVERNMENT PENSION SCHEME

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  1. LOCALGOVERNMENT PENSION SCHEME Presented by Charlotte Thompson Deputy Pensions Manager

  2. Agenda • Proposals for April 2008 scheme • Ill Health and the 3 tier proposal • Compensation Regulations • Removal of 85 year rule • What’s new

  3. New Look scheme - April 2008 • Costed options consultation • 30 June – 29 September 2006 • Statutory consultation exercise on proposals • November 2006 – February 2007 • Make and lay regulations • April 2007 • New Look Scheme in force • April 2008

  4. The four options • Option A: an updated current scheme with the 1/80th: 3/80th structure • Option B: a new final salary scheme,with an improved accrual rate of 1/60th, but with no automatic lump sum • Option C1 (C2): a new career-average scheme, with an accrual rate of 1.85% (1.65%) and RPI (and RPI plus 1.5% estimation of wage inflation) revaluation • Option D: a new hybrid scheme, based on C1 or C2, but with a one off choice to make extra contributions in order to receive final salary linked benefits

  5. The results are in! • Option A = 41% • Option B = 42% • Option C = 7% • Option D = 10%

  6. Option A Option B Option C Option D X X X X Option A++ What have we got?

  7. Mrs 2006 Current Scheme Salary = £15,000 Service = 20 years Scheme Comparison Mr 2008 April 2008 Salary = £15,000 Service = 20 years

  8. Current scheme Unreduced retirement benefits available from 60 with 25 years service (85year rule) Minimum retirement age 50 (will increase to 55 in 2010) April 2008 Unreduced retirement benefits from age 65 Minimum retirement age 55 Joining the scheme

  9. Current Scheme 5% - pre 1998 protected manual workers 6% Mrs 2006 pays £900 April 2008 5.5% on first £12,000 7.5% on excess over £12,000 Mr 2008 pays £885 Employee contributions

  10. Current Scheme Added years maximum 6 2/3rds Mrs 2006 = £1170pa External provider AVC contract April 2008 Maximum £5000pa External provider AVC contract Additional Contributions

  11. Current Scheme Highest of pay in the final year One of the previous 2 years pay April 2008 Highest of Pay in the final year Revalued (RPI) average of the best 3 consecutive years’ salary in the last 10 years service Final Salary definition

  12. Current Scheme Service/80 X FPS = P Service X 3/80ths = Cash Pension £3,750 Cash £11,250 April 2008 Service/60ths X FPS = P Pension £5,000 Cash £ nil Normal Retirement Benefits

  13. Current Scheme Value of standard benefits = £86,250 Commutation = 12:1 Pension = £3,013.40 Cash = £20,089.20 Value = £80,357.20 April 2008 Value of standard benefits = £100,000 Commutation = 12:1 Pension = £3,214.29 Cash = £21,428.52 Value = £85,714.32 HMRC Maximum Cash

  14. Current Scheme Death grant 2 X Salary Post Retirement lump sum – balance of 5 years Widow(ers), Civil Partners pension – 160ths Mrs 2006 £30,000 death grant £1875 survivor pension April 2008 Death grant 3 X salary Post Retirement lump sum – scope for balance of 10 yrs Widow(ers), Civil Partners, nominated dependent partners – 160ths Mr 2008 £45,000 £1875 survivor pension Death Benefits

  15. April 2008 preparation • Tiered Contributions • Calculation of final pensionable salary • Nomination forms

  16. Ill Health Benefits • Current LGPS • Active member must be permanently incapable of discharging their duties in current job and also a comparable job. • Deferred member must be incapable of performing duties of former Local Government job • Additional years service for active members • Between 5-10 years – double service • 10 – 13 1/3 – service increased to 20 years • 13 1/3 – 33 1/3 – service increased by 6 2/3 years • Between 33 1/3 – 40 – service increased to 40 years

  17. Ill Health Benefits • Proposed 3 Tier, no review system • Unable to perform local government employment duties but immediately able to undertake gainful employment = Accrued Rights only • Unable to undertake gainful employment on leaving but likely to be able to before normal retirement age = Accrued Rights plus 25% of prospective service • Unable to undertake gainful employment before normal retirement age = Accrued Rights plus 50% of prospective service

  18. Compensation Regulations • Came into force 29/11/06 but back dated to 01/10/06 • One off lump sum payment of up to 104 weeks pay • Continue to use actual week’s pay • Remove CAY

  19. Transitional period • Three periods to consider • 01/10/06 – 29/11/06 • Employees should not be worse off, new regulations cannot be used to reduce compensation (i.e. use 2000 compensation policy) • 30/11/06 – 31/03/07 • Can use either regulations (if policy already in place for 2000 regulations • 01/04/07 – • New regulations only. Policies under the 2000 regulations will expire on 31/03/07.

  20. 2006 Compensation Policy • No period of grace • One month ‘change’ rule does not apply • Inaugural policy under 2006 Compensation Regulations – can be implemented from the date the policy is agreed

  21. Removal of the rule of 85 • Removed with effect from 1 October 2006 • All members joining after 1 October 2006, earliest age for unreduced benefits is 65. • All existing members as 30 September 2006 will keep rule until at least 31 March 2008. • Full protection to 31/03/16 for members attaining 60 and the 85 year rule by this date • Taper protection to 31/03/2020 for members reaching 60 and the 85 year rule by this date

  22. Tapered Protection

  23. What’s new • Additional Voluntary Contributions • Introduction of 50% contribution limit • Trivial Commutations • Bring LGPS regulations in line with Finance Act 2004 • Administration Regulations – due soon

  24. Any Questions?

  25. Devon Pension Services Estuary House Peninsular Park Rydon Lane EXETER www.devon.gov.uk/pensions Email – pensions@devon.gov.uk

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