PENSION LIAISON OFFICERS’ GROUP (PLOG)

PENSION LIAISON OFFICERS’ GROUP (PLOG) 11 May 2011

Agenda 1. Welcome/Attendance (David Anthony) 2 Auto-enrolment and NEST (Andy Cunningham) 3. Ill Health Insurance (Andy Cunningham) 4 AVCs with Prudential (Prudential) BREAK 5. Pension Reform (David Anthony) • Hutton Review • Budget 6. New Monthly and Yearly Returns (Martin Summers) 7. Pension Remunerations and Pensionable Pay (Martin Summers) 8. Pension Tax Relief Update (Martin Summers) 9. Future Developments (David Anthony)

2. Auto-enrolment 2012 and NEST What is ‘Auto-enrolment’? • New legal obligation to automatically enrol ‘eligible employees’ into ‘qualifying workplace pension scheme’ • Eligible employees: • - Aged between 22 and state pension age • - Earn above the personal allowance amount • Qualifying workplace pension scheme: • - Defined Contribution Scheme/NEST • - Defined Benefits Scheme (such as the LGPS) or certain other types of scheme

2. Auto-enrolment 2012 and NEST What is ‘Auto-enrolment’? (continued) • Employer Contributions • Employers must contribute at least 3% • Start dates and entry requirements • October 2012-2016, depending on the size of the organisations (largest organisations first) • Requirement to automatically enrol people into a eligible scheme (although they can still opt-out)

2. Auto-enrolment 2012 and NEST What is NEST? • NEST = National employment savings trust • Arm’s length non-departmental Government body set-up to give organisations a straightforward way to meet 2012 requirements • Defined Contributions (DC) Pension Scheme • Employers can use NEST for just some of its employees • Key advantages are that: • - It is Government backed (hence secure) • - It is likely to be widely used, therefore members who change jobs are likely to still be able to access the same scheme

2. Auto-enrolment 2012 and NEST Further information: Auto-enrolment www.pensionsadvisoryservice.co.uk NEST www.nestpensions.org.uk

3. Ill Health Insurance What is it? • Insurance to protect you against the risk of incurring pension strain costs as the result of one or more people going on ill-health retirement. • Provided by Legal & General in collaboration with Hymans • How much will it cost? • It depends on the profile and number of take up.

3. Ill Health Insurance Points to consider • Ill health strain costs are currently recovered through future contributions rather than upfront – hence they are spread over time • For employers with a relatively large number of members or for those in a funding pool (e.g. town and parish councils) – the risk would appear manageable, particularly given the point above • Smaller, stand alone employers (particularly those with shorter contracts) may find the risk ‘unmanageable’, particularly if they ceased and the costs became payment quickly. • Next Steps • Hymans/Legal & General are likely to send out a letter shortly providing further details.

4. AVCs and Prudential Separate slides…

5. Pension Reform – Hutton Report THE DEAL Public Service Workers A good pension in retirements Defined benefit pension Accrued rights protected Fair process of change Better Management of Schemes Taxpayer Fairer sharing of benefit of living longer Future-proofed Fixed costs Greater transparency of costs Single legal framework

5. Pension Reform – Hutton Report Recommendations: The Member Move from Final salary to CARE Maintain Final Salary for accrued benefit Normal Retirement Age aligned to State Pension Age The Employer Ceiling to be set for Ers contributions (agreed by Government) Not permit entry to non public sector workers

5. Pension Reform – Hutton Report Recommendations: Scheme Governance Properly trained & competent Pension Committee Member nominees on Committee Common framework for public pension schemes Revised legal framework for scheme – separate entity?

5. Pension Reform – Hutton Report Scheme Administration LGPS remains funded Improved transparency – centralised data / benchmarking More co-operation / sharing of contracts

5. Pension Reform – Hutton Report The Unknowns: Accrual rate? Timescales – by 2015 Transition arrangements How many schemes to administer? Employers contribution ceiling and mechanism Definition of ‘non public sector worker’ Await the Governments decision on what to implement – but no ‘cherry picking’

5. Pension Reform – Budget RPI to CPI for Pension Increase Employers reducing staff levels Pay freeze for public sector workers Proposed increase of employees conts On average 3% protect lower paid Increased opt-outs? Long term affordability of the scheme!

6. New Monthly and Yearly Returns Review of information to be submitted Pension Regulator requirements on data held Common data Changes to format/data required Pilot with small number of employers

6. New Monthly and Yearly Returns (continued) Monthly returns Pension Contributions – in line with contributions paid to the fund FTE percentage Pensionable remuneration – this is to confirm that contributions received are in line with the FTE (audit requirement)

6. New Monthly and Yearly Returns (continued) Starter/Leaver and Changes information One spreadsheet Different tabs for each set/type of data

6. New Monthly and Yearly Returns (continued) Annual returns Pension contributions – all contributions paid Pensionable remuneration FTE percentage Reconciled against contributions received during the year

7. Pension Remunerations and Pensionable Pay Employers responsibility Best of last 3 years Members responsibility Miscellaneous Regs Choose best 3 year average in the last 10 years Level of knowledge Training

8. Pension Tax Relief Update Changes April 2011 and April 2012 April 2011 – annual allowance reduced from £255,000 to £50,000 April 2012 – Lifetime Allowance reducing from £1.8million to £1.5million

8. Pension Tax Relief Update Annual Allowance What fund has done for members? Information provided in Newsletter to active members distributed in January 2011 High earners communicated too individually Website information – calculator provided

8. Pension Tax Relief Update Annual Allowance Reported by Pensions Department to members and HMRC Tax payable by scheme or member? When is tax paid and benefits adjusted? Further clarification to follow

8. Pension Tax Relief Update Annual Allowance Brief outline Growth in the value of pension “pot” during the year Affected members – high earners, long service, significant pay increase, augmented benefits

8. Pension Tax Relief Update End of previous year Pension £10,000 per annum Lump Sum £20,000 £10,000 x 16 + £20,000 = £180,000 Assume CPI is 3% =£185,400

8. Pension Tax Relief Update End of current year Pension £14,000 per annum Lump Sum £27,000 £14,000 x 16 + £27,000 = £251,000 Growth in benefits £251,000 less £185,400 = £65,600 Excess above annual allowance = £15,600 (taxable)

8. Pension Tax Relief Update Lifetime Allowance Reduction in allowance from £1.8m to £1.5m Protection for members already above the limit Members apply to HMRC for confirmation of personal Lifetime Allowance (similar to 2006 changes)

9. Future Developments Annual Benefit Statements Combined DWP info (July-Sep?) Members surgeries Communications Active Members newsletter Roadshows for post Hutton scheme Enhance members & non-members knowledge of benefits Reward Statements

9. Future Developments Secure Portal Electronic transfer of data Password protect! Workflows & Imaging Task management system Benchmarking data Stakeholders Surveys

PENSION LIAISON OFFICERS’ GROUP (PLOG)