Hampshire Pension Fund 2009 pensions update ‘Food for thought’

1. Hampshire Pension Fund 2009 pensions update‘Food for thought’ Phil Villiers Pensions Services Hampshire County Council

2. Summary • For starters - a bit of background • How much does it cost? • The main course – what do you get for your money? • Some side orders – how can you increase your benefits? • And to finish off - some food for thought

3. For starters - a bit of background

4. For starters - a bit of background • Local Government Pension Scheme (LGPS) • national scheme for local authorities • Hampshire Pension Fund • statutory funded scheme • Final salary • ‘Contracted out’

5. For starters - a bit of background • Contributory • member contributes % of pay • net cost reduced by tax relief and NI rebate • employer pays ‘balance of cost’ (currently about 3 x what member pays)

6. For starters - a bit of background • Benefits • pension and lump sum • normal retirement at age 65, with early, flexible and late retirement options • ill-health pensions • pensions increase in payment (‘index-linking’) • death benefits • option to pay extra contributions • option to transfer in

7. How much does it cost?

8. How much does it cost? • You pay banded contribution rates, based on your whole-time equivalent pay (‘WTE’) • Part-timer rate is based on ‘WTE’ but applied to actual pay • Special arrangements apply to ‘term-timers’ • Your contribution pay band is based on your regular annual payments, including basic pay, plus any other payments specified by your employer

9. How much does it cost?

10. How much does it cost? • Separate rates apply to manual workers, who have previously paid 5% rate, up to April 2011 • The Government will increase the bands every 1 April • Your employer will decide when to change the band for a ‘mid-year’ contractual change to your ‘WTE’

11. How much does it cost? • Employer continues to pay ‘balance of cost’ • For 2009/10, employer pays 18.6% of your pay

12. The main course - what do you get for your money?

13. Your new retirement choices - the building blocks • Final salary benefits • membership x fraction x final pay • Membership • years and days as a member • includes service purchased by a transfer from a previous scheme • part-time service converted to a ‘whole-time equivalent’ • Pay • basic pay plus other contractual, taxable pay elements • Final pay • normally pay in last year before retirement • if higher, another 12 month period in last 3 years • ‘whole-time equivalent pay’ used for part-timer or term-timer

14. Your new retirement choices • Pre-April 2008 service: • Automatic: 80ths pension + 3/80ths tax-free lump sum • Post-April 2008 service: • Choice: • 60ths pension with no additional tax-free lump sum • Option to give up pension for tax-free lump sum • £12 lump sum per £1 pension up to 25% maximum

15. For example……….. • Mr/Mrs Member • joined scheme 1 April 1988 • 40 years’ whole-time membership • retires at 65 on 31 March 2028 • final pay of £12000

16. Example 1 - Old scheme before 2008 changes • Lump sum: 40 x 3/80 x £12000 = £18000 • Pension: 40 x 1/80 x £12000 = £ 6000 per year

17. Example 2 -New scheme: takes all post-April 2008 as pension • Lump sum: Pre-April 2008: 20 x 3/80 x £12000 = £ 9000 • Pension: Pre-April 2008: 20 x 1/80 x £12000 = £ 3000 per year Post-April 2008: 20 x 1/60 x £12000 = £ 4000 per year = £ 7000 per year

18. Example 3 –New scheme: gives up some post-April 2008 for lump sum Gives up £750 pension post-April 2008 for a lump sum: • Lump sum Pre-April 2008 : 20 x 3/80 x £12000 = £ 9000 Post-April 2008 : £750 pension x 12 = £ 9000 Total lump sum = £18000 • Pension Pre-April 2008 : 20 x 1/80 x £12000 = £ 3000 per year Post-April 2008 : 20 x 1/60 x £12000 = £ 4000 per year (Less pension given up = (£ 750 per year) Total pension = £ 6250 per year

19. Example 4 – takes maximum lump sum allowed • Lump sum Maximum lump sum allowed = £33214 • Pension Total pension if maximum lump sum paid = £ 4982 per year

20. Examples - summary

21. Retirement • Normal retirement • Early retirement • Flexible retirement • Late retirement • Ill-health retirement

22. Retirement Normal retirement • Normal retirement age 65 • Benefits payable in full

23. Retirement Early retirement • Age 60 to 65 • can retire without employer consent • Age 55 to 59 • need employer consent • Age 50 to 54 • below age 55 allowed for pre-April 2008 members up to 31 March 2010…..but still need employer consent!

24. Retirement Early retirement • Pension and lump sum based on • completedservice and • reduced for early payment….except, • 85 year rule may apply to pre-10/2006 joiners (if age + service = 85) and, • Special arrangements apply on • ill-health retirement • redundancy/efficiency

25. Retirement Flexible retirement • Option to draw benefits early and continue working on reduced hours/lower grade. • Need employer consent Late retirement • If working after 65, contributions continue and further benefits accrue. • Pension must be paid before 75

26. Retirement Ill-health retirement • Immediate ill-health benefits can be paid to a member with at least 3 months total membership • Tiered package giving increased benefits if you are unlikely to be capable of working again

27. Pensions increases • Pensions in payment are increased annually • Increase paid in April • ‘Index-linked’ – based on the annual increase in the retail prices index (RPI) • Increase in April 2009 was 5%

28. Death benefits - death grant • Death in service • 3 x final pay * • *not ‘whole-time equivalent’ for part-timer • Death in deferment • 5 x deferred pension for member who leaves service on or after 1 April 2008 • Death in retirement • ‘10 year guarantee’for member who leaves service on or after 1 April 2008 • Death grant nomination form • you should complete/update this form as appropriate • if no nomination is received, the death grant will be paid to your estate • this form does not apply to any dependants pensions payable on your death (see next slide)

29. Death benefits - dependants pensions • Widow’s, widower’s, civil partner’s or nominated cohabiting partner’s pension • 1/160th x final pay x total membership* to age 65 • *post 5 April 1988 only for civil partner’s and nominated cohabiting partner’s pension) • automatically paid to legal spouse/civil partner….so no need to complete a nomination form for this benefit. However, • nominated cohabiting partner’s pension subject to certain conditions, including • completion of special nomination form • ‘free to marry’ • 2 year qualifying period • financial interdependent or fully dependent

30. Death benefits - dependants pensions • Children’s pension • Paid in addition to any widow’s, widower’s, civil partner’s or nominated cohabiting partner’s pension • paid to ‘eligible children’ • amounts dependent on number of children and marital status • no need to complete a nomination form for this benefit

31. Some side orders – how can you increase your benefits?

32. Increasing your benefits –paying extra contributions • Added years • buying additional years of membership • option now closed but existing contracts continue • Additional regular contributions (‘ARCs’) • buying additional pension • Additional voluntary contributions (‘AVCs’) • investing in funds managed by Zurich

33. Increasing your benefits –Additional regular contributions (‘ARCs’) • ‘ARCs’ buy additional pension • Multiples of £250 pa, payable from age 65 • Choice of member pension only or with extra dependant’s pension • Fixed monthly payment with choice of payment term • On-line calculator available on our web site

34. Increasing your benefits –Additional voluntary contributions (‘AVCs’) • invested in funds managed by Zurich • can pay up to 50% of pay • can use fund to • buy extra pension or, • increase tax-free lump sum or • combination of both

35. Increasing your benefits -transfer in • You still have the option to transfer in benefits from a previous scheme to buy additional service • subject to your employer’s policy on ‘12 month’ rule

36. And to finish off –some food for thought

37. Food for thought • It’s never too early to think about your pension….but it can be too late! • Update death grant nomination? • Nominate cohabiting partner for pension? • Transfer in? • ARCs or AVCs (or both!)? • Review other pensions, including state scheme?

38. Food for thought • Pension v lump sum? • Pension: • Taxable • Index-linked • Paid until you die • Lump sum: • Tax-free • ‘One-off’ payment • Independent financial advice? • Pensions Services and your employer are NOT able to give you financial advice • Go to IFA Promotions at www.unbiased.co.uk

39. Any questions?