Aberdeen City Council Pension Fund

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Aberdeen City Council Pension Fund

• THE LGPS 2009 CHANGES

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WHY REFORM THE LGPS?

• All public service pension schemes subject to
  reform
• Increased costs due to improved life expectancy
• Modernise due to changing social factors
• Fair, legal and affordable over the long term

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PROCESS OF REGULATION CHANGE

• SLOGPAG Group established November 2006
• Scottish Government, COSLA and Unions
• New scheme signed by all parties January 2008
• Regulations come into effect from 1 April 2009

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• EXISTING SCHEME
• Statutory
• Contracted out
• Final salary
• Normal retirement age 65
• Death benefits
• Dependent benefits
• Ill health benefits
• Flexible retirement

• NEW LOOK SCHEME
• Statutory
• Contracted out
• Final salary
• Normal retirement age 65
• Death benefits
• Dependent benefits
• Ill health benefits
• Flexible retirement

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SO WHATS DIFFERENT

• New higher accrual rate of 1/60th
• No automatic lump sum, but option to commute up
  to 25 of fund value into lump sum
• Improved death cover 3 times actual pay
• Co-habiting partners pensions
• Better targeted ill health pensions
• Minimum pension age 55 for all new scheme
  members
• 5 tier contribution rate structure
• Average employee rate expected to be 6.3

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Joining the LGPS (new)

• Already in the scheme on 1 April
• Other than casuals if you are in, you stay in
• New joiners
• Must have a contract of employment of more than 3
  months
• Casuals
• Some will be excluded depending on whether or not
  a mutuality of obligation exists
• Back to back contracts
• Eligible if total period more than 3 months
  (backdating?)
• Multiple jobs
• Each job treated separately

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Joining the LGPS (casuals)
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Joining the LGPS (new)

• Employees cannot join or remain in the scheme
  after the eve of their 75th birthday
• Any employee with a contract of less than 3
  months cannot join the scheme
• Where there is no mutuality of obligation the
  person is unlikely to be able to join the scheme,
  as they would have to be offered and accept work
  every day for more than 3 months

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Contribution Tiers - Theory
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Contribution Tier Practical

• And so on and so on ... assuming an incremental
  scale of 0.1 to the contribution rate, you will
  need 56 different contribution rates to cater for
  salaries up to 157,000 (10.8).

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Contribution Tiers

• Statutory Guidance
• Guidance has been issued by SPPA to employers on
  how to assess the correct contribution rate
• Responsibility
• Employers will assess rate of contribution to be
  paid by employee
• Employers must notify members annually of their
  new contribution rate
• Each employer to decide and resolve any appeals
  made by their employees
• Employees pay contributions according to their
  full time equivalent (FTE) pay
• Lower Rate rights
• Pre 01.04.98 manual workers lose their protected
  5 rate

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Contribution Tiers Issues

• Statutory Guidance Which rate?
• Existing members on 1 April 2009 will have
  contribution tier set according to their FTE rate
  of pay (including pensionable allowances) as at
  31 March 2009
• New members from 1 April 2009 will have
  contribution tier based on FTE rate of pay
  (including estimated pensionable allowances) as
  at date of commencement
• Contribution tier operates for income tax year,
  no adjustment unless member transfers to another
  scheme employer
• Members with more than one employment pay
  contributions based on each employment

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Contribution Tiers Issues

• TERM TIME MEMBERS
• Contribution rate should be determined by
  reference to their full time equivalent term
  time pay (not grossed up to 52 weeks pay)
• Where an employee chooses to work less than 52
  weeks per year tier is based on full time
  equivalent on 52 week year
• Membership and final pay calculations should be
  pro rated, e.g. if term time member works full
  time but only for 44 weeks membership reduced -
  44/52 84.6 of full time
• Final pay is the pay they would have earned if
  FT, except death in service where actual pay is
  used

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Contribution Tiers Issues

• PART TIME MEMBERS
• If you work part time your contribution rate is
  based on the FTE, e.g. if you work 18.5 hours out
  of 37 with a rate of pay of 18,000, but the FTE
  is 36,000, you will pay 7, not 5.5
• More than one employment each job treated
  separately

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Contribution Tiers Issues

• UPDATING THE TIERS
• Tiers will be revised each year in line with RPI

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CONTRIBUTION TIERS (EXAMPLE)

• FULL TIME
• ACTUAL PAY 36,000
• CONTRIBUTION RATE 7.00
• 7.0 OF 36,000 2,520
• PART TIME
• WORKS 18.5/37 HOURS PER WEEK
• ACTUAL PAY 18,000, FULL TIME EQUIVALENT 36,000
• CONTRIBUTION RATE 7.00
• 7.00 OF 18,000 1,260

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EXPLANATION BEHIND F/T EQUIVALENT

• EXAMPLE BASED ON FTE SALARY OF 36,000
• THE BENEFITS IN THE SCHEME FOR ONE YEARS
  MEMBERSHIP
• FULL TIME 1/60 X 36,000 600
• PART TIME 0.50 X 1/60 X 36,000 300
• THEREFORE A PART TIME MEMBER PAYS HALF THE
  CONTRIBUTIONS OF A FULL TIME MEMBER AND RECEIVES
  HALF THE BENEFITS

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MEMBERSHIP

• Option was considered to transfer accrued
  membership over to new scheme
• Did not happen, therefore all terms and types of
  accrued membership in current scheme still exist

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ACCRUAL RATES

• Accrual rate will change on 1 April 2009 from
  1/80th to the better 1/60th for pension purposes
  but no automatic lump sum
• Up to 31 March 2009 the accrual rate will remain
  1/80th for pension and 3/80ths for lump sum
• Commutation rate of 121 (12 of lump sum for
  each 1 of pension given up)
• 1/80th or 1/60th?
• WHICH IS BETTER?

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ACCRUAL RATES

• Examples of a person retiring in 2049 with 40
  years scheme membership

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ACCRUAL RATES

• ISSUES TO CONSIDER
• For the next 40 years or more, benefits will
  continue to be calculated on 1/80th and 1/60th
• Difficult for members to calculate pension
  benefits

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EXTRA BENEFITS

• Purchasing Additional Membership (Added Years)
• No longer available
• Existing contracts honoured
• Additional Regular Contributions (ARCS)
• Facility to purchase extra pension
• Multiples of 250 up to a maximum of 5,000
• Purchase self only or with survivor benefits
• More flexible - choose commencement and ceasing
  date of additional contributions
• Still subject to medical

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EXTRA BENEFITS

• Additional Voluntary Contributions (AVCs)
• No change continues as before
• Maximum contributions 100 of taxable earnings
• Options at retirement
• Open market annuity
• LGPS top up pension
• Transfer in to LGPS if AVC payment commenced
  prior to 30/06/2005
• Tax free lump sum (100 of fund up to maximum of
  25 of LTA)

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FLEXIBLE RETIREMENT

• Member must be over 50 (55 from 01.04.2010)
• Employer must have agreed to reduction in hours
  or grade
• Employer consent to access benefits if member
  under age 60
• Ability to draw all or part of benefits
• Employees should be aware that benefits likely to
  be reduced because of early payment

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REDUNDANCY/ EFFICIENCY

• Earliest age at which immediate benefits are
  payable increased from age 50 to age 55, subject
  to protection for existing members until 31 March
  2010
• Protection for life to pre-6th April 2006 members
  who will retain earliest retirement age of age 50
  (only for efficiency or redundancy)
• Employer may still award additional years of
  membership

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RETIREMENT AFTER NORMAL RETIREMENT DATE

• Pension payable from retirement
• Benefits accrued subject to enhancement in
  respect of pre age 65 and post age 65 membership

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ILL HEALTH

• ILL HEALTH RETIREMENT
• Existing ill health provisions replaced with
  multi tier system
• Benefit regulations include a two tier system
  within LGPS
• Member must have 2 years membership or
  transferred in previous benefits
• Third tier benefit payable by employer

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ILL HEALTH DEFINITIONS

• Ill health employee must be permanently
  incapable of discharging efficiently the duties
  of his/her current employment and
• Must have a reduced likelihood of obtaining
  gainful employment (whether in local government
  or otherwise) before normal retirement age
• Gainful employment means paid employment for
  not less that 30 hours in each week for a period
  of not less than 12 months
• Permanently incapable means will more likely
  than not, be incapable until, at the earliest,
  age 65

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ILL HEALTH TIERS

• Upper tier No prospect of undertaking gainful
  employment before age 65 benefits based on
  accrued membership plus 100 of potential
  membership to age 65
• Lower tier reasonable prospect of undertaking
  gainful employment before age 65 benefits based
  on accrued membership plus 25 of potential
  membership to age 65
• Third tier where employment is terminated on
  the grounds of permanent ill health but who are
  likely to obtain gainful employment in a
  reasonable time
• Employer has the option of paying a discretionary
  lump sum payment
• - 1 weeks pay for each year of service
• - Maximum 30 weeks (up to 30,000 being tax free)

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ILL HEALTH CURRENTIll Health
Enhancement under current regulations

• Increased membership must not exceed the total
  membership the member would have accrued had they
  continued in employment until age 65.

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ILL HEALTH SCENARIOS

• Example - Current Scheme
• Member retires on ill health age 33, 5 years
  membership,
• final pay being 24,000
• Accrued membership 5 years
• Enhancement 5 years
• Total membership 10 years
• Annual pension 10/80 x 24,000
  3,000
• Lump sum 30/80 x 24,000
  9,000

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ILL HEALTH SCENARIOS

• Example New Scheme Tier 1
• Member retires on ill health age 33, 5 years
  membership, final pay
• being 24,000. Example based on membership
  being all post 1 April
• 2009
• Accrued membership 5 years
• Enhancement 32 years
• Total membership 37 years
• Annual pension 37/60 x 24,000
  15,000
• Or member could opt for smaller pension in favour
  of lump sum
• Annual pension 9,642.86
• Lump sum 64,285.68

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ILL HEALTH SCENARIOS

• Example New Scheme Tier 2
• Member retires on ill health age 33, 5 years
  membership,
• final pay being 24,000. Example based on all
• membership being post 1 April 2009.
• Accrued membership 5 years
• Enhancement 8 years
• Total membership 13 years
• Annual pension 13/60 x 24,000
  5,200
• Or member could choose to opt for small pension
  in favour of lump sum
• Annual pension 3,342.86
• Lump sum 22,285.68

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ILL HEALTH POINTS TO NOTE

• Part time Members
• Enhancement scaled down in proportion to number
  of hours worked, based on part time hours as at
  date of leaving
• Protection for full time members who move to
  part time removed
• Obtaining employment
• Consideration of gainful employment should be
  treated on members ability to do a job and not
  to the state of the local job market
• Protection for existing 1998 members
• Protection will be provided to active members who
  were in the scheme
• before 1 April 2009
• Less than 2 years membership (with no transfer)
• No ill health provision available

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DEATH BENEFITS

• ACTIVE MEMBERS ON OR AFTER 1 APRIL 2009
• Death in service 3 times actual pay
• Deferred pensioner 5 times deferred pension
• Death in retirement (prior to age 75) 10 times
  pension less pension payment to date of death
• Short term widows/widowers/civil partners
  pension no longer payable

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DEATH BENEFITS

• DEATH IN SERVICE SURVIVORS BENEFITS
• Death grant - Three times pay (if nominated
  beneficiary)
• Pension - payable for life - based on potential
  membership to age 65
• Example - based on all membership being in the
  new scheme
• Member dies, age 45 - 5 years membership, final
  pay 24,000
• Death grant - 72,000
• Survivors pension is 10,000 per annum
  (25/60ths)

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DEATH BENEFITS

• NOMINATED COHABITING PARTNERS
• Benefits based on any membership post 5.04.88
  membership only
• Declaration signed by both parties
• For at least a continuous period of 2 years -
• free to marry or enter into a civil partnership
• Have lived together as husband and wife or civil
  partners
• have not been living with someone else as husband
  and wife or civil partners
• financially dependent on member or each other
• Upon death of member, surviving partner must
  supply evidence that all conditions have been
  satisfied

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DEATH BENEFITS

• CHILDRENS BENEFITS
• Death in service
• 1/320 of ill health pension that would have been
  payable
• 1/240 if no surviving parent
• Death in Retirement
• 1/320 of pension (including pension increases)
• 1/240 if no surviving parent
• Death while deferred
• 1/320 of pension (including pension increases)
• 1/240 if no surviving parent

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COMMUNICATION

• November - newsletter issued
• December - annual benefit statement plus basic
  information on new scheme
• February - further newsletter
• Information on website accpf.co.uk
• Presentations to employers/staff/unions
• Workplace posters