New look Local Government Pension Scheme for England

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New look Local Government Pension Scheme for
England Wales

• New scheme to come into force at 1 April 2008

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Amicus Pensions Team

• Officers -
• John Allott, National Officer
• Bryan Freake, Pensions Officer
• National Committee Member -
• Dick Banks
• Amicus Local Government Pension Committee -
• Maintaining our lay democracy

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Comparing the main elementsin the current scheme
with the Regulations for the new scheme
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Final Salary Scheme
The new scheme will remain a final salary scheme.
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Accrual Rate

• Current scheme
• 1/80th pension plus 3/80th lump sum x pensionable
  pay x pensionable service.
• New scheme
• 1/60th pension x pensionable pay x pensionable
  service.
• At retirement a member can exchange pension for
  cash up to a maximum cash lump sum of 25 of the
  overall value of their retirement benefit. The
  exchange rate is 12 cash for each 1 per annum
  pension given up.

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Transfer to the new scheme

• Benefits earned on service up to 31 March 2008
  will remain on current scheme accrual basis
  1/80th Pension 3/80th lump sum.
• All members will earn benefit under the new
  scheme from April 2008 including those with
  protection under the Rule of 85 -1/60th pension.

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Final pensionable pay

• Current scheme
• Pension based on pensionable pay in last year of
  service or one of the two immediately preceding
  years.
• New scheme
• Pension based on pensionable pay in last year of
  service or one of the two immediately preceding
  years or best average of three consecutive years
  in the last ten.

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Employee contribution

• Current scheme
• 6 of pensionable pay.
• 5 protected for those on manual grades at April
  1998.
• Those on 5 protection will have the protection
  phased out over three years from 2008

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Employee Contribution

• Proposed new scheme
• Contributions linked to pay with higher paid
  paying more than lower paid as follows-
• Less than 12,000 5.5
• 12,001 - 14,000 5.8
• 14,001 - 18,000 5.9
• 18,001 - 30,000 6.5
• 30,001 - 40,000 6.8
• 40,001 - 75,000 7.2
• More than 75,000 7.5
• Contribution rate calculated on the basis of
  pensionable pay in the previous financial year
  The bands will rise in line with prices from
  2009.

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Retirement Age

• Current scheme
• Normal retirement age 65.
• Can retire from age 60 without employer consent.
• Minimum retirement age from age 50 increasing to
  55 from April 2010.
• Members can retire before age 65 without an early
  retirement reduction if age and service equal 85
  (Rule of 85).
• Phasing out of Rule of 85
• Rule of 85 ends for service after April 2008
• Protection for those age 60 before April 2016
• Tapered protection for those age 60 between
  April 2016 and March 2020.

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Retirement Age

• New scheme
• Normal retirement age 65.
• Can retire from age 60 without employer consent.
• Minimum retirement age 50 increasing to 55 from
  April 2010 (55 from April 2008 for new
  starters).
• Protections for Rule of 85 go forward into the
  new look scheme.

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Ill Health Retirement

• Current scheme
• Unable to do current job until at least age 65,
  or comparable job offered by employer.
• More than 5 years service at retirement to
  qualify.
• Pension enhanced by formula based on service and
  age as follows
• Up to 10 years service doubled
• Between 10 and 13 1/3 years service increased to
  20 years
• Service more than 13 1/3 years increased by 6
  2/3 years.
• Enhancement cannot exceed potential service to
  age 65.

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Ill Health Retirement

• New scheme
• If a members employment is terminated on the
  grounds that his ill health renders him
  permanently incapable of doing his current job
  and he has a reduced likelihood of obtaining
  gainful employment before his normal retirement
  age they may qualify for a benefit.
• Gainful employment is defined as paid
  employment for not less than 30 hours in each
  week for a period of not less than 12 months

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• Ill Health Retirement
• There are three levels of provision
• Unable to undertake gainful employment before age
  65, service is enhanced by 100 of potential
  service to age 65.
• Unable to obtain gainful employment within a
  reasonable period but likely to be able to
  undertake gainful employment before age 65,
  service is enhanced by 25 of potential service
  to age 65.
• Able to undertake gainful employment within a
  reasonable time of leaving, consultation
  continuing on a benefit to be provided by the
  Employer rather than the Scheme.

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Retirements on grounds of redundancy and
efficiency

• Current scheme
• If forced to retire on redundancy/efficiency
  grounds after minimum retirement age - immediate
  pension earned to date of leaving without any
  early payment reduction paid.
• New scheme
• If forced to retire after minimum retirement age
  entitled to immediate pension without reduction
• Minimum retirement age for new staff is age 55.
  For existing staff, it is age 50 until April
  2010 - when it goes up to 55 for everyone in line
  with the Finance Act.

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Employers power to increase pensionable service
and pension in payment

• Current scheme
• Increase service by up to 6 2/3 years for those
  in service.
• New scheme
• Increase service by up to 10 years for those in
  service.
• Increase pensions in payment.
• Limited to potential service to age 65.

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Death in service benefits

• Current scheme
• Lump sum 2 x pay.
• New scheme
• Lump sum 3 x pay.

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Survivors pension

• Current scheme
• Widow/widower/civil partners pensions
• Short-term pay continues for up to 6 months,
  followed by long-term pension based on 50 of
  ill health pension at date of death
• Childrens pensions based on number of children
  and whether survivors pension payable.
• New scheme
• Pensions for co-habitees and unmarried partners
  backdated to 1 April 1988.
• Pension same accrual rate as now.
• Childrens pension same - but no up-rating where
  no survivors pension is payable.

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Death in retirement

• Current scheme
• Death within 5 years of retirement lump sum
  payable of 5 years pension, less pension already
  paid.
• New scheme
• Death within 10 years of retirement lump sum
  payable of 10 years pension, less pension
  already paid.
• Survivors pension
• New scheme proposals similar to current scheme
  provision except no short-term pensions.

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Members options to increase benefits

• Current scheme
• Buy additional years up to 6 and 2/3 years.
• Pay additional voluntary contributions (AVCs)
• Up to the limits allowed by Finance Act
  currently lifetime allowance 1.5million
  annual allowance 215,000.
• New scheme
• Pay AVCs to purchase up to 5000 per annum
  additional pension.

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Sharing the future risk of the scheme

• Review mechanism to be agreed by 1 April 2009.
• All pension schemes have risks such as investment
  risk, or those associated with life expectancy.
  These will need to be discussed after 2009.

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Summary
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Summary and next steps
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Current scheme was changed from 6 April 2006 to
allow greater flexibility for members

• Main changes are
• Members can take up to 25 of the value of their
  retirement benefits as a tax free lump sum by
  reducing their pension.
• Members can remain in the scheme until age 75.
• Members can reduce pay/hours and with employer
  consent draw their pension from age 50 and stay
  in work.
• There is no maximum service. The old maximum of
  40 years before age 60 and 45 before age 65 have
  been removed.
• The maximum ceiling of 15 of pay that members
  can pay to increase benefits has been removed.
  Members can now pay up to 50 of their pay to the
  LGPS and additional voluntary contributions.
• Members can now earn benefits up to the maximum
  allowed by the Finance Act
• Currently lifetime allowance 1.5m Annual
  allowance 215,000.