Draft Regulations for a new look Local Government Pension Scheme for England

1
Draft Regulations for a new look Local Government
Pension Scheme for England Wales

• Published 22 December 2006
• Consultation ends 28 February 2007
• Target for the final Regulations to be laid is
  April 2007
• New scheme in force at 1 April 2008

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Amicus Pensions Team

• Officers -
• John Allott
• Bryan Freake
• Lay Member Representative -
• Dick Banks
• Amicus Local Authorities National Committee -
• Maintaining our lay democracy

3
Comparing the main proposals in the current
scheme with the draft 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.
• Proposed 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.

6
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.
• Proposed new scheme
• Pension based on pensionable pay in last year of
  service 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.
• Proposed new scheme
• 5.5 on first 12,000 of pensionable pay.
• 7.5 on pensionable pay above 12000.
• Based on average contribution of 6.3.
• Those on whole time pay up to 16,000 will pay
  less than the current 6. Those on whole time pay
  up to 20,000 will pay less than the average of
  6.3.

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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

• Proposed 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.

11
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

• Proposed new scheme
• Member leaves service on ill health grounds with
  a reduced likelihood of undertaking gainful
  employment, an ill health pension will be paid.
  Any service enhancement will be based on when
  member is expected to be able to undertake
  gainful employment.
• Unable to undertake gainful employment before age
  65, service is enhanced by 50 of potential
  service to age 65.
• 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, accrued benefits to
  date of leaving are payable with no enhancement.
• Underlying guarantee that enhancements are to be
  no worse than under current scheme???

13
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.
• Proposed new scheme
• If forced to retire after minimum retirement age
  - employer decides whether to pay a pension and
  if so, whether it is reduced for early payment???
  
• 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.

14
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.
• Proposed scheme
• Increase service by up to 10 years for those in
  service.
• Increase pensions in payment.
• Limited to potential service to age 65.

15
Death in service benefits

• Current scheme
• Lump sum 2 x pay.
• Proposed 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.
• Proposed new scheme
• Pensions for co-habitees and unmarried partners
  backdated to 1 April 1988.
• Pension same accrual rate as now.
• We need clarification that it will be based on
  ill health pension.
• 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.
• Proposed 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.
• Proposed 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.
• No details yet.

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Summary and next steps
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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.