JB Employer Forum Presentation'ppt

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Employer Forum June 2007
NEW LOCAL GOVERNMENT PENSION SCHEME APRIL 2008

John Briscoe Technical Manager Norfolk County
Council

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How we got here

• Green Paper 2002 and White Paper 2003
• Simplicity, Security and Choice
• Working and saving for retirement
• Increased retirement age in the Public Sector to
  65
• Increased minimum age that benefits payable
• (except ill-health) from 50 to 55 by
  2010

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December 2004

• Regulations introduced with effect from April
  2005 to
• - Increase earliest age for access to benefits
  in
• LGPS from 50 to 55 from April 2005
• - Standardise retirement age of 65 by phasing
  out of the
• 85 year rule
• (Protection for members aged 53 on 31 March
  2005)

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April 2005 Changes Revoked

• On 18 March 2005 D.P.M.
• announced intention to revoke April 2005
  changes
• Creation of Tripartite Committee
• On 13 July 2005 the 2005 changes were
• revoked with retrospective effect to 1 April
  2005
• Cost of revocation to be meet by savings re
• members allowed to take 25 of fund as cash

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Changes to the Scheme April 2006

• 85 year rule to be removed from October 2006
• Transitional protection for members who would
• be 60 by 31 March 2013
• Earliest age that members could draw benefits
• not raised to 55 until 2010
• Flexible Retirement introduced
• Introduction of new Inland Revenue provisions
• - No limit on contributions or years of
  membership
• - Ability to take up to 25 of fund as cash

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Strike Action called off!
Agreement between Unions, Government and
employers to work to resolve outstanding
differences - 50 of savings from abolition
of 85 year rule and new commutation
provisions to be used to fund improvements
and protection - Negotiations on a sustainable
and affordable New Look LGPS


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Additional Protection Agreed

• Following removal of 85 year rule
• - Protection for all existing members to 31 March
  2008
• - Extension of existing protection
• From 31 March 2013 to 31 March 2016
• for all existing members who will be aged
• 60 by 31 March 2016
• Introduce tapered protection for members
• aged 60 between April 2016 and March 2020
• Actuarial reduction factors reduced

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Consultation draft 30 June 2006
Consultation paper offered five possible options
for new look LGPS

• Updated current final salary scheme based on
  80ths
• New final salary scheme based on 60ths
• Care scheme with accrual rate of 1.85
• and RPI revaluation
• Care scheme with accrual rate of
• 1.65 and RPI 1.5 revaluation
• Hybrid Care/Final salary scheme

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Consultation draft New Look Scheme 2008

• New scheme based on 1/60th for future service
• No automatic lump sum - lump sum by commutation
• Normal retirement age of 65 with option to
  retire from 60
• Redundancy/Efficiency benefits payable from
  aged
• 55 but with employers option for reduction
• Three tiered ill-health benefit system
• Spouses, civil partners and co-habiting
  partners pensions
• Facility to purchase additional pension up to
  5,000 p.a.
• Tiered contributions of 5.5 on first
• 12,000, 7.5 balance

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LGPS (Benefits, Membership Contributions) Regula
tions 2007

• These regulations provide structure of the
• new scheme to operate from April 2008
• All active members (as 31 March 2008) will
• transfer to new scheme on 1 April 2008
• Benefits in future will be based on two
  elements
• - benefits accrued to 31 March 2008 based on
• pension of 1/80 plus lump sum
• (these benefits will be recalculated on final pay
  at date of leaving)
• - benefits accrued from 1 April 2008 based on
• 1/60th with lump sum by commutation

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Provisions of New Scheme

• Provides for an annual pension of 1/60th of
  final
• pay for each year of membership post 31 March
  2008
• Up to 25 of capital value of benefits can be
  taken
• as a lump sum by commutation using a
• 121 commutation factor
• Benefits based on pay for the final years
• pensionable pay
• (subsequently amended to option of last three
  years)

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Provisions of New Scheme cont.

• Normal retirement age of 65, but with option
• to take benefits from age 60, or with employer
• consent from age 55 (early retirement factors
  to apply)
• Option to remain in scheme until age 75
• Flexible Retirement with employer consent will
  be
• permitted from age 55
• Unreduced immediate benefits on
• redundancy/efficiency from age 55

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Tiered Contribution Rates

• Employee contributions based on whole time
  equivalent pensionable
• pay in previous year ( Subsequently changed
  to pay as at April)
• Pay figures to be increased on 1 April each
  year by rises in RPI

Band Range Contribution Rate 1 up to
12,000 5.5 2 12,001 - 14,000 5.8
3 14,001 - 18,000 5.9 4 18,001 -
30,000 6.5 5 30,001 - 40,000 6.8
6 40,001 - 75,000 7.2 7 over
75,001 7.5

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Protected Manual Worker paying 5
It is proposed that these members will move to
the general employee contribution rate by April
2011 on a phased basis as follows-

Range from 5 to 6.5 in
2008/9 5 to 7.5 in
2009/10 5.25 to 7.5 in
2010/11 5.5 to 7.5 in
2011/12

Separate regulations to cover this are to be
issued later
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Two (three) tiered ill-health system

• Two tier ill-health Pension Scheme Benefits
• If the members employment is terminated on
  permanent ill-health
• - immediate payment of benefits plus 25 of
• potential membership to age 65 in cases where
• the member is unlikely to obtain gainful
  employment
• within a reasonable period of time but likely
  to be
• able to obtain gainful employment before age 65
  
• - immediate payment of benefits plus100
• of potential membership to age 65 in cases
  where the
• member has no reasonable prospect of obtaining
  gainful
• employment before age 65

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Two (three) tiered ill-health system

• Gainful employment is defined as paid
  employment for
• not less than 30 hours per week for a period
  of not
• less than 12 months
• underpin for members aged 45 or over on 31
  March 2008
• in that any enhancement is not less than under
  1997 regs

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Third Ill-Health Tier

• In cases where a members employment is
• terminated on grounds of permanent ill-health
• but they are likely to be able to obtain gainful
  
• employment within a reasonable period of time,
• it is proposed that employers will be provided
• with powers to pay a reviewable benefit from
• their revenue account (not from the Pension
  Fund)
• which would cease if alternative
• employment is gained
• Details of this scheme are awaited

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Benefits payable on death of member

• Increase in Death in Service Grant from 2 times
  pay to 3 times pay
• Death Grant in respect of Deferred Benefits to
  be 5 times
• annual pension
• Death Grant in respect of pensioner member will
  be 10 times
• annual pension less pension paid (to date of
  death)
• Dependants pensions based on 1/160th accrual
  rate payable to
• Spouse(s)
• Civil partners
• nominated co-habiting partners
• (based on post 5 April 1988 membership)
• Children

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Additional Membership

• Employee options
• Members option to purchase additional pension
• of up to 5,000 per annual
• Facility to pay Additional Voluntary
  Contributions (AVCs)
• Employer options
• Employers can augment membership by up to 10
  years
• Employers can grant additional pension up to
  5,000 p.a.

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Example of benefits - Member with 15 years pre
and post April 2008
Benefits accrued as at 31 March 2008
(recalculated on final pay) - Pension
15/80 x 24,000.00 4,500.00 p.a. - Lump
Sum 3 x 15/80 x 24,000.00
13,500.00 Benefits accrued from 31 March 2008
(date of termination 31 March 2023) - Pension
15/60 x 24,000.00 6,000.00 p.a -
Option to take up to 25 of the capital value of
benefits as a lump sum


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Calculation of Fund Value
Value of pre 2008 benefits Pension 4,500.00
p.a. (4,500 x 20) 90,000.00 Lump Sum
13,500.00 Value of post 2008
benefits Pension 6,000.00 p.a (6,000 x
20) 120,000.00 Total value of benefits
223,500.00 Maximum Cash 25 of fund value
55,875. 00 Cost of Commutation
3,500.00 approx (42,375/12) Benefits now
Pension of (10,500 -3,500) 7,000.00
p.a. Lump Sum 55,875.00


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Cost of future service under new scheme
Existing Members New Entrants Total
cost 20.6
18.2 Average employee rate 6.3
6.3 Employer rate
14.3 11.9


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Cost Sharing Mechanism

• To be established by March 2009
• Aim to ensure that LGPS remains viable
• by some form of cost sharing
• To look at commutation take up,
• longevity, actuarial factors, etc
• Policy Review Group
• Could apply following 2010 valuation

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Awaited Legislation

• Administration Regulations
• Transitional Regulations
• Amending legislation

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Recent Amendments to 1997 Regulations

• Amendment (No.2) Regulations into force from
• 21 June 2007 but with some retrospective
  effect
• The following are retrospective to 6 April 2006
• Ill-health enhancement not limited to 40 years
• - Enhancements as regulation 28 (1997
  regulations)
• or to age 65 if shorter
• Flexible retirement - service to count as
  qualifying in
• continuing employment - however does not count
  towards
• the 85 year rule (retrospective to 6 April
  2006)
• No death grant payable after age 75
• (retrospective to 6 April 2006)

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• Retrospective to 6 April 2007
• Commutation of trivial pensions -
• as allowed under Finance Act
• Increase in augmented membership (1st April) an
• employer may award
• Elections to pay AVCs
• limited to maximum of 50 of remuneration
• Contributions must be deducted from pay

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Corrections to Benefits, Membership
Contribution Regulations

• Benefits can be calculated on the best of the
  last 3 years
• pensionable pay (last year only defined in
  actual regs)
• All members (not just whole time members) whose
  post is
• downgraded or who voluntarily down grade
  (other than as a
• result of flexible retirement) can, is they
  wish, choose to have
• benefits based on the average of any 3
  consecutive years in the
• last 10 (ending on a 31 March)
• If final pay is based on an earlier year than
  final year pension
• increase will be added to compensate for
  intervening inflation