Guernsey pension proposals for the future pensionable service of current scheme members

September 2015

To cover

The story so far and what happens next

Some pension terminology

Proposals for current members

The story so far.. 2012 proposals - rejected September 2013 proposals – rejected by RCN members November /December 2013 variation – rejected by RCN July 2014 ‘independent mediated proposals’ (with threat of imposition of 2013

proposals) – accepted by RCN members in a ballot. April 2015 States meeting July 2015 – improvements on July 2014 and September 2013 proposals. Threat

of 2013 imposition if rejected. ASEO July 2015: ‘In response, a majority of unions representing a

substantial majority of members are now prepared to recommend this to their members’.

RCN believes that the current proposals are the best that can be achieved through negotiation and recommend them to members on that basis.

If July 2015 proposal rejected by members? States will ask the Royal Court to allow them

to change the employee pension arrangements and impose a new scheme on current members. If successful ….

The scheme imposed would be that consulted on in September 2013 – not the proposals we discuss today.

September 2013 proposals are ‘live’ i.e. already in place for new scheme entrants

September 2013 proposals – for future service CARE Everyone moves to the new scheme 1/80 plus 3/80 lump sum (1/64th) NPA=SPA Employee contributions 7.5% Employer contribution ceiling of 14% Those within 10 years (and at least age 45 at 31/12/2013) of

Normal Pension Age (NPA) keep NPA only in new scheme – no other protection

No ‘flexibilities’

Some terminology

• Defined Benefit (DB) / Defined Contribution (DC)

• CARE• Accrual• Lump sum• Indexation• Normal Pension Age (NPA) / State Pension

Age (SPA)• Commutation

‘Transitional arrangements’

• Staff who on December 31st 2013 were within ten years of their NPA will remain in their current scheme and not move to the new arrangements. They will pay the new contribution rate of 7%

• Option to move to the new arrangements should they wish• All other staff will move to the new arrangements on January 1

2016 for future pension benefits.• Service built up to January 1 2016 is fully protected on a final

salary basis and linked to your current NPA. The final salary at actual retirement will be used to calculate pre-2016 benefits

• Service to 2016 can be taken in full at current NPA but employee will need to retire from States employment.

Transitional examples – age at 31/12/13 - will remain in current arrangements

Normal Pension Age (NPA) 55 45 or older on 31/12/13

NPA 60 50 or older on 31/12/13

NPA 65 55 or older on 31/12/13

Proposed arrangements from January 1 2016

• For future pension benefits of current scheme members built up after January 1 2016

• Career Average - CARE with 1/56th accrual - optional lump sum (commutation £12-£1)

• No ‘cap’ on pensionable service• Employee contribution 7% / Employer contribution 14.2%• Pension age equal to state pension age • Nurses and MHOs who currently have a NPA below 60 will

have an NPA of 60 if they remain in service until at least age 55

• Inflation (in service, in deferment and in retirement): rises at Guernsey RPIX – If above 7.5% dependent upon scheme ability to pay (affordability)

• Pensionable earnings / contributions above £87,434 will be in a DC scheme

Comparison –current and proposedCurrent arrangements

Final salary – defined benefit

NPA 60 (pre-2008) or 65 Accrual 1/80 and 3/80

(pre 2008 = 1/64th) or 1/60 (with optional lump sum)

Contribution 6.5%

July 2015 (future service only) CARE defined benefit NPA=SPA but only to age set now Accrual 1/56th (optional lump sum) Contributions 7% Increases RPIX to 7.5% above subject

to scheme affordability For those who on 31/12/2013 they will

have full transitional protection i.e. remain in their current final salary arrangements

Option to opt out or reduce benefits after 35 years

Purchase DB/DC benefits Early retirement ‘buy out’

Comparison – accepted by RCN and proposed 2015July 2014 accepted by RCN members

CARE defined benefit NPA=SPA Accrual 1/80 and 3/80th lump sum

(1/64th) Contributions 6% Increase RPIX ‘transitional arrangements ‘ for those

within 10 years of NPA – remain in final salary

Additional pension in DC section Cost sharing arrangements

July 2015 proposal (future service)

CARE defined benefit NPA=SPA but only to age set now Accrual 1/56th (optional lump sum) Contributions 7% Increases RPIX to 7.5% For those who on 31/12/2013 they

will have full transitional protection i.e. remain in their current final salary arrangements

Option to opt out or reduce benefits after 35 years

Purchase DB/DC benefits Early retirement ‘buy out’

Working Longer No increases in SPA/NPA not already agreed by the States will apply to

current scheme members. Members will have a SPA/NPA that will not change in future.

Working Longer Review to be established (like UK Health). If unable to continue in role…….. “In relation to CARE scheme service, members of the scheme within 5 years

of NPA who become unable to carry out their existing duties for reasons other than those linked to ill health will have access to an employer initiated early retirement process (EIERP) for age related capability issues. This entails the employer making all reasonable efforts to find suitable alternative employment. If no suitable alternative employment is available as indicated by completion of the EIERP the employee will be given access to an immediate payment of benefits based on actual service”.

Otherwise pension can still be taken before SPA but may suffer a reduction

Indexation - If RPIX >7.5%

• Benefits already earned or pensions in receipt need to keep pace with a measure of inflation

• In-service benefits built up, pension payments and deferred pension benefits (non-active scheme members) will be based on increases in RPIX

• If RPIX> than 7.5% - will be paid if it is affordable within the scheme

Flexible options Purchase additional pension in CARE (DB) or

DC section Purchase early retirement actuarial buy out Compulsory nature of scheme ceases at 35

years service – can continue, can leave or can continue purchasing reduced (50%) benefits.

‘Phased retirement’ continues to apply but now at 20% and not 25% reduction

Rises in Guernsey SPA For those joined before January2016 all

future benefits will be linked to current approved Guernsey SPA 70 by 2049.

No increases in NPA not already agreed by the States will apply. Members will have a NPA that will not change in future.

Your state pension age is only relevant for service after 2016

DC where pensionable pay is above £87,434

Contributions on excess pensionable pay above £87,434 - Civil Service grade SO6

Employee contribution – 7% Employer contribution 12% (at present) DC arrangement open to all to purchase

additional pension benefits Choice of investment funds

On retirement

If you have service - Pre and post 2016 and retire after 2016 but before your SPA your pension will be built up as follows;

Service to 2016 at your current accrual and at your normal pension age calculated using your final salary at actual retirement – plus any service after 2016 on a CARE basis and reduced for taking it before your SPA

Fixed cost ceiling (‘cap and share’)• A form of ‘risk-share’ arrangement – now common• Employer will always pay a minimum equal to the

employee contribution rate • Employer fixed ceiling (cap) of 14.5% of pensionable pay

– includes future service costs, past service costs (of the new scheme) relating to active members living longer

• Floor to employer contribution of 10.5%• All other past service costs including reduced investment

return will be met by the employer (STATES)• ‘Cap and Share’ not implemented until 2nd valuation –

2019

Other Issues

• New ‘Governance arrangements ‘ with employers and TUs represented to manage future arrangements

• ‘Uniform accrual’ applies for MHOs – no change• Death in service lump sum 3x annual pay - unchanged• Death in retirement – pension paid for 3 months if death

occurs 5 or more years after retirement - unchanged• Qualifying spouse / partner / child death benefits -

unchanged• Transfer Club arrangements retained• Commutation of up to 30% of value of benefits (was 25%)

- £12-£1• Benefit statements to be issued each May

RCN Consultation with members ASEO July 2015: ‘In response, a majority of unions

representing a substantial majority of members are now prepared to recommend this to their members’.

RCN believes this is the best that can be achieved through negotiation

Member meetings Letter to members FAQs Information provided by employer RCN individual member ballot closes September 25th

Questions? Gerry.o’dwyer@rcn.org.uk