new scheme lgps 2014 and contribution setting mike allen director of pensions
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Summary of Changes
Current scheme New scheme
Scheme basis Final Salary CARE
Accrual rate 1/60th 1/49th
Indexation CPI for DB’s and pensioner’s CPI on all
Normal Pension age 65 SPA
Employee contributions 5.5% to 7.5% 5.5% to 12.5%
Vesting period 3 months 2 years
Contributions flexibility None 50/50 option
Pay used Pensionable pay Actual pay
Outsourcing LGPS still available
Protection 85 year rule, pre 2008 service Pre 2014, plus 10 year of retirement
• Linked to State Pension Age
• SPA: currently 6566 by October 202067 by 202868 by 2046
Increased Retirement Age
Actual Pensionable pay Gross contribution After tax relief Current rate (if full time)
Up to £13,500 5.5% 4.4% 5.5%
£13,501 to £21,000 5.8% 4.64% 5.8, 5.9 or 6.5%
£21,001 to £34,000 6.5% 5.2% 6.5%
£34,001 to £43,000 6.8% 5.44% 6.8%
£43,001 to £60,000 8.5% 5.1% 6.8 or 7.2%
£60,001 to £85,000 9.9% 5.94% 7.2%
£85,001 to £100,000 10.5% 6.3% 7.2 or 7.5%
£100,001 to £150,000 11.4% 6.84% 7.5%
Greater than £150,000 12.5% 6.88% 7.5%
Contributions Payable
50/50 Scheme
• 50% contributions
• 50% service accrual (1/98th)
• 100% death cover
• Re-enrolled into full scheme every three years
• For benefits accrued after 1/4/2014• To calculate contribution rate to be paid• Non-contractual overtime• Allowances• Arrears of pay• ‘Assumed Pensionable Pay”
Separate pay figures will be required for Actual Pay (new scheme) and Final Pay (protected benefits) e.g.:
• A member leaving employment• End of Year contribution returns
Pensionable Pay
• All retirees within 10 years of age 65 at 31 March 2012
• 2 calculations to pay the better of
• Old benefits (Pre 2014 scheme for all service)
• New benefits (Pre 2014 & Post 2014)
Protections - continued
• CARE• 1/49th
• NRD=State pension age• Actual pay for benefits and contributions• New contribution rates• 50/50 scheme• Protection for all service to 31/3/2014• Best of both for those within 10 years of retirement
Summary
Current Situation:
• Benefit and Administration Regulations published
• Transitional Regulations (Protections etc.) due shortly
Further Regulations/Consultations due on:
• Cost Control
• Governance
Summary
• Newsletters
• Briefing note on key issues
• Website
• Workshops
• Guidance Notes
• Revised on-line notifications and Guides
Support for Employers
• Newsletter/formal notification of changes
• Website
• Benefit Modellers
• Posters
Support for Members
• Once every three years
• Sets employer contribution rates for the next 3 years
• Aims to ensure fund solvency
The valuation process
• Funding level
• Recovery period for past service deficit
• Covenant strength
• Type of employer
• Open or Closed to new members
What determines contribution rates?
LPFA’s aims
• Ensure appropriate contribution rate for each employer
• Recognise individual employer strength
• Identify how covenant strength can be improved
• Reduce risk of employer debt falling on other scheme employers