OverviewChanges for Employers

Presented by

Shirley Cuthbert

Catherine Drew

Viv Ray

Emma Shand

LGPS 2014

Overview Agenda

• New Benefits• Employee Contributions• 50/50 Option• New Pensionable Pay definition• CARE Pension• Retirement Options and actuarial reductions• Additional Pension Contributions and AVCs• Absences• Leaver Options• Protections and underpin• Comparison Table

New Benefits

• Effective from 1st April 2014• Career Average Revaluation Earnings scheme

(CARE)• Members will have a personal account• Contribution year will be April to March• Accrual rate is at 49th, better than 60th • Actual pensionable pay used in calculation – not FTE• Accruing pension is increased each year in line with

CPI

• 9 different pay bandings (to be confirmed)• Most members will pay the same or lower contributions

in the new scheme• Pay bandings based on actual pay not FTE, therefore

part-timers may pay less contributions• Pay bandings increased each April in accordance with

Pensions Increase

Employee Contributions

• New option for member to pay 50% employee contributions

• Benefits for period in 50/50 scheme will be half of full scheme

• However, Death Grant and Ill-health cover will remain at full rate

• Member reverts to 100% scheme/contributions every 3 years on re-auto enrolment date and if member goes onto no pay sickness/injury. Member can then opt again for 50/50 scheme

50/50 Option

• New definition of pensionable pay to include non contractual overtime

• New definition of pensionable pay to include additional hours

• No longer required to uprate pensionable pay to full-time

• Pensionable pay is now applicable to when it was paid, not to period of work it relates to.

New Pensionable Pay definition

CARE Pension

Pension Calculation

Pension = 1/49th of Actual Pensionable payfor the year

Example

£15,000(actual PP) x 1/49th = £306.12 pension

(50/50 scheme accrual rate = 1/98th)

Following year in April above pension will increase with revaluation adjustment (see next slide for examples)

CARE Pension – Year on YearDate Transaction     Total

Year 1 Deposit £15,000 X 1/49 £306.12 £306.12

Year 2 Interest £306.12 X 0.03 £9.18 £315.30

  Deposit £15,600 X 1/49 £318.37 £633.67

Year 3 Interest £633.67 X 0.03 £19.01 £652.68

  Deposit £16,000 X 1/49 £326.53 £979.21

Year 4 Interest £979.21 X 0.03 £29.38 £1,008.59

  Deposit £16,000 X 1/49 £326.53 £1,335.12

Retirement Options

• Normal pension age (NPA) is now the same as the state retirement pension age. No actuarial reduction or increase.

• Late retirement if taken after NPA the benefits will be increased (currently 0.014% per day)

• Redundancy and Efficiency retirement – no change

• Flexible retirement – no change except post 2014 benefits will be actuarially reduced if taken before NPA

• Ill-Health retirement – no change except Tier 1 enhancement is to NPA based on benefits calculated using APP, Tier 2 will be 25% Tier 1 enhancement. Slight change in ill-health certificate wording.

• Voluntary retirement between age 55 – 60, however member will suffer full actuarial reduction, 85 year rule does not apply. (See next slide for actuarial reductions)

Early retirement reductions

Current Actuarial Reductions when retiring before NPA

(Subject to change)

Additional Pension and AVCs

• Member can buy extra pension by paying Additional Pension Contributions (APC)

• APC doesn’t include survivor’s pension• APC calculated in accordance with awaited GAD

guidance • Member can pay by lump sum or regular contributions• Regular contributions must be paid over a minimum

period of 1 year.• Additional pension limit is £6,500 p.a. (Increases in line

with PI each year)• Members can now contribute up to 100% of pay (after

statutory deductions) to AVCs.

Absences

• Member no longer required to pay pension contributions for first 30 days of unpaid absence.

• If member opts to pay for period of unpaid leave/child related leave within 30 days of returning to work, then employer must pay 2/3rd of Additional Pension Contribution (APC) costs with employer paying the remaining 1/3rd.

• If member elects after 30 days then member pays full amount themselves unless employer has policy discretion to pay part

• Strike – Member can pay for missed period by paying full APC cost

Leaver Options

• Refund of contributions can now be paid if member has under 2 years service.

• Employer still refunds through payroll if member has < 3 months service; over 3 months service Peninsula Pensions will refund.

• Member can’t have refund if has another continuing concurrent employment.

• Members with > 3 months and < 2 years service have choice of refund or deferred benefit, however must claim refund within 12 months of leaving or defaults is deferred benefit.

Protections and Underpin

• Member with pre 2014 service will have full protection on < 2014 benefits including the age they can take them unreduced.

• Protection can be lost if member has break in any public service pension scheme > 5 years and then joins former DB benefits with current membership.

• UNDERPIN – Members who meet following criteria get highest benefits between 2008 and 2014 scheme: Active member on 31st March 2013, and Within 10 years of NPA on 1st April 2012, and Receive benefits on or after NPA, and No break > 5 years from any public service pension

scheme Has not received payment of any benefits before NPA

Comparison Table

  LGPS 2014 LGPS 2008

Basis of PensionCareer Average Revalued Earnings

(CARE)Final Salary

Accrual Rate1/49th

(1/98th for 50/50 scheme)1/60th

Revaluation RateRevaluation adjustment

(section 9(2) of the Public Service Pensions Act 2013)

Based on Final Salary

Pensionable PayPay including non-contractual

overtime and additional hours for part time staff

Pay excluding non-contractual overtime and non-pensionable additional hours

Employee Contribution RatesSee LGPS 2014 Employee

Contribution Rate on next pageSee LGPS 2008 Employee Contribution Rate on next page

Contribution Flexibility

Yes

members can pay 50% contributions for 50% of the pension benefit – death

grant and ill-health benefits paid at 100%

No

Normal Pension AgeEqual to the individual member's State

Pension Age65

Comparison Table (cont)

  LGPS 2014 LGPS 2008

Voluntary Early RetirementAge 55 – 60

(Full actuarial reduction)Age 60 earliest can retire

Protection and underpin None

Full protection for all < 2014 benefits

Underpin if within 10 years of NPA at 31/03/2012(comparison between old and new scheme)

Lump Sum Trade Off Trade £1 of pension for £12 lump sum Trade £1 of pension for £12 lump sum

Death in Service Lump Sum 3 x Actual Pensionable Pay 3 x Actual Pensionable Pay

Death in Service Survivor Benefits1/160th accrual based on Tier 1 ill

health pension enhancement1/160th accrual based on Tier 1 ill health pension enhancement

Ill Health Provision

Tier 1 - Immediate payment with service enhanced to Normal Pension

AgeTier 2 - Immediate payment with 25%

service enhancement to Normal Pension Age

Tier 3 - Temporary payment of pension for up to 3 years

Tier 1 - Immediate payment with service enhanced to Normal Pension Age (65)

Tier 2 - Immediate payment with 25% service enhancement to Normal Pension Age (65)

Tier 3 - Temporary payment of pension for up to 3 years

Indexation of Pension in Payment CPI CPI (RPI for pre-2011 increases)

Vesting Period 2 years 3 months

Questions

Changes for employers

What does this means for employers?

Agenda• Contributions• Pensionable Pay and exclusion list• Assumed Pay• 50/50 scheme option• Additional Pension Contributions (APC & SCAPC)

and AVCs• Absences• Data requirements• Action List

• New pay bandings to be confirmed

• Average contribution is 6.5%

• Most members will pay the same or lower contributions in the new scheme

• Higher earnings will pay more

• Pay bandings based on actual pay not FTE, therefore part-timers may pay less contributions

• Ensure you keep up to date with correct pay bandings and their increases each year.

LGPS 2014 EMPLOYEE CONTRIBUTION RATE

From To Gross Rate

Up to £13,500 5.5%

£13,501 to £21,000 5.8%

£21,001 to £34,000 6.5%

£34,001 to £43,000 6.8%

£43,001 to £60,000 8.5%

£60,001 to £85,000 9.9%

£85,001 to £100,000 10.5%

£100,001 to £150,000 11.4%

More than £150,000 12.5%

Employee Contributions

BENEFITS > APRIL 2014•New definition of pensionable pay – see next slide for exclusion list in new regulations•Employers need to provide actual pensionable pay for each contribution year (April to March) or part thereof if left during year.•Employers no longer required to uprate pensionable pay to full-time equivalent•Need to exclude any pay that relates to pre April 2014.

Pensionable Pay

Exclusion list (Extract from regulations)

But an employee’s pensionable pay does not include—

a) any sum which has not had income tax liability determined on it;

b) any travelling, subsistence or other allowance paid in respect of expenses incurred in relation to the employment;

c) any payment in consideration of loss of holidays;

d) any payment in lieu of notice to terminate a contract of employment;

e) any payment as an inducement not to terminate employment before the payment is made;

f) any amount treated as the money value to the employee of the provision of a motor vehicle or any amount paid in lieu of such provision;

g) any payment in consideration of loss of future pensionable payments or benefits;

h) any award of compensation (excluding any sum representing arrears of pay) for the purpose of achieving equal pay in relation to other employees;

i) any payment made by the Scheme employer to a member on reserve forces service leave;

j) returning officer, or acting returning officer fees other than fees paid in respect of— i. local government elections,

ii. elections for the National Assembly for Wales,

iii. Parliamentary elections, or

iv. European Parliamentary elections.

BENEFITS <APRIL 2014•Old pensionable pay figure still needed to calculate pre 2014 benefits, including best of last 3 years and if pay reduced in previous 10 years the best 3 year average in last 13 years.•Pensionable pay figure remains as 2008 regulation definition•Employers therefore will need to hold 2 different pensionable pay figures for employees with pre 2014 service.•Employers need to continue to inform pensions of old pensionable remuneration figure when member leaves.

Pensionable Pay

Assumed Pensionable Pay

• If member on reduced or no pay due to sickness, injury; or on statutory child related leave or reserve forces leave, employer needs to calculate Assumed Pensionable Pay (APP) for the applicable period.

• APP is calculated at an annual rate based on the pensionable pay received in the 3 months directly before the start of the applicable period. The annual figure is then apportioned to the applicable period and replaces any pay received in that period.

Assumed Pensionable Pay (cont)

• Ignore any lump sum payments made in the previous 3 month as will already have been included in PP.

• APP calculations need to be done each month so that it is included in the end of year annual pensionable pay for member.

• Examples in LGA payroll guide

• Member can opt to pay 50% employee contributions• Employer will continue to pay full 100% amount effect of

this will be reflected in valuation• Employer is responsible for informing member of effects

on changing to 50/50 scheme• Member reverts to 100% scheme/contributions every 3

years on re-auto enrolment date and if member goes on to no pay sickness/injury. Member can then opt again for 50/50 scheme

• Peninsula Pensions will create notes and form for 50/50 option for employer to give to member, also same if member wishes to revert to 100% scheme.

50/50 Option

Additional Pension and AVCs

• Member can buy extra pension by paying Additional Pension Contributions (APC)

• APC calculated in accordance with awaited GAD guidance • Employer can choose to pay the APC in full or part, this is called

Shared Cost APC. Will need employer discretion to be able to do this.

• Regular contributions must be paid over a minimum period of 1 year.

• Additional pension limit is £6,500 p.a. (Increases in line with PI each year)

• Members can now contribute up to 100% of pay (after statutory deductions) to AVCs.

Absences

• Pension contributions for first 30 days of unpaid absence no longer required.

• If member opts to pay for period of unpaid leave/child related leave within 30 days of returning to work, then employer must pay 2/3rd of Additional Pension Contribution (APC) costs with employer paying the remaining 1/3rd.

• If member elects after 30 days then member pays full amount themselves.

• Strike – Member can pay for missed period by paying full APC cost

Retirement Options

• Redundancy and Efficiency retirement – no change• Flexible retirement – no change except post 2014

benefits will be actuarially reduced.• Ill-Health retirement – no change except Tier 1

enhancement is to NPA based on benefits calculated using APP, Tier 2 will be 25% Tier 1 enhancement.

• Slight change in ill-health certificate wording – check our website for amended certificate

• Voluntary retirement between age 55 – 60, however member will suffer full actuarial reduction, 85 year rule does not apply.

Employer Discretions

• Employers must publish new discretions by 1st July 2014 for the following:

a) Funding of additional pension (Reg 16(2)(e) & 16(4)(d)) Employer can choose to pay for APC in whole or part

b) Flexible Retirement (Reg 30(6)) Same as existing discretion

c) Waiving of actuarial reduction (Reg 30(8)) Flexible Retirement and Early retirement (55-60)

d) Award of additional pension (Reg 31) Employer APC for active member or member leaving on redundancy/efficiency

Employer Discretions (Cont)

• Employers must still retain old discretions to cover pre 2014 benefits

• Employers must regularly review discretions• Don’t forget to send copy of discretions to Peninsula

Pensions

New Data requirements

• New data requirements in addition to what is currently provided

• Data for 2013/14 will be same as previous years• Need to provide separate data for each job• Need to provide separate data for MAIN scheme and

50/50 scheme• Provide actual pensionable pay figures to include any

assumed pay• End of year data? Or monthly or quarterly or bi-

annually – to be decided.

New Data requirements (conts)

•Currently looking at our system requirements•Need Transitional Regulations to confirm exact data needed for future•Peninsula Pensions will contact all employers asap with data specifications. (see next slide for some detail)•Essential to read the LGA payroll guidance which gives details of what employers will need to record each month.

Data details

CPP1:

• Cumulative pensionable pay received in the employment during the Scheme year whilst in main section (including the assumed pensionable pay the member was treated as receiving during the Scheme year whilst in the main section)

CEC1:

• Cumulative employee contributions (if any) deducted from pensionable pay in previous field

Data details

CPP2:

• Cumulative pensionable pay received in the employment during the Scheme year whilst in 50/50 section (including the assumed pensionable pay the member was treated as receiving during the Scheme year whilst in the 50/50 section)

CEC2:

• Cumulative employee contributions (if any) deducted from pensionable pay in previous field

Section of the scheme the employee was a member of in the employment at the end of the Scheme year (or at the date of cessation of active membership in the employment if on or after the start of the Scheme year and before the end of the Scheme year)

Data details (continued)

CRC:

• Cumulative employer contributions deducted from pensionable pay in respect of the employment

EAPC CAC:

• Cumulative additional pension contributions (APCs), if any, paid in respect of the employment by the employee

RAPC CARC:

• Cumulative additional pension contributions (APCs), if any, paid in respect of the employment by the employer

Data details (continued)

EAVC CAC: • Cumulative additional voluntary contributions (AVCs), if

any, paid in respect of the employment by the employee

RAVC CARC: • Cumulative additional voluntary contributions (AVCs), if

any, paid in respect of the employment by the employer

For employees with membership of the LGPS prior to 1/4/14

• FTE Final pay for year

Action List

Ensure payroll system is able to deal with the following required data:

New pay bandings New definition of pensionable pay Separate records for MAIN and 50/50 pension

schemes Calculation of Assumed Pay Shared Cost Additional Pension Contributions

Action List (Cont)

• Formulate new discretion policy for 2014 pension scheme • Amend discretions for old pension scheme• Procedure for informing employee of options when on

unpaid leave or effected child related leave due to 30 day timescale

Useful Links

• LGA Website

• LGA Payroll guidance on LGPS 2014

• LGA HR guidance on LGPS 2014

• LGPS 2014 Website

• LGPS regulations and guidance

• Peninsula Pensions website

Questions