The Local Government Pension Scheme The Northumberland Pension

The Local Government Pension Scheme The Northumberland Pension Fund Employee Meetings March 2012 We’re here for you.

LGPS The Current Scheme A Recap We’re here for you.

LGPS Accrual Rate • From 1 st April 2008 pensions accrued at a 1/60 th rate for each year of service. • There is no automatic lump sum – but pension can be commuted into a lump sum up to HMRC limit. • Rights earned to 31 st March 2008 retain a 1/80 th pension and 3/80 th lump sum structure. We’re here for you.

LGPS Final Pensionable Pay • Pensions will normally be based upon the final year’s pensionable pay. • Pensions can be based on earlier years earnings in some cases. We’re here for you.

LGPS Pay Reductions • We are getting quite a few questions about this as a result of single status. • The issue can be complex. • We have produced a guide which is available from the Pension Section. We’re here for you.

LGPS Pay Reductions • Basically there are 3 options. • If you retire within 10 years of the pay reduction you can opt to have your pension based upon the average pay of any 3 consecutive years out of the last 13. • There is some adjustment to allow for inflation. We’re here for you.

LGPS Pay Reductions • You can opt to have the pension you have earned up to the reduction deferred i. e. you “stop” that pension. • The deferred pension would normally be based on your earning in the 12 months prior to the reduction. • The deferred pension increases in line with CPI inflation. • You start to accrue a second pension in the lower paid job. We’re here for you.

LGPS • • Pay Reduction If you’re more than 10 years from retirement, and he reduction in pay is not that great, and your don’t like the sound of the drawbacks with deferred pensions. Your only option is to accept the situation and hope that you pay increases in the future. We’re here for you.

LGPS Tiered Contributions from April 2012: £ 0 to £ 13, 500 More than £ 13, 501 to £ 15, 800 More than £ 15, 801 to £ 20, 400 More than £ 20, 401 to £ 34, 000 More than £ 34, 001 to £ 45, 500 More than £ 45, 501 to £ 85, 300 More than £ 85, 300 5. 5% 5. 8% 5. 9% 6. 5% 6. 8% 7. 2% 7. 5% We’re here for you.

LGPS Tiered Contributions – Part-time Staff • The contribution band payable by a parttime employee is not determined by their actual earnings. • Their contribution band must be determined on the basis of what they would have earned if they had worked whole-time. We’re here for you.

LGPS Retirement Age • Normal retirement age is 65. • Employees can retire without employers consent from age 60 – reductions may apply to the pension benefits. We’re here for you.

LGPS Early Retirement and Flexible Retirement • Early and flexible retirement is available from age 55 with the employer’s consent. • Early payment reductions may apply in some cases. • Flexible retirement is allowable where a person continues to be employed on fewer hours or at a lower grade. • The early payment of any pension usually results in a cost (strain on the fund) having to be paid by the employer. We’re here for you.

LGPS Ill-Health • This is available at any age. • There are now 3 tiers of ill-health benefit. • The scheme targets benefits at those suffering the most severe ill-health. We’re here for you.

LGPS Ill- health • Applies where a person is certified as being permanently incapable of doing their current job, and, • The person has a reduced capability of obtaining any “gainful employment” in the future. Not only local government employment. • There are now 3 tiers of ill-health pension with the amount of pension reflecting the impact the illness has on the persons ability to work. We’re here for you.

LGPS Nominated Cohabiting Partners • An unmarried person living with an unmarried partner, may nominate their partner to receive a pension in the event of their death. • This applies to both heterosexual and same sex unmarried or unregistered partners. • A pension cannot be paid where a nomination is not made! We’re here for you.

LGPS Lump Sum Death Benefit Nominations • All employees can nominate who they would wish to receive the lump sum payable on death in service (more or less 3 years pay). • If a person has a partner they should make 2 nominations one for the partner’s pension and one for the lump sum due on death. We’re here for you.

LGPS Paying Extra Contributions. • You can pay extra. • You can buy additional pension from the main pension fund. • You can pay into the AVC arrangement we have with the Prudential. • Additional contributions attract tax relief. • Buying pension is never cheap. Most employer contributions are now over 20% of pay. • Employers do not contribute to the additional arrangements. We’re here for you.

LGPS • • • Changes to The Pension Tax Regime The annual allowance (i. e. the amount by which a person’s pension fund can increase tax free in a year) has reduced from £ 255 K to £ 50 K. People can carry forward unused allowances for the 3 previous years. We will have to provide people with the information to calculate their position and make any return to HMRC. This will catch more people, particularly when they have a large pay increase. £ 50 K equates to an increase in accrued pension of £ 3125 a year. Senior staff will need to consider this when paying AVC’s. We’re here for you.

LGPS • • Auto-enrolment Employers will be required to enrol staff into a pension scheme. This starts in October 2012 for very large employers. Later for small employers. Implications for LGPS being considered. Employers with limited access to the LGPS e. g. those with closed admission agreements may need to consider their position. We’re here for you.

LGPS Pension Fund Valuation • The next valuation will be as at 31 st March 2013. • New employer rates will apply from 1 st April 2014. We’re here for you.

LGPS The New Scheme Where are we? We’re here for you.

LGPS • We’re likely to have a new LGPS from April 2014. • Details of the new scheme to be available by April 2013 so that it can form part of the next pension fund valuation. • It’s likely to be a career average scheme, not final salary as now. We’re here for you.

LGPS Protections • Those within 10 years of retirement age i. e. aged 55 or over are likely to remain subject to the current scheme. • This protection may be further extended, on a limited or tapered basis, for those more than 10 years from retirement age, but less than 14 i. e. people aged more than 51. • Others - pension rights accrued in current scheme up to 2014 still linked to final salary, new scheme to apply to service from 2014. We’re here for you.

LGPS What’s a Career Average Scheme? We’re here for you.

LGPS In a career average scheme your pension is calculated on the average of your revalued earnings over the whole period of your scheme membership. We’re here for you.

LGPS Will it be based upon 60 ths? • We don’t know. • Some public sector schemes will be based on 54 ths or even 44 ths. But much depends upon how earnings are revalued. • Also other schemes may increase employee contributions significantly e. g. by 3%. This is unlikely in the LGPS and may lead to a lower accrual rate. We’re here for you.

LGPS When will pensions be paid in the new scheme? Retirement age will be linked to state pension age. We’re here for you.

LGPS What does a career average scheme look like? • For the purposes of the next example we have assumed a 1/60 th accrual – the actual accrual rate is yet to be decided. • The inflation factors also are assumed for illustration only. We’re here for you.

LGPS Career Average Example Year Pay Accrual Rate X 1/60 th Inflation Factor X 1. 15 Pension Earned = £ 326 1 17, 000 2 18, 000 X 1/60 th X 1. 11 = £ 333 3 19, 500 X 1/60 th X 1. 06 = £ 344 4 19, 900 X 1/60 th X 1. 03 = £ 341 5 23, 000 X 1/60 th X 1. 00 = £ 383 Total Due Pension = £ 1727 We’re here for you.