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A New-Look for the Local Government Pension Scheme in England and

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A New-Look for the Local Government Pension Scheme in England and

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									Worcestershire County Council Pension Fund Newsletter

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Pensions
E W S L E T T E
W i n t e r

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A New-Look for the Local Government Pension Scheme in England and Wales 2008
In our last newsletter we published an outline of the proposals for a new look Local Government Pension Scheme (LGPS). After a period of consultation between all concerned parties the regulations for the new look scheme which will come into force from 1 April 2008 have now been published. The accrual rate is the proportion of final salary which you build up (or accrue) for eachyear of your scheme membership. Your pension benefits build up at this rate and your pension is then increased in line with inflation when you retire.

G ACCRUAL RATES
Under the present scheme the accrual rate for your pension is 1/80th of final salary and for a lump sum is 3/80ths of final salary. The new scheme, (for all membership after 1 April 2008) will have an improved accrual rate for your pension of 1/60th of final salary, but no automatic lump sum. You will have the flexibility to convert some of your pension into lump sum at the rate of £12 lump sum, for every £1 of pension given up. The maximum lump sum you will be able to take will be 25% of the ‘capital value’ of your benefits, including any additional voluntary contributions (AVCs) you may have paid. This is the same exchange rate that we have at the moment in the present scheme.

The new regulations in detail are:
G FINAL SALARY
The new scheme will remain a final salary scheme. This means that your pension benefits will still be worked out on the basis of your final pay on leaving or retirement and the length of your scheme membership. The formula to work out your pension is: Pension per year = accrual rate x years of membership x final pay.

Further information on the LGPS is available at: www.lgps.org.uk and www.communities.gov.uk/lgps

G BENEFITS BUILT UP TO
31 MARCH 2008
Your benefits up to 31 March 2008 will still be calculated on the basis of 1/80th pension and 3/80ths lump sum for each year of service.

G NEW CONTRIBUTION RATES
Under the present scheme you pay 6% in pension contributions with some protected workers paying 5%.

In the new scheme there will be banded contribution rates for employees, which will mean that you may pay more or less contributions than you do now. The contribution rate will be based on your pensionable earnings at the beginning of April each year.

Nationally, the average contribution rate will be around 6.3% and the bands shown below will go up in line with the Retail Price Index each April from 2009.
Band Full Time Equivalent Salary Range £ 1 2 3 4 5 6 7 More More More More More More More than than than than than than than £0 – up to £12,000 £12,000 – up to £14,000 £14,000 – up to £18,000 £18,000 – up to £30,000 £30,000 – up to £40,000 £40,000 – up to £75,000 £75,000 Contribution Rate % 5.5 5.8 5.9 6.5 6.8 7.2 7.5– u£75,000

For members currently paying the lower rate of 5%, their contribution rate will be increased on a phased basis, bringing their contributions into line with all other scheme members from 01/04/2011. If you are a apart-time employee then your contribution rate will be worked out using the ‘whole-time’ equivalent pay of a full-time employee in the same post. If you are regarded as a whole-time ‘termtime’ employee then your contribution rate will be worked out based on the weekly ‘wholetime’ equivalent pay. To give you an idea of how this will work we have outlined some example contribution scenarios for different employees.

which is lower than his current contribution rate of 6%.

Example 2
Gina works part-time. Her actual pay on 1 April 2008 is £8,000, but her whole -time equivalent pay is £17,000. The full-time pay means that her contribution rate from 1 April 2008 will be 5.9%, which again is less than the current 6% rate.

Example 3
Anwar works full-time and his pay on 1 April 2008 is £36,500. So from 1 April 2008, he will pay 6.8% of his actual pay. This means that his contribution rate will rise.

Example 4
Sara works full-time during term-time only as a classroom assistant. Her actual pay on 1 April 2008 is £11,500. So from 1 April 2008 she will pay 5.5% of her actual pay, which again is less than the current 6% rate.
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Example 1
Mark works full-time and his pay on 1 April 2008 is £12,000. So from 1 April 2008, he will pay 5.5% of his actual pay

G NORMAL RETIREMENT AGE
As with the current Scheme, the new scheme will still have a normal retirement age of 65 for drawing benefits. You will still be able to draw your benefits at any date once you are age 60 without your employer’s consent, but these will be reduced as they are being paid early, unless you are a protected member under the 85 year rule. You are still able to stay in, or join the scheme beyond the age of 65, anytime up to age 75.

G LUMP SUM DEATH IN SERVICE
BENEFIT
Under the new scheme the lump sum in service benefit will increase from two times to three times salary.

G DEATH IN RETIREMENT
In the current Scheme if you die within five years of retirement, a lump sum is payable, equivalent to five years’ pension reduced by the pension which has already been paid. In the new Scheme this is improved, if you die within ten years of retirement, a lump sum will be payable, equivalent to ten years’ pension reduced by the pension which has already been paid.

G RETIRING BEFORE AGE 65
If you are currently a Scheme member the minimum retirement age at which you could take your pension will remain at age 50, if you retire before 1 April 2010.If you are a new or existing Scheme member and retire after 1 April 2010 then the minimum retirement age will be 55. Retirement before age 60 is only possible with your employer’s permission. If you choose to take your benefits before you are age 65 then they will be reduced unless you are covered by the ‘rule of 85’. The ‘rule of 85’ was removed from October last year for new joiners to the scheme but transitional arrangements were introduced to protect existing members. These protections for the ‘rule of 85’ go forward with the new Scheme.

G FINAL PENSIONABLE PAY
Your final pensionable pay is the figure which is used to work out your pension benefits. In the new Scheme this will be based on your last year’s salary. If you have agreed to stay on reduced earnings (other than as a result of flexible retirement) it can be worked out on the best average of three consecutive years’ average salary over the last ten years of service.

G REDUNDANCY OR EFFICIENCY
RETIREMENT
In the current scheme your pension is paid immediately if you are over 50 and are made redundant or retired on the grounds of efficiency and your pension is not reduced for early payment. Under the new Scheme if you leave on these grounds after 1 April 2008, then your employer will pay your pension immediately if you are aged 50 or over, if this is before 1 April 2010. For new members and existing current members who retire after April 2010 the earliest age benefits would be payable would be age 55.
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G BUYING ADDITIONAL PENSION
The new scheme introduces the ability for you to buy additional Scheme pension in steps of £250 per year, up to a maximum of £5,000. This is instead of purchasing additional service in the Scheme. (Current added years contracts and requests received before 31 March 2008 will be honoured). You can also continue to contribute towards your pension by making AVCs via an external provider.

G NOMINATED COHABITEE’S
PENSIONS
In the current Scheme pensions are only paid to husbands, wives, same sex civil partners and children. The new Scheme will extend this to include partner’s pensions for ‘nominated’ dependent partners in both opposite and same sex relationships. This will be backdated to service in the Scheme from 1 April 1988 in line with the backdating for civil partner’s pensions. The survivor benefits will be calculated at 1/60th accrual rate, as in the current scheme.

plus an enhancement of all your prospective service up to your normal retirement date. If you cannot undertake gainful employment within a reasonable period of leaving local government employment, but you may be able to at some date in the future before your normal retirement date, then your benefits are your accrued rights plus an increase of 25% of your prospective service up to your normal retirement date. If you are permanently unable to do or undertake your local government employment duties but could immediately undertake other alternative employment, then your benefits will be based on your accrued rights up to leaving. Payments will be regularly reviewed, and if you do get alternative employment, payments will be suspended. There are protections for members who will be over 45 on 31 March 2008, to ensure that they receive no less than they would have done under the current Scheme. All ill-health benefits are paid unreduced for early payment.

G ILL-HEALTH RETIREMENT
A consultation considering proposals for a three-tier arrangement within the new scheme is currently under review. The proposed three tiers in the new scheme are: If you are totally incapacitated and will not be able to undertake gainful employment before your normal retirement date, then your benefits will be based on your accrued rights

Let’s take a look at some examples of how the new look Scheme will work for members. In the case studies we compare the current Scheme and the new look Scheme.
EXAMPLE 1
Maria – joined the LGPS in April 2005 and is planning to retire in 2023 when she is 62. This means that she does not satisfy the ‘rule of 85’ when she retires at 62, because 62 plus 18 only equals 80. So, all her benefits would have been reduced even if the ‘rule of 85’ had not been phased out, as they are being paid three years early. Maria’s final pay at retirement is £20,000.

WHAT WOULD MARIA’S BENEFITS HAVE BEEN UNDER THE CURRENT SCHEME?
Her membership up to April 2023 is 18 years, so her current scheme benefits would be based on 18/80ths of her final salary. Her pension would be £4,500 less a 15% reduction of £675 and her lump sum would be £13,500 less a 7% reduction of £945. This would give Maria a total annual pension of £3,825 and a cash lump sum of £12,555.

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WHAT WILL MARIA’S BENEFITS BE UNDER THE NEW SCHEME?
Maria’s pre-2008 membership will be 3 years, so the benefits for this period will be based on 3/80ths of her final salary giving a pension of £750 and a lump sum of £2,250. Her post-2008 membership will be 15 years and the benefits for this period will be based on 15/60ths of her final salary giving her a pension of £5,000. No automatic lump sum is payable for this period but Maria can choose to give up some of this pension for a lump sum. This would give a pension of £5,750 reduced by 15% £862.50 as it is being paid early giving a total annual pension of £4,887.50 and a cash lump sum of £2,250 reduced by 7% £157.50 giving a total cash lump sum of £2,092.50.

G LUMP SUM
Maria can trade up to 25% of her total pension benefits for an additional tax-free cash lump sum at a conversion rate of £12 for every £1 of pension given up. To get the same lump sum as under the current Scheme she would have to give up £871.87 of pension to receive: £4,015.63 pension per year and a cash lump sum of £12,555.

EXAMPLE 2
James – started work as a social worker for the local authority in 1988. He is planning to retire in 2013, on his 60th birthday, when he will have 25 years membership with a final salary of £39,200. Under the phasing out of the ‘rule of 85’ protections, since he reaches 60 and satisfies the ‘rule of 85’ before 1 April 2016, none of his benefits will be reduced for early payment.

WHAT WOULD JAMES’ BENEFITS HAVE BEEN UNDER THE CURRENT SCHEME?
His membership would be 25 years, so his unreduced benefits would be based on 25/80ths of his final salary of £39,200. This means he would receive an annual pension of £12,250 and a cash lump sum of £36,750.

WHAT WILL JAMES’ BENEFITS BE UNDER THE NEW SCHEME? James’ pre-2008 membership will be 20 years, so benefits for this period will be based on 20/80ths of his final salary giving a pension of £9,800 and a lump sum of £29,400.
His post-2008 membership will be 5 years and the benefits for this period will be based on 5/60ths of his final salary giving a pension of £3,266.67. No automatic lump sum is payable for this period but he can choose to give up some of his pension for lump sum. This would give James a total annual pension of £13,066.67 and a cash lump sum payment of £29,400.

G LUMP SUM
He can trade up to 25% of his total pension benefits for an additional tax-free cash lump sum at a conversion rate of £12 for every £1 of pension given up. To get the same lump sum as under the current Scheme, he would have to give up £612.50 of pension to receive: £12,454.17 annual pension and a cash lump sum of £36,750.
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Contacting the Pensions Office
If after reading this issue you have any queries about the LGPS please contact the Pensions Section who will be pleased to help. In writing to: Pensions Manager, Worcestershire County Council, Financial Services, PO Box 374, County Hall, Spetchley Road, Worcester. WR5 2XF. Email: pensions@worcestershire,gov.uk

SPECIAL NOTE:
As the pension system is not yet developed to do automatic calculations for the new scheme regulations and would necessitate a manual calculation, we will not be providing benefit estimates under the new scheme rules until after April 2008. Further information on the LGPS is available at: www.lgps.org.uk and www.communities.gov.uk/lgps Thank you to our colleagues at Shropshire County Council Pension Fund for their help in producing this newsletter.

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Design & Print Unit, County Hall, Spetchley Road, Worcester


								
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