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Aberdeen City Council Pension Fund

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					Aberdeen City Council Pension Fund

     THE LGPS 2009 CHANGES
      WHY REFORM THE LGPS?

   All public service pension schemes subject to
    reform
   Increased costs due to improved life expectancy
   Modernise due to changing social factors
   Fair, legal and affordable over the long term
    PROCESS OF REGULATION CHANGE

   SLOGPAG Group established November 2006

   Scottish Government, COSLA and Unions

   New scheme signed by all parties January 2008

   Regulations come into effect from 1 April 2009
EXISTING SCHEME         NEW LOOK SCHEME
 Statutory              Statutory
 Contracted out         Contracted out
 Final salary           Final salary
 Normal retirement      Normal retirement
  age 65                  age 65
 Death benefits         Death benefits
 Dependent benefits     Dependent benefits
 Ill health benefits    Ill health benefits
 Flexible retirement    Flexible retirement
      SO WHAT’S DIFFERENT…
   New higher accrual rate of 1/60th
   No automatic lump sum, but option to commute
    up to 25% of fund value into lump sum
   Improved death cover – 3 times actual pay
   Co-habiting partners pensions
   Better targeted ill health pensions
   Minimum pension age – 55 for all new scheme
    members
   5 tier contribution rate structure
   Average employee rate expected to be 6.3%
           Joining the LGPS (new)
   Already in the scheme on 1 April
      Other than casuals – if you are in, you stay in


   New joiners
      Must have a contract of employment of more than 3 months


   Casuals
      Some will be excluded depending on whether or not a mutuality
       of obligation exists

   Back to back contracts
      Eligible if total period more than 3 months (backdating?)


   Multiple jobs
      Each job treated separately
    Joining the LGPS (casuals)
 MO or no MO        As at 31.03.09   As at 01.04.09   Member on
                                                       01.04.09


   MO exists            Yes              Yes            Yes

   MO exists
(contract expires
                        Yes               No             No
    31/03/09)

No MO (worked
on 31/03/09 but
                        Yes               No             No
not on 01/04/09)

No MO (did not
work on either
                         No               No             No
 31/03/09 or
   01/04/09)
            Joining the LGPS (new)
       Body             Whole-time          Part-time       “MO” Casual
                      Employee Right     Employee Right    Employee Right
      Scheme
                     Automatic Entry     Automatic Entry   Automatic Entry
                     Employee Choice    Employee Choice    Employee Choice
     Admission
                    Automatic Entry      Automatic Entry   Automatic Entry

   Employees cannot join or remain in the scheme after the eve of their
    75th birthday
   Any employee with a contract of less than 3 months cannot join the
    scheme
   Where there is no mutuality of obligation the person is unlikely to be
    able to join the scheme, as they would have to be offered and
    accept work every day for more than 3 months
       Contribution Tiers - Theory
    Tier                Range (FTE)               Contribution Rate


1          Earnings up to and including £18,000        5.50%

2          Above £18,000 and up to £22,000             7.25%

3          Above £22,000 and up to £30,000             8.5%

4          Above £30,000 and up to £40,000             9.5%

5          Above £40,000                               12.0%
       Contribution Tier – Practical
Cont rate     FTE pay      FTE pay      Cont rate    FTE pay      FTE pay
              (min)        (max)                     (min)        (max)
5.5           Up to        £18,529      6.3          £26,223      £27,441
5.6           £18,530      £19,687      6.4          £27,442      £28,780
5.7           £19,688      £20,999      6.5          £28,781      £30,169
5.8           £21,000      £22,264      6.6          £30,170      £31,228
5.9           £22,265      £23,137      6.7          £31,229      £32,363
6.0           £23,138      £24,081      6.8          £32,364      £33,584
6.1           £24,082      £25,106      6.9          £33,585      £34,901
6.2           £25,107      £26,222      7.0          £34,902      £36,326

   And so on and so on ... assuming an incremental scale of 0.1% to
    the contribution rate, you will need 56 different contribution rates to
    cater for salaries up to £157,000 (10.8%).
                Contribution Tiers
   Statutory Guidance
      Guidance has been issued by SPPA to employers on how to
       assess the correct contribution rate

   Responsibility
      Employers will assess rate of contribution to be paid by
       employee
      Employers must notify members annually of their new
       contribution rate
      Each employer to decide and resolve any appeals made by their
       employees
      Employees pay contributions according to their full time
       equivalent (FTE) pay

   Lower Rate rights
      Pre 01.04.98 manual workers lose their protected 5% rate
       Contribution Tiers – Issues
    Statutory Guidance – Which rate?

   Existing members on 1 April 2009 will have contribution tier set
    according to their FTE rate of pay (including pensionable
    allowances) as at 31 March 2009

   New members from 1 April 2009 will have contribution tier based on
    FTE rate of pay (including estimated pensionable allowances) as at
    date of commencement

   Contribution tier operates for income tax year, no adjustment unless
    member transfers to another scheme employer

   Members with more than one employment pay contributions based
    on each employment
       Contribution Tiers – Issues
    TERM TIME MEMBERS
   Contribution rate should be determined by reference to their full
    time equivalent term time pay (not grossed up to 52 weeks pay)

   Where an employee chooses to work less than 52 weeks per year –
    tier is based on full time equivalent on 52 week year

   Membership and final pay calculations should be pro rated, e.g. if
    term time member works full time but only for 44 weeks membership
    reduced - 44/52 – 84.6% of full time

   Final pay is the pay they would have earned if FT, except death in
    service where actual pay is used
       Contribution Tiers – Issues
    PART TIME MEMBERS

   If you work part time your contribution rate is based on
    the FTE, e.g. if you work 18.5 hours out of 37 with a rate
    of pay of £18,000, but the FTE is £36,000, you will pay
    7%, not 5.5%

   More than one employment – each job treated
    separately
       Contribution Tiers – Issues

    UPDATING THE TIERS

   Tiers will be revised each year in line with RPI
 CONTRIBUTION TIERS (EXAMPLE)
FULL TIME –
  ACTUAL PAY £36,000
  CONTRIBUTION RATE 7.00%

  7.0% OF £36,000 = £2,520

PART TIME –
  WORKS 18.5/37 HOURS PER WEEK
  ACTUAL PAY £18,000, FULL TIME EQUIVALENT £36,000
  CONTRIBUTION RATE 7.00%

  7.00% OF £18,000 = £1,260
EXPLANATION BEHIND F/T EQUIVALENT

EXAMPLE – BASED ON FTE SALARY OF £36,000

  THE BENEFITS IN THE SCHEME FOR ONE YEAR’S
  MEMBERSHIP

  FULL TIME – 1/60 X £36,000 = £600
  PART TIME – 0.50% X 1/60 X £36,000 = £300

  THEREFORE A PART TIME MEMBER PAYS HALF THE
  CONTRIBUTIONS OF A FULL TIME MEMBER AND RECEIVES
  HALF THE BENEFITS
                  MEMBERSHIP


   Option was considered to transfer accrued membership
    over to new scheme

   Did not happen, therefore all terms and types of accrued
    membership in current scheme still exist
              ACCRUAL RATES
 Accrual rate will change on 1 April 2009 from 1/80th to
  the better 1/60th for pension purposes but no automatic
  lump sum

 Up to 31 March 2009 the accrual rate will remain 1/80th
  for pension and 3/80ths for lump sum

 Commutation rate of 12:1 (£12 of lump sum for each £1
  of pension given up)

                    1/80th or 1/60th?

                  WHICH IS BETTER?
                    ACCRUAL RATES
Examples of a person retiring in 2049 with 40 years scheme membership

                                  Current Scheme
  Annual pension                 40/80 x £18,000                      £9,000
     Lump sum                   120/80 x £18,000                     £27,000
                                   New Scheme
  Annual pension                 40/60 x £18,000                     £12,000
     Lump sum                           N/A                             N/A
  However if you wanted the same lump sum as under the current scheme then you need to
                     commute £1,500 of pension which would provide:
  Annual pension                £12,000 - £2,250                      £9,750
     Lump sum                      £2,250 x 12                       £27,000
  However if you wanted the same pension as under the current scheme then you need to
                    commute £2,000 of pension which would provide:
  Annual pension                £12,000 - £3,000                      £9,000
     Lump sum                      £3,000 x 12                       £36,000
               ACCRUAL RATES

    ISSUES TO CONSIDER

   For the next 40 years or more, benefits will continue to
    be calculated on 1/80th and 1/60th

   Difficult for members to calculate pension benefits
              EXTRA BENEFITS
   Purchasing Additional Membership (Added Years)
      No longer available
      Existing contracts honoured
   Additional Regular Contributions (ARCS)
      Facility to purchase extra pension
      Multiples of £250 up to a maximum of £5,000
      Purchase self only or with survivor benefits
      More flexible - choose commencement and ceasing
       date of additional contributions
      Still subject to medical
              EXTRA BENEFITS
   Additional Voluntary Contributions (AVCs)
      No change – continues as before
      Maximum contributions – 100% of taxable earnings
   Options at retirement
      Open market annuity
      LGPS top up pension
      Transfer in to LGPS if AVC payment commenced
       prior to 30/06/2005
      Tax free lump sum (100% of fund up to maximum of
       25% of LTA)
          FLEXIBLE RETIREMENT
   Member must be over 50 (55 from 01.04.2010)

   Employer must have agreed to reduction in hours or
    grade

   Employer consent to access benefits if member under
    age 60

   Ability to draw all or part of benefits

   Employees should be aware that benefits likely to be
    reduced because of early payment
     REDUNDANCY/ EFFICIENCY
   Earliest age at which immediate benefits are payable
    increased from age 50 to age 55, subject to protection
    for existing members until 31 March 2010

   Protection for life to pre-6th April 2006 members who will
    retain earliest retirement age of age 50 (only for
    efficiency or redundancy)

   Employer may still award additional years of
    membership
    RETIREMENT AFTER NORMAL
        RETIREMENT DATE
   Pension payable from retirement

   Benefits accrued subject to enhancement in respect of
    pre age 65 and post age 65 membership
                   ILL HEALTH

    ILL HEALTH RETIREMENT
   Existing ill health provisions replaced with multi tier
    system
   Benefit regulations include a two tier system within
    LGPS
   Member must have 2 years membership or transferred in
    previous benefits
   Third tier benefit payable by employer
        ILL HEALTH DEFINITIONS
   Ill health – employee must be permanently incapable of discharging
    efficiently the duties of his/her current employment; and

    – Must have a reduced likelihood of obtaining gainful employment
    (whether in local government or otherwise) before normal
    retirement age

   Gainful employment – means paid employment for not less that 30
    hours in each week for a period of not less than 12 months

   Permanently incapable – means will more likely than not, be
    incapable until, at the earliest, age 65
                ILL HEALTH TIERS
   Upper tier – No prospect of undertaking gainful employment before
    age 65 – benefits based on accrued membership plus 100% of
    potential membership to age 65

   Lower tier – reasonable prospect of undertaking gainful
    employment before age 65 – benefits based on accrued
    membership plus 25% of potential membership to age 65

   Third tier – where employment is terminated on the grounds of
    permanent ill health but who are likely to obtain gainful employment
    in a reasonable time

Employer has the option of paying a discretionary lump sum payment
  - 1 week’s pay for each year of service
  - Maximum 30 weeks (up to £30,000 being tax free)
         ILL HEALTH CURRENT
Ill Health Enhancement under current regulations

 Total Membership                   Total Membership after
                                    enhancement
 Less than 5 years                  Actual membership only
 Between 5 and 10 years             Total membership doubled
 Between 10 and 13 1/3 years        Increased to 20 years
 Between 13 1/3 and 33 1/3 years    Increased by 6 2/3 years
 Between 33 1/3 and 40 years        Increased to 40 years
 Over 40 years                      Actual membership only

Increased membership must not exceed the total membership the member
would have accrued had they continued in employment until age 65.
       ILL HEALTH SCENARIOS
Example - Current Scheme

Member retires on ill health age 33, 5 years membership,
final pay being £24,000

Accrued membership       5 years
Enhancement              5 years
Total membership         10 years

Annual pension         10/80 x £24,000 = £3,000
Lump sum               30/80 x £24,000 = £9,000
        ILL HEALTH SCENARIOS
Example – New Scheme – Tier 1

Member retires on ill health age 33, 5 years membership, final pay
being £24,000. Example based on membership being all post 1 April
2009

Accrued membership     5 years
Enhancement            32 years
Total membership       37 years

Annual pension         37/60 x £24,000 = £15,000

Or member could opt for smaller pension in favour of lump sum

Annual pension       £9,642.86
Lump sum             £64,285.68
        ILL HEALTH SCENARIOS
Example – New Scheme – Tier 2

Member retires on ill health age 33, 5 years membership,
final pay being £24,000. Example based on all
membership being post 1 April 2009.

Accrued membership       5 years
Enhancement              8 years
Total membership         13 years

Annual pension           13/60 x £24,000 = £5,200

Or member could choose to opt for small pension in favour of lump sum

Annual pension      £3,342.86
Lump sum            £22,285.68
 ILL HEALTH – POINTS TO NOTE
Part time Members
 Enhancement scaled down in proportion to number of hours worked,
  based on part time hours as at date of leaving
 Protection for full time members who move to part time removed


Obtaining employment
 Consideration of gainful employment should be treated on member’s
  ability to do a job and not to the state of the local job market

Protection for existing 1998 members
 Protection will be provided to active members who were in the
  scheme
 before 1 April 2009


Less than 2 years membership (with no transfer)
 No ill health provision available
              DEATH BENEFITS

    ACTIVE MEMBERS ON OR AFTER 1 APRIL 2009

   Death in service – 3 times actual pay

   Deferred pensioner – 5 times deferred pension

   Death in retirement (prior to age 75) 10 times pension
    less pension payment to date of death

   Short term widow’s/widower’s/civil partner’s pension no
    longer payable
                DEATH BENEFITS

DEATH IN SERVICE – SURVIVOR’S BENEFITS

   Death grant - Three times pay (if nominated beneficiary)

   Pension - payable for life - based on potential membership to
    age 65

Example - based on all membership being in the new scheme

Member dies, age 45 - 5 years membership, final pay £24,000

        Death grant - £72,000
        Survivor’s pension is £10,000 per annum (25/60ths)
                 DEATH BENEFITS
    NOMINATED COHABITING PARTNERS

   Benefits based on any membership post 5.04.88 membership only

   Declaration signed by both parties

   For at least a continuous period of 2 years -
      free to marry or enter into a civil partnership
      Have lived together as husband and wife or civil partners
      have not been living with someone else as husband and wife or
       civil partners
      financially dependent on member or each other


   Upon death of member, surviving partner must supply evidence that
    all conditions have been satisfied
                 DEATH BENEFITS
    CHILDREN’S BENEFITS

   Death in service
      1/320 of ill health pension that would have been payable
      1/240 if no surviving parent


   Death in Retirement
      1/320 of pension (including pension increases)
      1/240 if no surviving parent


   Death while deferred
      1/320 of pension (including pension increases)
      1/240 if no surviving parent
            COMMUNICATION
   November - newsletter issued

   December - annual benefit statement plus basic
    information on new scheme

   February - further newsletter

   Information on website – accpf.co.uk

   Presentations to employers/staff/unions

   Workplace posters

				
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