Local Government Pension Scheme Update
The Scope of the Hutton Report – Schemes covered
Local Government Pension Scheme Teachers’ Pension Scheme NHS Pension Scheme Civil Service Pension Scheme Armed Forces Pension Scheme Police Pension Scheme Firefighters’ Pension Scheme UK Atomic Energy Authority Pension Scheme
Public Sector Schemes Comparison Scheme
Contribution Employer Cont.
Normal Pension Age
Average Pension
Police
9.5% - 11%
24.2%
55
£14,000
Firefighters
8.5% - 11%
14.2% - 26.5%
55 or 60
£12,000
6.4%
14.1%
60 or 65
£10,000
0%
29.4%
55
£8,693
5% - 8.5%
14%
60 or 65
£7,000
Civil Service
1.5% - 3.5%
3% - 18.9%
60 or 65
£6,200
Local Government
5.5% - 7.5% 13.20% (avge.)
65
£4,044
Teachers Armed Forces NHS
Why is Change Needed?
Current system is seen to be unfair Life expectancy has increased Increased cost to taxpayer – unfunded schemes Final salary schemes do not reflect true pay / contribution history Change is needed to retain high quality defined benefit schemes
Hutton’s Recommendations
No change from a defined benefit basis, but… Move from a final salary arrangement to one based on career average earnings Raise the normal retirement age Uniformed service retirement age to increase to 60 Increased employee contribution Cap on employer contribution accrued rights should be protected Implementation by 2015
The Government’s Response to the Hutton Report
Introduction of career average scheme for new service Final salary basis protected for old service Increased retirement age for new service with a link to State pension age Retention of existing retirement age for old service Increased employee contribution at around 3% more No increase in contributions for those earning less than £15,000 pa Increase in contributions pegged to 1.5% for those earning £15,000 - £18,000 pa
Some Frequently Asked Questions‌
Will I Have to Pay More?
Increased contributions are possible LGPS contribution rates were reviewed in 2008 Funded nature of LGPS means that other changes will be implemented instead Risk of opt-outs – Hutton has said this needs to be avoided
LGPS – current rates FTE Pay
Contribution rate
Up to £12,901
5.5%
£12,901 to £15,101
5.8%
£15,101 to £19,401
5.9%
£19,401 to £32,401
6.5%
£32,401 to £43,301
6.8%
£43,301 to £81,101
7.2%
Over £81,101
7.5%
How Does a Career Average Scheme Work?
Each year is calculated individually CPI adjustment made to each year’s benefits Earlier years’ values have more increases applied to bring them up to date At retirement, all the revalued individual years are added together
Career Average Schemes – Better or Worse than Final Salary?
Less generous for employees who have rapid pay progression, particularly in their later years Similar benefits for those with steady pay growth Career average method is still a “defined benefit” arrangement Remember: service to date of change will still be based on final pay
Pay
…the “Steady Eddie”
Years
Pay
…the “High Flyer”
Years
Will I Have to Work Until Age 65?
Remember – your benefits built up to the date of any change will have the same retirement date and calculation as before New service worked after the date of change may have a later payment date for full benefits Most employees already have a retirement age of 65 in the LGPS 85 year rule protections will remain
But Didn’t the LGPS Change a Few Years Ago?
Yes, changes were made to:Removal of the 85 year rule Banded employee contributions Change from 80th’s to 60th’s
Change from RPI to CPI will help reduce scheme costs Further changes are still needed
Should I Opt Out?
Personal decision occupational pension schemes are extremely valuable Employer contribution Tax and NI savings Think very carefully before opting out – independent advice
Remember…
Nothing has been decided yet Further consultation is planned later this year
What You Get Now
An index-linked pension linked to pay and service Tax free lump sum in most cases A range of retirement options
voluntary retirement age from 60 in most cases Early retirement from 55
A range of dependants’ cover including death in service lump sum of 3 x pay Enhanced benefits if you have to leave work because of permanent ill health The facility to top up your benefits
Get in Touch…
By ‘phone:
By e-mail:
pensionpayments@birmingham.gov.uk
By post:
0121 675 7070
Pensions Team PO Box 14345 Birmingham B2 2HZ
On the web:
www.wmpfonline.com