Post on 11-Jan-2016
Craig MartinPension Manager
Changes to the LGPS from1 April 2014
2014 Changes : At a glance
A career average (CARE) defined benefit scheme
Increased accrual rate of 1/49th.
Normal Pension Age (NPA) aligned with State Pension Age (SPA) at point of payment
Additional short term flexibility / option to pay ½ contributions for ½ benefits
New pensionable pay definition & employee contribution bands
Retirement from age 55 without employer approval – pension reductions apply
Final Salary protection for accrued benefits
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Normal Retirement Age (NRA) aligned to State Pension Age (SPA) at the point of payment Removal of Scheme NRA (currently age 65, some protections may apply)
Normal Pension Age = Your own SPA (minimum age 65) for benefits built up from 1 April 2014
Pre-2014 benefits protected
SPA assessed at the point of payment of your benefits
Under current legislation, SPA is planned to increase to: - Age 66 between November 2018 and October 2020 Age 67 between 2034 and 2036 Age 68 between 2044 and 2046
Queens speech confirmed that: age 67 change will be brought forward to between 2026 and 2028 Regular reviews will take place in line with rising longevity
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Pensionable pay and assessment of contribution bands
Change to definition of pensionable pay to include:
Basic pay, plus
Non-contractual over-time
Additional hours for part-time staff
Impact on part-time members
Band assessed with reference to actual pensionable pay
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Contribution band changes
LGPS 2008 Regulations LGPS 2014 CARE scheme
BandWhole-time equivalent
Pensionable PayGross
ContributionsContribution
after taxActual Pensionable Pay
Gross Contributions
Contribution after tax
1 Up to £13,500 5.5% 4.40% Up to £13,500 5.5% 4.4%
2 £13,501 £15,800 5.8% 4.64% £13,501 £21,000 5.8% 4.64%
3 £15,801 £20,400 5.9% 4.72% £21,001 £34,000 6.5% 5.20%
4 £20,401 £34,000 6.5% 5.20% £34,001 £43,000 6.8% 5.44%
5 £34,001 £45,500 6.8% 5.44% £43,001 £60,000 8.5% 5.10%
6 £45,501 £85,300 7.2% 4.32% £60,001 £85,000 9.9% 5.94%
7 More than £85,300 7.5%4.50% or
4.13%£85,001 £100,000 10.5% 6.30%
8 £100,001 £150,000 11.4% 6.84%
9 More than £150,000 12.5% 6.88%
Additional flexibility – 50/50 option
Short term option to pay ½ contributions in return for ½ the benefits
1/49th to 1/98th
Intended as a short term solution to financial hardship
Re-enrolled in ‘main scheme’ under automatic enrolment
Lump sum death benefit and ill health benefits remain at full rate
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Example of a Career Average Revalued Earnings (CARE) calculation
2014 LGPS
CARE
2014
Defined
Benefit
Pensionable
Pay paid
during
scheme year
(pay rises 1%
pa)
Earned
Pension at
end of
scheme year
Value following revaluation (2.5%) at start of year:
2015/16 (Year 2)
2016/17(Year 3)
2017/18 (Year 4)
2018/19 (Year 5)
2019/20 (Year 6)
Pension for
2014/15
(Year 1)
1/49th £60,000 £1,224 £1,254 £1,284 £1,317 £1,350 £1,383
Pension for
2015/16
(Year 2)
1/49th £60,600 £1,236 £1,266 £1,299 £1,332 £1,365
Pension for
2016/17
(Year 3)
1/49th £61,206 £1,251 £1,281 £1,314 £1,347
Pension for
2017/18
(Year 4)
1/49th £61,818 £1,263 £1,296 £1,329
Pension for
2018/19
(Year 5)
1/49th £62,436 £1,275 £1,308
Value in
Account £1,254 £2,550 £3,897 £5,292 £6,732 7
Additional contributions
Additional Voluntary Contributions (AVCs)
Contributions will continue for current members
Prudential or Standard Life
Additional Pension Contributions (APCs)
to increase ‘earned pension’ in scheme year
pay over any number of years up to leaving/retirement
We expect existing Additional Regular Contributions (ARCs)/Added Years contracts will
continue post 31 March 2014 (in draft of LGPS Transitional Regs)
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Retirement
NO CHANGE
Rules unchanged governing the
payment of pension benefits on the
grounds of:
Redundancy
Efficiency
Flexible
Ill health
CHANGE
Normal retirement = SPA
NEW
Retirement from age 55 without
employer approval
Early retirement reductions will
apply regardless of existing
provisions
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Benefits built up prior to 1 April 2014
Normal Pension Age protected = 65 (some protections may apply)
85-year rule protections continue
“Underpin” protection for members within10 years of normal pension age on 1 April 2012
Final Salary Defined Benefit continues, for membership as follows: -
To 31 March 2008, 1/80th annual pension + 3/80th lump sum
1 April 2008 – 31 March 2014, 1/60th annual pension
Final pay at leaving used to calculate benefits
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Final pay and Regulation 10 Protection
Final salary link continues for pre 2014 service
Continued application of Benefit Regulation 8:
Last 365 days or one of the previous two years if higher (“best of the last 3 years”)
Add pensions increases (CPI) to pension benefits if previous year used
Applied automatically at point of leaving/ retirement
Anticipate continued application of BR10 protection (to be confirmed)
Pensionable pay average of 3 consecutive years in last 13 years
All at 31st March each year
Can pick any period – doesn’t have to be the highest but must be consecutive
Election to be made at least one month before date of leaving / retirement
Add pensions increases (CPI) to pension benefits
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Example of member leaving with pre and post 2014 service
Factors
Date of leaving = 31 March 2034
Male - age at leaving = 60 (SPA = 67)
Total membership = 30 years
Salary on 1 April 2014 = £60k
Salary increases pa = 2%
Final Pay = £87,408
Revaluation increases = 2.5%
Doesn’t meet criteria for 2014 CARE underpin
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01/04/2008 – 31/03/2014 (60th)Payable at age 65
Pension£8,740
01/04/2008 – 31/03/2014 (60th)Payable at age 65
Pension£8,740
01/04/2004 – 31/03/2008 (80th)Rule of 85 applies (age 60)
Pension Lump Sum (3 x pension)
£4,370 £13,110
01/04/2004 – 31/03/2008 (80th)Rule of 85 applies (age 60)
Pension Lump Sum (3 x pension)
£4,370 £13,110
Payable @ SPA of 67Total Pension Total L/Sum
£51,434 £13,110
Payable @ SPA of 67Total Pension Total L/Sum
£51,434 £13,110
01/4/2014 – 31/03/2034
Payable at age 67CARE Pension
£38,324
01/4/2014 – 31/03/2034
Payable at age 67CARE Pension
£38,324
less 32% for early payment
Less 25% for early payment
Less 25% for early payment
No reduction – 85 year
rule protection
No reduction – 85 year
rule protection
Payable @ age 60Total Pension Total L/Sum
£36,985 £13,110
Payable @ age 60Total Pension Total L/Sum
£36,985 £13,110
01/4/2014 – 31/03/2034
Age 60CARE Pension
£26,060
01/4/2014 – 31/03/2034
Age 60CARE Pension
£26,060
01/04/2008 – 31/03/2014 (60th)Age 60Pension£6,555
01/04/2008 – 31/03/2014 (60th)Age 60Pension£6,555
01/04/2004 – 31/03/2008 (80th)Age 60
Pension Lump Sum (3 x pension) £4,370 £13,110
01/04/2004 – 31/03/2008 (80th)Age 60
Pension Lump Sum (3 x pension) £4,370 £13,110
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Next steps
You can download slides directly from this Live meeting facility
Will keep you updated on Transitional Regulations
Communications to staff during February and March
Up to date information and guides available through www.eapf.org.uk
Contact us if you have any queries
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Any questions?
Changes to the Annual Allowance & Lifetime Allowance
Craig MartinPension Manager
Annual allowance: Definition
Annual Allowance is the amount your pensions savings can increase in any one year
before you become liable to a tax charge
If you exceed in one year, can offset against unused allowances from previous three years
Any excess is charged at normal rate of tax
£50,000 limit, reducing to £40,000 from 1 April 2014
Date Annual Allowance
2006/07 215k
2007/08 225k
2008/09 235k
2009/10 245k
2010/11 255k
2011/12 50k
2012/13 50k
2013/14 50k
2014/15 40k
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Pension/lump sum at 31 March 2013
Based on Final Pensionable Salary and Pensionable
Service at that date
Inflation (CPI) increase Pension/lump sum at 31 March 2014
Based on new Final Pensionable Salary and
Pensionable Service at that date
Start End
Pension ‘growth’ x 16
+ lump sum ‘growth’ + AVCs
=Annual “growth”
“Pension Input Period” (PIP)
Annual AllowanceHow does it work?
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Example calculation of Annual Allowance…
Assumption: Pensionable pay is £60k for 2012/13 and £63k in 2013/14 15 years scheme membership and CPI is 3.1%
Opening balance 2012/13 £
Pre 08 pension p.a.Post 08 pension p.a.
10/80 x £60k 5/60 x £60k
7,5005,000
Pre 08 pension p.a.Post 08 pension p.a.
10/80 x £63k 6/60 x £63k
7,8756,300
Closing balance 2013/14 £
Add lump sum 10 x 3/80 x £60k
22,500
Total annual pension 12,500
Multiply annual pension by 16 200,000
222,500
Increase by inflation X 1.031
Opening value 229,397.50
The increase in the member’s benefits for 2013/14 is £251,425 - £229,397.50 = £22,027.50As this is less than £50k annual allowance, no tax charge due
Total annual pension 14,175
Add lump sum 10 x 3/80 x £63k
23,625
Multiply annual pension by 16 226,800
Add AVCs paid in year 1,000
Closing value 251,425
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Example calculation of carry forward
Assumes increase in pension of £60k for 2013/14, exceeding the £50k limit by £10k
Year Increase in pension value
Annual Allowance
Unused relief Carry forward
2010/11 £50,000 £50,000 £0 £0
2011/12 £40,000 £50,000 £10,000 £10,000
2012/13 £22,027.50 £50,000 £27,972.50 £37,972.50
2013/14 £60,000.00 £50,000 £0 £27,972.50
Member exceeded Annual Allowance in 2013/14 by £10k
The member can now use the £37,972.50 unused relief to offset the £10,000
Leaves excess amount of £27,972.50 for 2014/15 onwards
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What happens if I exceed the annual allowance?
If annual allowance charge is <£2,000
you will have to pay charge directly to HMRC
Taxed at normal rate of tax, e.g. 40%
If the annual allowance charge is >£2,000
can elect for the amount to paid by the Pension Fund (if the whole charge relates
to EAPF)
Pension Fund will actuarially reduce the value of your LGPS benefits accordingly
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Considerations for you
Pension Fund will inform you if you exceed the annual allowance in a year
Changes to LGPS and Annual Allowance threshold:
Accrual rate of the LGPS increasing to 1/49th
Annual allowance threshold reducing to £40k
Impact depends on individual circumstances including:
pay growth and
length of service and
AVCs
Potential options?
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Lifetime Allowance: Definition
Lifetime Allowance is the total value of all your LGPS and any other pension
benefits that you may have accrued, and any excess over and above the threshold is
taxed
Date LifetimeAllowance
2006/07 1.5m
2007/08 1.6m
2008/09 1.65m
2009/10 1.75m
2010/11 1.8m
2011/12 1.8m
2012/13 1.5m
2013/14 1.5m
2014/15 1.25m 23
Lifetime allowance: How does it work?
Assessed when pension benefits come into payment
20 x Annual Pension; plus
Any Lump Sum payable; plus
Value of AVC Fund (if applicable)
Compare with current Lifetime Allowance
Anything above the LTA limits will be taxed at special rates
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Example calculation of LTA
Assumes pension of £50,000 and a lump sum of £112,500 at retirement
(Factor of 20 x pension) + lump sum
(20 x £50,000) + £112,500 = £1,112,500
£1,112,500 / £1,250,000 x 100 = 90% of LTA
Pension benefits are less than both current and new LTA threshold
No lifetime allowance tax due upon retirement
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New LTA protections: Fixed protection and Individual protection
Background and existing LTA protections
Fixed protection 2014
Have to apply before 5 April 2014
Protected LTA of £1.5 million regardless of current level of benefits
Not permitted if you have primary protection
No further benefits can accrue from April 2014 (only CPI increase)
Individual protection 2014
You can apply if the value of your benefits are over £1.25 million on 5 April 2014
You do not have primary protection
You can continue to accrue benefits and protect benefits up to £1.5 million
Legislation will not be in place until August 2014 but backdated to April 2014
Individuals will have until 5 April 2017 to apply 26
What should I do?
Protection Deadline for registration
Notes
Fixed Protection 5 April 2014 Protects benefits up to £1.5m but no further accrual allowed
Individual Protection 5 April 2017 Only apply if benefits are over £1.25m on 5 April 2014 and you do not have Primary Protection
You can register for both forms of protections if you qualify
What should I do?
Pension Fund will contact you if you qualify for FP14 or IP14 to discuss your options
The Pension Fund can provide further information relating to your EAPF benefits but will not be able to give you individual advice
HMRC has published a Q&A entitled Pension Restriction on tax relief and you can access this from www.hmrc.gov.uk/pensionschemes
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Any questions?
www.eapf.org.uk