LGPS 2014 for Employers Terry Edwards Senior Pensions Adviser, LGA and Director, PENtag Ltd January...

LGPS 2014 for EmployersTerry Edwards

Senior Pensions Adviser, LGA and

Director, PENtag Ltd

January 2014 www.local.gov.uk

Delivered today under licence by:

2

Ownership and Copyright Notice:

Training delivered by PENtag Limited (a company specialising in pensions training and guidance) using training materials under licence from Local Government Association (LGA).

Materials © 2014 Local Government Association (LGA). Adapted and reproduced with the kind permission of Local Government Association (LGA).

All rights reserved.

Disclaimer:

These slides are based on the LGPC Secretariat’s understanding of the information available at the time of compilation including the relevant Statutory Instruments governing the Local Government Pension Scheme and associated overriding legislation. They represent the views of the Secretariat and should not be treated

as a complete and authoritative statement of the law. You may wish, or will need, to take your own legal advice on the interpretation of any particular piece of legislation. No responsibility whatsoever will be

assumed by LGA/PENtag for any direct or consequential loss, financial or otherwise, damage or inconvenience, or any other obligation or liability incurred by anyone relying on information contained herein.

TODAY’S AGENDA

• Scheme overview

• Impact on employers

3

6

LGPS 2014 – Scheme Overview

• CARE scheme

• 1/49th accrual

• CPI revaluation

But run like an account:

7

Year 1 £20000/49 = £ 408.16 Year 2 £20,800/49 = £424.49 + (£ 408.16 x 1.04) = £ 848.98 Year 3 £21,632/49 = £441.47 + (£ 848.98 x 1.04) = £1,324.41 Year 4 £22,497/49 = £459.12 + (£1,324.41 x 1.04) = £1,836.51 Year 5 £23,397/49 = £477.49 + (£1,836.51 x 1.04) = £2,387.46

• Each year “actual” pensionable pay is divided by 49 (or 98 if in 50/50 section)

• That’s it! (although there is some nitty-gritty later……..)

8


• More employee contribution bands / rates - P/T worker contribution rates assessed on actual pensionable pay (not FTE) – so many will pay less - Higher paid F/T pay more

• 50/50 option- Pay half, get half (employer contributions payable in full)- Death benefits retained in full- Short-term option

• Can purchase additional pension via APC or AVC

9


• Pension age linked to State Pen Age (min 65)

• Scheme open to age 75 (actuarial increase)

• 85 year rule retained (automatically at 60+)

• 2 year vesting period

• Flexible retirement, redundancy, efficiency from 55

• Ill health – slight change in wording – new IH certs

• Voluntary retirement from age 55

10


Voluntary retirement from 55+• Member’s choice – no employer consent needed• 85 year rule applies if draw benefits at 60+• 85 year rule doesn’t apply if draw before 60 BUT

- employer can agree to apply 85 year rule to the pre 1/4/14

benefits (subject to min red’n to age 60)

- no 85 year rule on the post 31/3/14 benefits

- employer could agree to waive reduction on the pre 1/4/14

benefits on compassionate grounds (at cost to employer)

- and / or waive all, some or none of the reduction on post

31/3/14 benefits (at cost to employer)

11


Protection• Protection for pre 2014 service – still final salary and

old NPA – regs 8 and 10 apply regardless of when pay cut occurs

• Active members get - Past service based on final pay- Future service based on CARE

• Final salary protection can be lost if break in active membership of public sector scheme of more than 5 years and aggregates

Note: Existing pensioner and deferred members - no change

12


Underpin• Active 31/3/12• Within 10 years of old NRA on 1/4/12• No break of more than 5 years in active membership

of public service pension scheme• Underpin kicks in at date of cessation or old NRA, if

earlier (actuarial increase after new NRA)• Compare pension would have built up in 2008

Scheme post 31/3/14 with pension would have had in full section of 2014 Scheme

13

Employers – 2014 key requirements • Look at:

- Who can join- Separate records per job- 2 sections to the scheme (main & 50/50)- Employee contribution rates- Pensionable Pay- Assumed Pensionable Pay - Employee /employer contributions- Buying extra pension

14

Employers – 2014 other considerations • Look at:

- Supplying final pay and details of breaks, etc- End of year data / data on leaving- Discretions- Outstanding issues- Communications and support

15

Employers – 2014 key requirementsWho can join

• New starters, opting in / out, automatic enrolment – no change from 2008 Scheme, except <3 contract becomes member

- On automatic enrolment date if eligible jobholder

- On opting in

- On first day of pay period following extension of contract to

3+ months

• LGPS is auto-enrolment scheme for eligible jobholders entitled to membership of LGPS

• Opt out within 3 months = refund via payroll

16

Employers – 2014 key requirements

Separate records per job

• Same as for auto enrolment• 2 jobs = employee rates separately assessed• Except for single employment relationships• Unique ID per job• Important - separate cumulative pensionable pay

(incl. APP) and employee / employer contributions per job - accuracy of pension build up dependant on correct cumulative pensionable pay

• Care need with employees paid via timesheet claim

17

Employers – 2014 key requirements2 sections to the scheme (main & 50/50)

• New starters + optants in + auto-enrolled join main section

• Can elect for 50/50 (and back to main) per job – no limit

• 50/50 – Ee conts halved, Er conts in full • Applies from next available pay period• Employer to give info about effect on benefits• Cumulative pensionable pay and employee conts for

each section (employer conts can be aggregated)

18


2 sections to the scheme (main & 50/50)

• Automatically back in main section from next available pay period:

- If goes to nil pay due to sickness and still on nil pay at beginning of next pay period (watch out for nil pay short-term sickness)

- After employer’s automatic re-enrolment date (regardless of category and even if opted for 50/50 in last 12 months)

unless member elects otherwise

19


2 sections to the scheme (main & 50/50)

• On move to 50/50 section:

- Employee whole cost APCs must stop (unless paid to cover strike)

- Shared cost APCs must stop (unless paid to cover absence)

- No impact on any AVC / SCAVC

20


Employee contribution rates

• New bands with some increases in rates• Table may change before April • Which band? – up to employers but...

- Part time staff in band based on actual pay, not FTE

- Review each April and on material change in pay

- Could do.....? New starters? • Employer must notify employee of rate from April

2014 and upon any change to rate (plus date from which rate will be applied)

21

Employers – 2014 key requirements2014 - indicative CurrentActual Pensionable Pay Gross rate FTE Pensionable Pay Gross rate

Up to £13,500 5.5% Up to £13,700 5.5%

£13,501 - £21,000 5.8% £13,701 - £16,100 5.8%

£21,001 - £34,000 6.5% £16,101 - £20,800 5.9%

£34,001 - £43,000 6.8% £20,801 - £34,700 6.5%

£43,001 - £60,000 8.5% £34,701- £46,500 6.8%

£60,001 - £85,000 9.9% £46,501- £87,100 7.2%

£85,001- £100,000 10.5% More than £87,100 7.5%

£100,001 - £150,000 11.4%

More than £150,000 12.5%

Although the Regulations currently say the bands are to be increased each April by PI, the plan is to amend the Regulations to provide that the bands will be reviewed following each triennial valuation to maintain an average contribution from employees of 6.5%

22


Pensionable Pay• Same definition as now except

- non-contractual overtime (incl. excess hours) is pensionable

- any pay paid by employer whilst on reserve forces service

leave is not pensionable

- any pay paid by employer as consideration for loss of future

pensionable pay is not pensionable

23


Pensionable Pay• Benefit accrues each Scheme year based on

pensionable pay received in that year (other than pay received whilst on reserve forces service leave, or on relevant child related leave (ordinary and paid add’l), or on sick leave on reduced pay),

plus APP, not pensionable pay due for the Scheme year

• Payments due for period pre April 2014 paid after March 2014 – apply 2008 Scheme employee contribution rate to 2008 Scheme pensionable pay BUT don’t drop pensionable pay into post 2014 cumulatives

24

Employers – 2014 key requirementsAssumed Pensionable Pay

• Accrues during sickness on reduced contractual or no pay (incl. s/t periods), reduced/no pay during relevant child related leave (ordinary and paid add’l), reserve forces service leave

• Based on last complete 3 months or 12 weeks pensionable pay including any APP in that period

(but excluding all lump sums)

• Can add back any regular lump sum paid in last 12 months if think will still be on APP when lump sum next due

25


Assumed Pensionable Pay

• APP increased / decreased by Treasury Order revaluation (CPI) if goes over 2 scheme years

• No need to recalculate APP after KIT or Stringer days

• APP drops into pensionable pay cumulatives (not any pay received – unless actual pay is higher e.g. on a KIT day)

26


Assumed Pensionable Pay

• APP and 50/50- Monthly paid employee on half pay sick drops to no pay in

mid-August- Move to main section from 1 September- APP does not change but in August APP drops in 50/50

cumlatives, from September APP drops into main cumulatives

• APP to be calculated for Tier 1 and Tier 2 ill health retirements and death in service

27


Employee contributions

• Employee pays contributions on any pensionable pay received

- except any pay paid by the employer to an employee on

reserve forces service leave

• Employee does not pay contributions on APP

- except during reserve forces service leave (MoD deduct

from APP figure and remit contributions to Fund)

28


Employer contributions (in full, even if Ee is in 50/50)

• Employer pays contributions on any pensionable pay paid by the employer except any pay paid by an employer to an employee

- on reserve forces service leave, or

- on relevant child related leave (ordinary and paid add’l), or

- on sick leave on reduced pay

• Employer pays contributions on APP during relevant child related leave and sick leave on reduced/no pay

• MoD pays contributions on APP during reserve forces service leave and remit to Fund

29


Buying extra pension – APCs/SCAPCs

• Full and shared cost APC (£6,500) - Whole cost to employee – like 2008 Scheme ARCs

- Whole cost to employer – like 2008 Scheme granting extra pension

- Shared cost

• One of payment or regular contributions (unless AA says impracticable)

• Always cash amounts (not %)

30


Buying extra pension – APCs/SCAPCs

• APCs used to buy pension ‘lost’ due to: - Unpaid leave (including unpaid additional child related leave)

shared cost (1/3rd employee, 2/3rds employer) no compulsory first 30 days, but option to be made within

30 days of return, otherwise full cost to member

- Strike Note: SCAPC + strike APC:

at full cost to member final pay + 85 year rule

• APC election to Er and to AA

• Not allowed if in 50/50 (unless to buy ‘lost’ pension)

31


Buying extra pension – new AVCs/SCAVCs

• No change to 200 Scheme facility- Cash amount or % AVC/SCAVC

• But no 50% of pay limit for AVCs – 25% limit on tax free cash

32


Buying extra pension – existing contracts

• Existing ARC, AVC/SCAVC, added years, ASBC and part-time buy back contributions continue - added years % of 2008 definition of pensionable pay- ASBCs % of 2008 FTE definition of pensionable pay- AVCs retain 50% of pay contribution limit, but no 25% limit

on tax free cash

33


Effect on APC, AVC etc contracts during absences• Different rules depending on

- Who is contracted to pay the contributions (Ee or Er)- Type of contract- Whether contract is pre or post 2014 contract

• Full details in payroll and HR guides at http://www.lgpsregs.org/

http://www.lgpsregs.org/

34


Supplying final pay• Supply Final Pay (2008 Scheme definition) at:

- each 31 March for pre 2014 benefits on ABS* (including

underpin)

- date of leaving for pre 2014 membership

- date of leaving or old NPA if earlier for underpin

• Calculate Final Pay as now (but looking to simplify?)

* Fund can’t simply gross up from contributions: need cont rates during the year, conts paid per rate, average hours (in addition to contractual hours)

35


Supplying details of breaks, etc• Supply contractual hours/weeks changes for:

- Added years cases- Underpin cases- Benefits reg 20(13) cases (ill health underpin)

• Supply details of absence periods (not fully covered by SCAPC ) or strike (not fully covered by APC) for:- Underpin cases- 85 year rule cases

[Employer also needs to take account of such breaks when calculating final pay]

• Timing of supply to be agreed with admin. authority

36


End of year data / data on leaving / monthly contribution payover

• Minimum requirements defined in Regulations • Details are in payroll specification document at http

://www.lgpsregs.org/



• It’s worth putting the effort in now (automation)

• LGPS 2014 E&W built with the help of the “Payroll Software Suppliers Engagement Group”

• See payroll specification at http://www.lgpsregs.org/

Payroll System “Requirements”

37


38

Employers – other considerations

Discretions• New discretions policy by 30th June 2014 - Voluntary SCAPC

- Flexible retirement

- Waiving all / part of actuarial reduction

- Awarding additional pension at whole cost to employer

- Switching on 85 year rule (ish) for voluntary retirements 55-

60

• Note : augmentation gone, need policy for 2008 to 2014 leavers e.g. agreeing to early release of benefits from 55

39

Employers – main outstanding issues• Councillors’ pensions?

LGA – communications and support

40

On-line resources for employers

• Dedicated website for employers/practitioners– www.lgpsregs.org

• Will eventually have– The Regulations (including drafts and Consultations)– Statutory Guidance (DCLG and GAD)– Guides and Publications

• HR Guide to the 2014 Scheme• Payroll Guide to the 2014 Scheme• Administration Guide to the 2014 Scheme

• A powerpoint presentation for employers and practitioners to use for Scheme members is also expected for early 2014 at www.local.gov.uk/web/lgaworkforcepensions/lgps2014comms

• Also on that site is the “LGPS2014 Terminology Document” and “Communications plan”

41


http://www.local.gov.uk/web/lgaworkforcepensions/lgps2014comms

On-line resources for scheme members

• Dedicated website for scheme members– www.lgps2014.org regularly updated in line with draft regulations– contains agreed wording for leaflets etc. to avoid confusion

• Short video on LGPS2014 available since June• Also issued in November:

– Contributions and the flexibility to pay more or less– When can I take my pension?– How is my pension worked out?

• To follow:– If you joined before April 2014– Promotional – new scheme only

42

http://www.lgps2014.org/

Employee educational leaflets

• Short leaflet issued in June 2013 covering the main changes• Comprehensive set of leaflets in the pipeline

• Look out on www.local.gov.uk/web/lgaworkforcepensions/lgps2014comms

• Expected Autumn 2013 are:– Main changes– When can I take my pension?– How is my pension worked out?– Member contribution and flexibility– Myth Buster

• To follow: – If you joined before April 2014– Promotional – new scheme only

43

http://www.local.gov.uk/web/lgaworkforcepensions/lgps2014comms

Benefit modellers• Visually engaging modeller expected for early 2014• Will be on www.lgps2014.org and code will be available if

Funds want it on their own websites• Gives the user

– Cost of LGPS2014– Annual pension amount– Total pension amount– Visually demonstrating how accounts work, showing revaluation– Links to info re State Pension Age– 50/50 – option to see reduction in cost and benefits– Links to info on early retirement reductions, late retirement increases

and also protections

• APC modeller

44

http://www.lgps2014.org/

45

Thank you for listening.

Any questions?

LGPS 2014 for Employers Terry Edwards Senior Pensions Adviser, LGA and Director, PENtag Ltd January...

Documents

Transcript of LGPS 2014 for Employers Terry Edwards Senior Pensions Adviser, LGA and Director, PENtag Ltd January...