New LGPS 2014 and Automatic Enrolment

workshop

Agenda

• LGPS2014-basic details• LGPS2014 –employer roles• LGPS2014 – employer discretions• LGPS2014- communications plan• Question and answer session• Auto Enrolment- basic details• Auto Enrolment- employer responsibilities• Auto Enrolment- the pension regulators role• Question and answer session

Disclaimer

• Everything I discuss is subject to change out of my control• Benefit regulations all received• Transitional regulations in draft/released ???

The transitional regulations will instruct us how to hand previous pension rights particular concerns on:

• The underpin• Treatment of transfers• Pay drops

LGPS 2014 - Summary of changes

Current scheme New scheme

Scheme basis Final Salary CARE

Accrual rate 1/60th 1/49th

Indexation CPI for DB’s and pensioner’s

CPI on all

Normal Pension age 65 SPA

Earliest retirement age 60 55

Employee contributions 5.5% to 7.5% 5.5% to 12.5%

Contributions flexibility None 50/50 option

Pay used Pensionable pay Actual pay

Vesting period (entitlement to a refund)

3 months 2 years

Protection 85 year rule, pre 2008 service

Pre 2014, plus 10 year of retirement

Retirement age

Linked to SPA

SPA: currently 6566 by October 202067 by 2028*68 by 2030*

*still waiting for pension act to be ratified

Retirement from 55

• Member driven retirement now from age 55

• Employers will have the option to agree to ‘honour’ reductions under 85 year rule but no obligation

• Either way likely to be too expensive for most members to consider

Early retirement costs

• Just for comparison purposes

55 year old on £35k with 20 years service

Contributions

Actual Pensionable pay New rate

After tax relief

Current rate (if full time)

After tax relief

Up to £13,500 5.5% 4.4% 5.5% 4.4%

£13,501 to £21,000 5.8% 4.64% 5.8, 5.9 or 6.5%

4.64% to 5.2%

£21,001 to £34,000 6.5% 5.2% 6.5% 5.2%

£34,001 to £43,000 6.8% 5.44% 6.8% 5.44%

£43,001 to £60,000 8.5% 5.1% 6.8 or 7.2% 5.44% to 5.14%

£60,001 to £85,000 9.9% 5.94% 7.2% 5.14%

£85,001 to £100,000 10.5% 6.3% 7.2 or 7.5% 5.14% to 4.23%

£100,001 to £150,000 11.4% 6.84% 7.5% 4.23%

Greater than £150,000 12.5% 6.88% 7.5% 4.23%

Subject to amendment by treasury

50/50 scheme

• 50% contributions• 50% service accrual• 100% death cover• Enrolled into full scheme after 3 years• Brought back into full scheme if assumed pay needed• Employer pays full contribution

Actual pay

• For benefits accrued after 1/4/2014• And to calculate contribution rate to be paid• Overtime• Bonus• Allowances• Major benefits to part time employee’s

But

For many years to come we will require 2 pay figures on a member leaving employment.

Query on how assumed pensionable pay will be applied.

Employer Contributions

• Paid on Actual pay

• Assumed pensionable pay while on ‘relevant’ child related leave (i.e. Ordinary maternity, paternity or adoption leave or paid additional maternity, paternity or adoption leave)

• Assumed pensionable pay whilst on sick leave reduced or zero pay

Protection for pre 2014 service

Pre 2008 service2008 to 2014 servicePost 2014 service

Age 65 before 1 April 2022

• All retirees within 10 years of age 65 at 31 March 2012 covered by the ‘underpin

• 2 calculations to pay the better of• Old benefits (60th pension, final pay with retirement age 65)• New benefits (49th pension ON CARE basis linked to SPA)

Winners and Losers

Winners• Not expecting much (any) further salary growth• Part time employees• Happy to work to SPA• Anyone covered by the underpin• Overtime workers?

Losers• Expecting pay increases greater than CPI• Those on greater than £43,000• Keen to retire as early as possible

Employer responsibilities

LGA have produced 2 guides (HR and Payroll)

Key points are

•Monitor changes between full scheme and 50:50•Record pay in both pre and post 2014 formats•Register when a member in the 50:50 section received assumed pensionable pay

Monthly return

• Why?LGPS2014 more complex with 2 pay figures50:50 section with movements between25 year guarantee to scheme design (flying pig alert)

• Benefits for employersEnsures that all requirements of the LGPS2014 scheme are complied

with.Will minimise end of year queriesWill ensure that data is up to date as TPR starts to take on monitoring

role

Monthly return 2

• Queries to be reported to your fund site

• Member in 50:50 section now on assumed pensionable pay- you will need to confirm if due to long term sickness and if so bring them back in to the full sections

• Will need a unique identification for each post

E forms

• The monthly return is the ideal method of informing us of changes however we have updated the e forms:

• Joiner• Change of Hours• Auto enrolment form (for members)• Change of section (full scheme/ 50:50)• Leavers form- this will still be required even if you submit the

monthly return to confirm/verify reason for leaving

Handouts

• State pension age calculator• Low flyer/medium/high flyer• Early retirement costs• 4 member driven leaflets• FAQ document• Fact sheet- with disclaimer• Payroll guide• HR Guide• Monthly return guidance note and FAQ• Monthly return template

Future scheme cost control

• Scheme based on a 1/3rd cost paid by member and 2/3rds paid by the employer.

• 6.5% member average contribution• 13% employer contributions

For future service only- no allowance taken for past service deficit or previous early retirement costs

Figures taken on a national basis and if the employer figure exceeds the 13% by 2%:commitment to hold discussions on how to bring the employer rate back within this threshold would begin.

Governance

• Discussions are still ongoing on the final details of the governance of the scheme.

• 4 level• Responsible Authority- DCLG• Scheme manager• Pension board• Scheme advisory board

• There is also consultation on the best way to deliver LGPS currently 89 funds- likely to be substantially reduced

Discretions

New discretions needed

List to follow but I expect least 5 new discretions will be needed

•Switching on 85 year rule for voluntary retirements between 55-60•Funding of additional pension (will be referred to as SCAPC shared cost additional Pension contributions)•Flexible retirement•Waiving of actuarial reductions•Award of additional pension

Unchanged

• Ill health• Redundancy (employer driven) early retirement• Death• ARCs/AVCs

• New factors will be required for

• Transfers• Divorce

Planned communications

• Letter to member• Modeller• Leaflets• Videos• Website• Posters• Visits/ talks (Could be a charge)

Website

• www.yourpension.org.uk/lpfa/pension reform• www.lgps2014.org

• Update as soon as new information is made available

Summary for new scheme

• CARE• 1/49th

• NRD=State pension age• Actual pay for benefits and contributions• New contribution rates• 50/50 scheme• Protection for all service to 31/3/2014• Best of both for those within 10 years of retirement

Questions on LGPS2014

• A chance to ask any questions

What is AE

What is Automatic Enrolment

• Government requirement that all employees must be enrolled into a pension scheme (pension saving)

• The Government has appointed The Pension Regulator to act a the enforcer or policeman

• Minimum amounts payable by employee and employer

Categories of employee

Under age 22 22 to SPA Over SPA

Less than £5668 Entitled worker Entitled worker Entitled worker

Between £5668 and £9440

Non eligible job holder

Non eligible job holder

Non eligible job holder

Over £9440 Non eligible job holder

Eligible Job Holder

Non eligible job holder

Staging dates

120,000 or more 1 October 2012

50,000-119,999 1 November 2012

30,000-49,999 1 January 2013

20,000-29,999 1 February 2013

10,000-19,999 1 March 2013

6,000-9,999 1 April 2013

4,100- 5,999 1 May 2013

4,000-4,099 1 June 2013

3,000-3,999 1 July 2013

2,000-2,999 1 August 2013

1,250-1,999 1 September 2013

800-1,249 1 October 2013

500-799 1 November 2013

350-499 1 January 2014

250-349 1 February 2014

160-249 1 April 2014

Transitional Arrangements

Good news

• DB (or Hybrid scheme);• Always open to all employees; and• Transitional arrangement allow to defer automatically enrol

current optants.

Employer duties 1

Pre staging date•Decide if using transitional delay•Decide if using postponement•Inform all employees of staging date•Write to all employees who are not in the scheme (either using transitional delay or enrolling them from staging date)•Amend joiner pack to remove mention of opt out•Informing LPFA of those employees being auto enrolled

Employer duties 2

From staging date forward•Bring all new employees into pension scheme•Bring in any employee who reaches age 22•Bring in any employee who breaks £786 (£833) on given month

Employer duties 3

After your staging date

•Register with the pension regulator (within 4 months of your staging date)•Three years anniversary bring all members who opt out back into the scheme

LPFA’s role

We must

• Enrol any members notified to us for enrolment;• Provide details of possible opt out; and• Keep records.

But we can do more

We will provide the following to employers

• Guidance notes;• Draft letter’s from Employer; • Electronic opt out route; and• Website page purely on Auto enrolment.• Electronic opt out route linked into yourfund contacts• Timetable communications ‘suggestions’ around your staging date

Optants

• Someone who has opted out previously; and

• Assuming they are over 22 (and less than SPA) and are on a salary of greater than £9440 they will need to be brought back into the scheme.

Every 3 Years

• The whole exercise for optants will need to be repeated every three years!

• 2014, 2017, 2020

Questions

• A chance to ask any questions on Auto enrolment

Any other business

• End of contracted out NI from 2016?

Thank you

Contact details

• Neil Lewins• Technical Officer• 0207 369 6066• neil.lewins@lpfa.org.uk