New Scheme LGPS 2014 and Contribution Setting

Mike AllenDirector of Pensions

New LGPS 2014

• Summary of Changes

• What’s next

New 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

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

Vesting period 3 months 2 years

Contributions flexibility None 50/50 option

Pay used Pensionable pay Actual pay

Outsourcing LGPS still available

Protection 85 year rule, pre 2008 service Pre 2014, plus 10 year of retirement

• Linked to State Pension Age

• SPA: currently 6566 by October 202067 by 202868 by 2046

Increased Retirement Age

Actual Pensionable pay Gross contribution After tax relief Current rate (if full time)

Up to £13,500 5.5% 4.4% 5.5%

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

£21,001 to £34,000 6.5% 5.2% 6.5%

£34,001 to £43,000 6.8% 5.44% 6.8%

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

£60,001 to £85,000 9.9% 5.94% 7.2%

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

£100,001 to £150,000 11.4% 6.84% 7.5%

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

Contributions Payable

50/50 Scheme

• 50% contributions

• 50% service accrual (1/98th)

• 100% death cover

• Re-enrolled into full scheme every three years

• For benefits accrued after 1/4/2014• To calculate contribution rate to be paid• Non-contractual overtime• Allowances• Arrears of pay• ‘Assumed Pensionable Pay”

Separate pay figures will be required for Actual Pay (new scheme) and Final Pay (protected benefits) e.g.:

• A member leaving employment• End of Year contribution returns

Pensionable Pay

Protections

• Pre 2008 service

• 2008 to 2014 service

• Post 2014 service

• All retirees within 10 years of age 65 at 31 March 2012

• 2 calculations to pay the better of

• Old benefits (Pre 2014 scheme for all service)

• New benefits (Pre 2014 & Post 2014)

Protections - continued

Unchanged

• Ill health

• Redundancy early retirement

• Death benefits

• Additional contributions

• 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

Summary

Current Situation:

• Benefit and Administration Regulations published

• Transitional Regulations (Protections etc.) due shortly

Further Regulations/Consultations due on:

• Cost Control

• Governance

Summary

• Newsletters

• Briefing note on key issues

• Website

• Workshops

• Guidance Notes

• Revised on-line notifications and Guides

Support for Employers

• Newsletter/formal notification of changes

• Website

• Benefit Modellers

• Posters

Support for Members

Contribution Setting

• Once every three years

• Sets employer contribution rates for the next 3 years

• Aims to ensure fund solvency

The valuation process

• Funding level

• Recovery period for past service deficit

• Covenant strength

• Type of employer

• Open or Closed to new members

What determines contribution rates?

LPFA’s aims

• Ensure appropriate contribution rate for each employer

• Recognise individual employer strength

• Identify how covenant strength can be improved

• Reduce risk of employer debt falling on other scheme employers

• Results finalised

• Employers notified of contribution rate payable

• Discussions on phasing options for any increases

• Discussions around security and covenant strength

• New rates payable from April 2014

Next Steps