Delivered today under
licence by:
LGPS 2014 for Employers
Terry Edwards
Senior Pensions Adviser, LGA and
Director, PENtag Ltd
January 2014
www.local.gov.uk
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.
2
TODAY’S AGENDA
• Scheme overview
• Impact on employers
3
4
5
LGPS 2014 – Scheme Overview
• CARE scheme
• 1/49th accrual
• CPI revaluation
6
But run like an account:
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……..)
7
LGPS 2014 – Scheme Overview
• 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
8
LGPS 2014 – Scheme Overview
• 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
9
LGPS 2014 – Scheme Overview
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)
10
LGPS 2014 – Scheme Overview
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
11
LGPS 2014 – Scheme Overview
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
12
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
13
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
14
Employers – 2014 key requirements
Who 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
15
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
16
Employers – 2014 key requirements
2 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)
17
Employers – 2014 key requirements
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 shortterm 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
18
Employers – 2014 key requirements
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
19
Employers – 2014 key requirements
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)
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Employers – 2014 key requirements
2014 - indicative
Current
Actual 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%
21
Employers – 2014 key requirements
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
22
Employers – 2014 key requirements
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
23
Employers – 2014 key requirements
Assumed 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)
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• Can add back any regular lump sum paid in last 12
months if think will still be on APP when lump sum
next due
Employers – 2014 key requirements
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)
25
Employers – 2014 key requirements
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
26
Employers – 2014 key requirements
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)
27
Employers – 2014 key requirements
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
28
Employers – 2014 key requirements
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 %)
29
Employers – 2014 key requirements
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)
30
Employers – 2014 key requirements
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
31
Employers – 2014 key requirements
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
32
Employers – 2014 key requirements
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/
33
Employers – 2014 key requirements
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)
34
Employers – 2014 key requirements
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
35
Employers – 2014 key requirements
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/
36
Payroll System
“Requirements”
• 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/
37
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 5560
• Note : augmentation gone, need policy for 2008 to
2014 leavers e.g. agreeing to early release of
benefits from 55
38
Employers – main outstanding issues
• Councillors’ pensions?
39
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
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
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
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
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Thank you for listening.
Any questions?
45