Members To Decide On LGPS
2014 Pension Proposals
UNISON's Local Government Conference voted to carry out a
thorough consultation and information exercise with members
to inform the decision making process for setting a
recommendation on the proposals for a new LGPS 2014.
So members will have two opportunities to have their say. First attend one of our local
consultation meetings. Branches across the country are doing the same. The views
from these member consultations will be fed into a Regional meeting on 16 July and
reported back to the national Service Group Executive which meets on 19 July to
decide the recommendation for the individual member ballot. The ballot, run by the
Electoral Reform Society, will open on 31 July and close on 24 August.
Much more information, including examples and FAQ’s, is available on the national
website at www.unison.org.uk/pensions/lgps.asp
What Are The Proposals?
Proposals for a new Local Government Pension Scheme have now been published
following months of negotiations. We know this stuff is complex but it is important.
None of us wants to retire into poverty do we? The main points are as follows:
When Will It Start?
LGPS 2014 will start in April 2014. There will be no changes until then.
What Is The Headline Scheme?
The new scheme will switch from a Final Salary based scheme to a Career Average
Revalued Earnings scheme (CARE). The main difference is in how your pension
builds up. Under a Final Salary based scheme your pension is calculated at the end
using the overall length of service multiplied by an accrual rate (a fraction) and then
multiplied again using just your salary at the point when you leave. Under a CARE
scheme your pension builds up incrementally over your whole career based on an
accrual rate multiplied by your actual salary in each year. These yearly pension pots
are “banked” and then increased year on year for inflation and added together at the
end to form your pension. CARE schemes are inherently fairer overall as “what you
get out is based on what you have put in” throughout your career and is not skewed
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by late spikes in pay progression.
What Protections Will Be Included?
All pensions built up on service before April 2014 under the current and
previous LGPS Schemes will be protected and still based on your final salary at
retirement age. Additionally those members within 10 years of age 65 at 1 April 2012
who would see a rise in their pension age in this period will get a pension at least
equal to that they would have received in the current (2008) scheme. Previously
agreed protection, including the retirement age provisions for members with Rule of
85 benefits, will continue too.
How Will Pensions Be Calculated?
From 1 April 2014 for each year of LGPS 2014 membership you will build up a
pension of 1/49th of your pay for that year. This is the “Accrual Rate”. That yearly pot
is then banked and carried forward to the next year where it is increased for inflation
using the Consumer Prices Index. This is the “Revaluation Rate”. So if this increases
by 3% in a year, then so will the pension you have built up by then. This process is
repeated each year – a new yearly pot built up from 1/49th of your pay in that year,
and all the pots for every previous year revalued for inflation. And so on. Then when
you retire each of these yearly pots is added together to form your annual pension.
The current scheme is based on an annual accrual rate of 1/60th so the 1/49th accrual
rate in LGPS 2014 is better. The schemes before 2008 were calculated at the even
worse accrual rate of 1/80th. For many current LGPS members the final pension will
be made up by three calculations covering service under the old 80ths scheme, the
current 60ths scheme and the new LGPS 2014 49ths scheme.
How Much Will It Cost In Contributions ?
The following chart sets out the proposed contribution rates for LGPS 2014.
PROPOSED RATES – LGPS 2014
CURRENT RATES – LGPS 2008
Annual Pay Range
Gross
Rate
After Tax
Relief
Annual Pay range
Gross Rate
£1
£13,500
5.5%
4.40%
£1
£13,500
5.5%
£13,501
£21,000
5.8%
4.64%
£13,501
£15,800
5.8%
£21,001
£34,000
6.5%
5.20%
£15,801
£20,400
5.9%
£34,001
£43,000
6.8%
5.44%
£20,401
£34,000
6.5%
£43,001
£60,000
8.5%
5.10%
£34,001
£45,500
6.8%
£60,001
£85,000
9.9%
5.94%
£45,001
£85,300
7.2%
£85,001
£100,00
10.5%
6.30%
£85,301
upwards
7.5%
£100,001
£150,000
11.4%
6.84%
£150,001
upwards
12.5%
6.88%
The average contribution rate remains at 6.5% as now. This is a significant
achievement bearing in mind other public sector pension schemes have already seen
contribution costs rise by an average of 3.2% (a 50% contribution rate increase) and
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that was also the Government’s starting point for the LGPS. The noticeable difference
is the increased number of bandings, representing a more progressive approach
taking account of how tax relief works. 95% of members will pay the same or lower
contributions. At the top end although it appears at first the contributions rise
significantly the table shows how tax relief dramatically reduces the gross rate.
Part-time workers will have their contribution rates set according to actual earnings
and not full time equivalent pay as now. This means that all part-time workers whose
FTE pay is £43,000 or less will move to a lower contribution band in LGPS 2014.
What Else Is New?
All your actual pay including overtime and additional hours will be used in the
calculation of your pension. Currently it is just basic pay and contractual
enhancements. This means your pension will now reflect what you actually earn.
A feature of the new scheme is “The 50/50 Option” where members will be able to
choose a time limited low cost option, paying in 50% of the standard contributions
for 50% of the standard pension accrual during that time. Under this option the rate
you build up pension is1/98th of earnings during the time you pay the reduced rate, but
you still retain the full 100% value of other benefits such as the death in service lump
sum. This is a way to help some people join or remain in the scheme during particular
domestic circumstances rather than have no pension plan at all. This is one of the
features that should increase the overall LGPS membership which is the best way to
guarantee long term scheme viability.
A huge victory in the negotiations has been to secure that anyone who is transferred
compulsorily to other employers (outsourced/privatised) will have the statutory right
to remain in the scheme when transferred. And this will apply on both first and
subsequent transfers. Currently it is entirely down to the new employer whether they
apply for Admitted Body Status of the LGPS or offer a “broadly comparable” pension.
When Can I Retire?
The Normal Pension Age (NPA) at which you can retire without a reduced pension
will be age 65 or the State Pension Age (SPA) if that is higher. So subject to the
protections above and retirement due to redundancy (age 55 or over) or ill health if
you retire before your NPA your pension will be reduced for early payment.
The State Pension Age is already set to rise to 66 or 67 depending on your date of
birth and further increases are possible. SPA will reach 65 for women by November
2018 and will then increase to 66 for men and women from December 2018 to
October 2020 (depending on date of birth). Under current law the SPA is due to rise
again to 67 between 2034 and 2036 and to 68 between 2044 and 2046. But the rise
to age 67 is likely to be brought forward to between 2026 and 2028. UNISON remains
committed to reducing the SPA and is campaigning with the TUC to have it reviewed
by a Stakeholder Group rather than set arbitrarily on figures from the Office for
National Statistics. It is also highly likely that the amount a pension is reduced for
taking early retirement will be improved at the next scheme valuation in 2013.
In order to receive pensions you’ll need to be in the scheme for a minimum of two
years rather than the current 3 months – this is known as “the Vesting Period”. If you
leave with less than two years service you will get a refund of contributions rather than
having a very small pension tied up in the scheme until normal pension age.
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What About The Other Scheme Benefits?
All other current LGPS benefits remain the same under LGPS 2014.
You will still be able to swap pension for lump sum at a rate of £1 of pension for £12
of lump sum.
The Death in Service Lump Sum life cover will remain at three times annual pay,
and dependants’ pensions will remain unchanged.
No change is proposed to the ill health retirement system.
Employers will continue to pay most of the cost of pensions (average of twice
employee contributions) but their contributions will be capped. However Danny
Alexander, the Chief Secretary to the Treasury, thinks that this cap “is highly unlikely
to bite in the next 25 years”.
Tax relief: very importantly, the existing income tax advantages are set to continue.
So if you are a taxpayer, you will get tax relief on your pension contributions.
No matter what your age, LGPS membership built up before 1 April 2014 will not
be affected.
Is it worth it?
LGPS 2014 will continue to provide secure, high quality, index-linked, tax
relieved, defined benefit pensions. With the added security, for the first time ever,
of a statutory right to stay in the scheme if you are transferred to a new employer.
You simply cannot buy the same level of benefits – pension, ill health cover, death in
service lump sum, etc - through any other arrangement at comparable cost. Given
the comparatively low state pension the real question to ask is can you afford
NOT to be in the LGPS?
Consultation Meetings
 Hear about the LGPS Proposals. Discuss the issues.
 Tell us what you think about them!
Your Branch will be organising meetings which you are advised to attend.
Contact your local branch for further details.
UNISON North West July 2012
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