Presentation on theme: "Overview Changes for Employers Presented by Shirley Cuthbert Catherine Drew Viv Ray Emma Shand LGPS 2014."— Presentation transcript:
Overview Changes for Employers Presented by Shirley Cuthbert Catherine Drew Viv Ray Emma Shand LGPS 2014
Overview Agenda New Benefits Employee Contributions 50/50 Option New Pensionable Pay definition CARE Pension Retirement Options and actuarial reductions Additional Pension Contributions and AVCs Absences Leaver Options Protections and underpin Comparison Table
New Benefits Effective from 1 st April 2014 Career Average Revaluation Earnings scheme (CARE) Members will have a personal account Contribution year will be April to March Accrual rate is at 49 th, better than 60 th Actual pensionable pay used in calculation – not FTE Accruing pension is increased each year in line with CPI
9 different pay bandings (to be confirmed) Most members will pay the same or lower contributions in the new scheme Pay bandings based on actual pay not FTE, therefore part-timers may pay less contributions Pay bandings increased each April in accordance with Pensions Increase Employee Contributions
New option for member to pay 50% employee contributions Benefits for period in 50/50 scheme will be half of full scheme However, Death Grant and Ill-health cover will remain at full rate Member reverts to 100% scheme/contributions every 3 years on re-auto enrolment date and if member goes onto no pay sickness/injury. Member can then opt again for 50/50 scheme 50/50 Option
New definition of pensionable pay to include non contractual overtime New definition of pensionable pay to include additional hours No longer required to uprate pensionable pay to full- time Pensionable pay is now applicable to when it was paid, not to period of work it relates to. New Pensionable Pay definition
CARE Pension Pension Calculation Pension = 1/49 th of Actual Pensionable pay for the year Example £15,000(actual PP) x 1/49 th = £306.12 pension (50/50 scheme accrual rate = 1/98 th ) Following year in April above pension will increase with revaluation adjustment (see next slide for examples)
CARE Pension – Year on Year DateTransaction Total Year 1Deposit£15,000 X 1/49£306.12 Year 2Interest£306.12 X 0.03£9.18£315.30 Deposit£15,600 X 1/49£318.37£633.67 Year 3Interest£633.67 X 0.03£19.01£652.68 Deposit£16,000 X 1/49£326.53£979.21 Year 4Interest£979.21 X 0.03£29.38£1,008.59 Deposit£16,000 X 1/49£326.53£1,335.12
Retirement Options Normal pension age (NPA) is now the same as the state retirement pension age. No actuarial reduction or increase. Late retirement if taken after NPA the benefits will be increased (currently 0.014% per day) Redundancy and Efficiency retirement – no change Flexible retirement – no change except post 2014 benefits will be actuarially reduced if taken before NPA Ill-Health retirement – no change except Tier 1 enhancement is to NPA based on benefits calculated using APP, Tier 2 will be 25% Tier 1 enhancement. Slight change in ill-health certificate wording. Voluntary retirement between age 55 – 60, however member will suffer full actuarial reduction, 85 year rule does not apply. (See next slide for actuarial reductions)
Early retirement reductions Current Actuarial Reductions when retiring before NPA (Subject to change)
Additional Pension and AVCs Member can buy extra pension by paying Additional Pension Contributions (APC) APC doesn’t include survivor’s pension APC calculated in accordance with awaited GAD guidance Member can pay by lump sum or regular contributions Regular contributions must be paid over a minimum period of 1 year. Additional pension limit is £6,500 p.a. (Increases in line with PI each year) Members can now contribute up to 100% of pay (after statutory deductions) to AVCs.
Absences Member no longer required to pay pension contributions for first 30 days of unpaid absence. If member opts to pay for period of unpaid leave/child related leave within 30 days of returning to work, then employer must pay 2/3 rd of Additional Pension Contribution (APC) costs with employer paying the remaining 1/3 rd. If member elects after 30 days then member pays full amount themselves unless employer has policy discretion to pay part Strike – Member can pay for missed period by paying full APC cost
Leaver Options Refund of contributions can now be paid if member has under 2 years service. Employer still refunds through payroll if member has < 3 months service; over 3 months service Peninsula Pensions will refund. Member can’t have refund if has another continuing concurrent employment. Members with > 3 months and < 2 years service have choice of refund or deferred benefit, however must claim refund within 12 months of leaving or defaults is deferred benefit.
Protections and Underpin Member with pre 2014 service will have full protection on < 2014 benefits including the age they can take them unreduced. Protection can be lost if member has break in any public service pension scheme > 5 years and then joins former DB benefits with current membership. UNDERPIN – Members who meet following criteria get highest benefits between 2008 and 2014 scheme: Active member on 31 st March 2013, and Within 10 years of NPA on 1 st April 2012, and Receive benefits on or after NPA, and No break > 5 years from any public service pension scheme Has not received payment of any benefits before NPA
Comparison Table LGPS 2014LGPS 2008 Basis of Pension Career Average Revalued Earnings (CARE) Final Salary Accrual Rate 1/49 th (1/98th for 50/50 scheme) 1/60th Revaluation Rate Revaluation adjustment (section 9(2) of the Public Service Pensions Act 2013) Based on Final Salary Pensionable Pay Pay including non-contractual overtime and additional hours for part time staff Pay excluding non-contractual overtime and non-pensionable additional hours Employee Contribution Rates See LGPS 2014 Employee Contribution Rate on next page See LGPS 2008 Employee Contribution Rate on next page Contribution Flexibility Yes members can pay 50% contributions for 50% of the pension benefit – death grant and ill-health benefits paid at 100% No Normal Pension Age Equal to the individual member's State Pension Age 65
Comparison Table (cont) LGPS 2014LGPS 2008 Voluntary Early Retirement Age 55 – 60 (Full actuarial reduction) Age 60 earliest can retire Protection and underpinNone Full protection for all < 2014 benefits Underpin if within 10 years of NPA at 31/03/2012 (comparison between old and new scheme) Lump Sum Trade OffTrade £1 of pension for £12 lump sum Death in Service Lump Sum3 x Actual Pensionable Pay Death in Service Survivor Benefits 1/160th accrual based on Tier 1 ill health pension enhancement Ill Health Provision Tier 1 - Immediate payment with service enhanced to Normal Pension Age Tier 2 - Immediate payment with 25% service enhancement to Normal Pension Age Tier 3 - Temporary payment of pension for up to 3 years Tier 1 - Immediate payment with service enhanced to Normal Pension Age (65) Tier 2 - Immediate payment with 25% service enhancement to Normal Pension Age (65) Tier 3 - Temporary payment of pension for up to 3 years Indexation of Pension in PaymentCPICPI (RPI for pre-2011 increases) Vesting Period2 years3 months
Changes for employers What does this means for employers? Agenda Contributions Pensionable Pay and exclusion list Assumed Pay 50/50 scheme option Additional Pension Contributions (APC & SCAPC) and AVCs Absences Data requirements Action List
New pay bandings to be confirmed Average contribution is 6.5% Most members will pay the same or lower contributions in the new scheme Higher earnings will pay more Pay bandings based on actual pay not FTE, therefore part-timers may pay less contributions Ensure you keep up to date with correct pay bandings and their increases each year. LGPS 2014 EMPLOYEE CONTRIBUTION RATE From ToGross Rate Up to £13,5005.5% £13,501 to £21,0005.8% £21,001 to £34,0006.5% £34,001 to £43,0006.8% £43,001 to £60,0008.5% £60,001 to £85,0009.9% £85,001 to £100,00010.5% £100,001 to £150,00011.4% More than £150,00012.5% Employee Contributions
BENEFITS > APRIL 2014 New definition of pensionable pay – see next slide for exclusion list in new regulations Employers need to provide actual pensionable pay for each contribution year (April to March) or part thereof if left during year. Employers no longer required to uprate pensionable pay to full-time equivalent Need to exclude any pay that relates to pre April 2014. Pensionable Pay
Exclusion list (Extract from regulations) But an employee’s pensionable pay does not include— a)any sum which has not had income tax liability determined on it; b)any travelling, subsistence or other allowance paid in respect of expenses incurred in relation to the employment; c)any payment in consideration of loss of holidays; d)any payment in lieu of notice to terminate a contract of employment; e)any payment as an inducement not to terminate employment before the payment is made; f)any amount treated as the money value to the employee of the provision of a motor vehicle or any amount paid in lieu of such provision; g)any payment in consideration of loss of future pensionable payments or benefits; h)any award of compensation (excluding any sum representing arrears of pay) for the purpose of achieving equal pay in relation to other employees; i)any payment made by the Scheme employer to a member on reserve forces service leave; j)returning officer, or acting returning officer fees other than fees paid in respect of— i.local government elections, ii.elections for the National Assembly for Wales, iii.Parliamentary elections, or iv.European Parliamentary elections.
Assumed Pensionable Pay If member on reduced or no pay due to sickness, injury; or on statutory child related leave or reserve forces leave, employer needs to calculate Assumed Pensionable Pay (APP) for the applicable period. APP is calculated at an annual rate based on the pensionable pay received in the 3 months directly before the start of the applicable period. The annual figure is then apportioned to the applicable period and replaces any pay received in that period.
Assumed Pensionable Pay (cont) Ignore any lump sum payments made in the previous 3 month as will already have been included in PP. APP calculations need to be done each month so that it is included in the end of year annual pensionable pay for member. Examples in LGA payroll guidepayroll guide
Member can opt to pay 50% employee contributions Employer will continue to pay full 100% amount effect of this will be reflected in valuation Employer is responsible for informing member of effects on changing to 50/50 scheme Member reverts to 100% scheme/contributions every 3 years on re-auto enrolment date and if member goes on to no pay sickness/injury. Member can then opt again for 50/50 scheme Peninsula Pensions will create notes and form for 50/50 option for employer to give to member, also same if member wishes to revert to 100% scheme. 50/50 Option
Additional Pension and AVCs Member can buy extra pension by paying Additional Pension Contributions (APC) APC calculated in accordance with awaited GAD guidance Employer can choose to pay the APC in full or part, this is called Shared Cost APC. Will need employer discretion to be able to do this. Regular contributions must be paid over a minimum period of 1 year. Additional pension limit is £6,500 p.a. (Increases in line with PI each year) Members can now contribute up to 100% of pay (after statutory deductions) to AVCs.
Absences Pension contributions for first 30 days of unpaid absence no longer required. If member opts to pay for period of unpaid leave/child related leave within 30 days of returning to work, then employer must pay 2/3 rd of Additional Pension Contribution (APC) costs with employer paying the remaining 1/3 rd. If member elects after 30 days then member pays full amount themselves. Strike – Member can pay for missed period by paying full APC cost
Retirement Options Redundancy and Efficiency retirement – no change Flexible retirement – no change except post 2014 benefits will be actuarially reduced. Ill-Health retirement – no change except Tier 1 enhancement is to NPA based on benefits calculated using APP, Tier 2 will be 25% Tier 1 enhancement. Slight change in ill-health certificate wording – check our website for amended certificate Voluntary retirement between age 55 – 60, however member will suffer full actuarial reduction, 85 year rule does not apply.
Employer Discretions Employers must publish new discretions by 1 st July 2014 for the following: a)Funding of additional pension (Reg 16(2)(e) & 16(4)(d)) Employer can choose to pay for APC in whole or part b)Flexible Retirement (Reg 30(6)) Same as existing discretion c)Waiving of actuarial reduction (Reg 30(8)) Flexible Retirement and Early retirement (55-60) d)Award of additional pension (Reg 31) Employer APC for active member or member leaving on redundancy/efficiency
Employer Discretions (Cont) Employers must still retain old discretions to cover pre 2014 benefits Employers must regularly review discretions Don’t forget to send copy of discretions to Peninsula Pensions
New Data requirements New data requirements in addition to what is currently provided Data for 2013/14 will be same as previous years Need to provide separate data for each job Need to provide separate data for MAIN scheme and 50/50 scheme Provide actual pensionable pay figures to include any assumed pay End of year data? Or monthly or quarterly or bi- annually – to be decided.
New Data requirements (conts) Currently looking at our system requirements Need Transitional Regulations to confirm exact data needed for future Peninsula Pensions will contact all employers asap with data specifications. (see next slide for some detail) Essential to read the LGA payroll guidance which gives details of what employers will need to record each month.LGA payroll guidance
Data details CPP1: Cumulative pensionable pay received in the employment during the Scheme year whilst in main section (including the assumed pensionable pay the member was treated as receiving during the Scheme year whilst in the main section) CEC1: Cumulative employee contributions (if any) deducted from pensionable pay in previous field
Data details CPP2: Cumulative pensionable pay received in the employment during the Scheme year whilst in 50/50 section (including the assumed pensionable pay the member was treated as receiving during the Scheme year whilst in the 50/50 section) CEC2: Cumulative employee contributions (if any) deducted from pensionable pay in previous field Section of the scheme the employee was a member of in the employment at the end of the Scheme year (or at the date of cessation of active membership in the employment if on or after the start of the Scheme year and before the end of the Scheme year)
Data details (continued) CRC: Cumulative employer contributions deducted from pensionable pay in respect of the employment EAPC CAC: Cumulative additional pension contributions (APCs), if any, paid in respect of the employment by the employee RAPC CARC: Cumulative additional pension contributions (APCs), if any, paid in respect of the employment by the employer
Data details (continued) EAVC CAC: Cumulative additional voluntary contributions (AVCs), if any, paid in respect of the employment by the employee RAVC CARC: Cumulative additional voluntary contributions (AVCs), if any, paid in respect of the employment by the employer For employees with membership of the LGPS prior to 1/4/14 FTE Final pay for year
Action List Ensure payroll system is able to deal with the following required data: New pay bandings New definition of pensionable pay Separate records for MAIN and 50/50 pension schemes Calculation of Assumed Pay Shared Cost Additional Pension Contributions
Action List (Cont) Formulate new discretion policy for 2014 pension scheme Amend discretions for old pension scheme Procedure for informing employee of options when on unpaid leave or effected child related leave due to 30 day timescale
Useful Links LGA Website LGA Payroll guidance on LGPS 2014 LGA HR guidance on LGPS 2014 LGPS 2014 Website LGPS regulations and guidance Peninsula Pensions website