‘New Career Average Scheme from 1 April 2015’ V7– 11 Nov 2014

Introduction Kenny Lyon Principle Pensions Officer North East Scotland Pension Fund

What will we look at today? What remains the same What is changing The protections in place for benefits in the final salary scheme

Current SchemeNew Scheme Basis of pension:Final SalaryCareer Average Revalued Earnings (CARE) Accrual rate:1/60th1/49th Pensionable pay:Pay excluding non-contractual overtime Pay excluding non-contractual overtime but additional hours for part-time staff included Revaluation rate:Consumer Price Index (CPI) Normal Pension Age (NPA): 65State Pension Age (SPA) minimum age 65 – transitional protections Employee contribution rates: Tiered contributions based on full time equivalent pay Tiered contributions based on actual earnings Contributions / benefit flexibility: None50% contributions for 50% benefits option

Current SchemeNew Scheme Commutation:1:12 Death in Service3 x pensionable pay Survivor benefits: Paid to spouse/civil partner or nominated co-habiting partner Paid to spouse/civil partner or co- habiting partner- no requirement to nominate Ill- health:Tier 1 – Immediate payment with service enhancement to age 65 Tier 2 – Immediate payment with enhancement of 25% of service to age 65 Tier 3 – Discretionary Employer lump sum payment Tier 1 – Immediate payment with pension enhancement to NPA Tier 2 – Immediate payment with 25% pension enhancement to NPA Tier 3 – Discretionary Employer lump sum payment Certificate of protection: 10 year guarantee when pay changes though no fault of member

The Facts – What’s not changing Guaranteed defined benefit scheme Death in Service cover - 3 times pay Pension for dependants Ill-health cover Option to take tax free cash lump sum Employer pays too …Still an excellent scheme

Pre 1st April 2015 Benefits The pension you have built up in the scheme before April 2015 is fully protected. These benefits will continue to be based on your full time equivalent pay at date of leaving. Your Normal Pension Age (usually age 65) is also protected.

Post 1 st April 2015 – LGPS 2015 Career Average Scheme: pension is calculated each scheme year and re- valued to ensure it keeps up with cost of living. New accrual rate of 1/49 th. This is better than the previous rate of 1/60 th e.g. 1/49 x £20,000 = £ /60 x £20,000 = £

New Scheme How is my pension worked out? Pension worked out every Scheme Year Rate of build up is 1/49 th pensionable pay (half that if in the 50/50 section) Pensionable Pay – new definition Pension added to your Pension Account Every year the pension in your account is revalued to keep up with the cost of living More than one job? Separate Pension Account for each job Certificates of Protection

New Scheme Example - How is my pension worked out? Susan’s Pension Account Scheme YearActual Pay Cost of Living Adjustment 1 1 April 2015 to 31 March 2016 £24,5003% 2 1 April 2016 to 31 March 2017 £25,3333.1% …In main section of the scheme

New Scheme Example - How is my pension worked out? Cost of living adjustmentTotal Scheme Year Opening Balance Pension Build up in year Total Account 31 March Cost of living adjustment Updated Total Account 1£0.00£24,500/ 49 = £500 £5003% = £15£515 2 £25,333/ 49 = £517 £ % =£32£1,064

How much will I pay ? The way contributions are worked out using pay bands stays as it is From April if you are part-time your contribution rate may reduce as it will be based on your part time pay instead of,as now, your FTE pay

The tiered contributions table will be retained Rate of PayContribution Rate Less than £20,9345.5% Between £20,934 and £27,205Between 5.6% and 6.0% Between £27,206 and £34,152Between 6.1% and 6.5% Between £34,153 and £48,141Between 6.6% and 7.5% Between £48,142 and £54,235Between 7.6% and 8.0% Between £54,236 and £72,620Between 8.1% and 9.0% Between £72,621 and £109,862Between 9.1% and 10.0% More than £109, % and over

How much will I pay ? Example - Contributions Jennifer is part-time Hours of work30 hours per week Full time equivalent Pensionable Pay £25,220 Actual Pensionable Pay£21,617 Contribution rate in 14/15 if use full time equivalent pay 5.9% Contribution rate in 14/15 if use actual pay 5.6% Employer contributionsAt least 2 times more than members contributions

Greater Contribution Flexibility New option to pay less - 50/50 Options to pay more - APC additional pension contributions -AVC additional voluntary contributions

50/50 Section Pay half your normal contributions Get half your normal pension Any member can join this section - Elect in writing Same level of life and ill-health cover as in the main section Short term option

Addition Pension Contributions (APC’s) Buy up to £6,500 extra pension Pay regularly or by lump sum Cost paid for by you, get a pension for you only (your employer can also award extra pension or pay towards cost) Buy extra pension

Shared Cost APC’s Periods of: –Unpaid authorised leave and –Unpaid additional relevant child related leave Buy Lost Pension Shared Cost –Employer 2/3rds, Employee 1/3 rd Must elect within 30 days of coming back to work

Extra Protection Ill-health cover Death in Service Cover Survivor’s Pensions Reduced/ no pay – sick leave and new parent leave cover

New Scheme When can I take my pension? From age 60 to 75 without employer consent From age 55 to 60 with employer consent Normal Pension Age = State Pension Age (min 65) What's my State Pension Age? Find out at Take earlier than Normal Pension Age = reduction Take later than Normal Pension Age = increase Can’t take pre and post 2015 benefits separately

New Scheme What reductions apply if drawing your pension early? Years early Pension MalePension FemaleLump Sum (for membership to 31 March 2009) 16% 3% 211% 6% 316%15%8% 421%20%11% 525%24%14% 629%28%16% 733%31%19% 836%35%21% 939%38%23% 1042%41%26%

New Scheme Other types of retirement (No change) Ill-health Payable at any age, 2 Tier system, employer decides Any enhancement worked out by reference to NPA Redundancy/ Efficiency Payable from age 55 (50 if you were a member in 2006) No reduction for early payment Flexible Retirement Employer consent from age 55 Draw some or all of your pension Remain in work (lower grade and or less hours - see your Employer’s policy)

Protections In before April 2015? All pension built up before changes = fully protected Membership up to 31 March 2015 based on final pay when you leave Protected Normal Pension Age = 65 Final Pay protection for reduction or restriction in pay through certificates of protection …Remember all pension is drawn at the same time (pre and post 2015)

Protections Sounds confusing ? … let’s break it down Up to 3 different calculations when working out your pension (depending on when you joined)

Protections Membership up to 31 March 2009 Membership from 1 April 2009 to 31 March 2015 Membership from 1 April 2015 Annual Pension = Membership x Final Pay / 80 + Annual Pension = Membership x Final Pay / 60 + Annual Pension = Pensionable pay for each year / 49 (half that if in 50/50 section) Automatic tax - free cash lump sum = 3 x Annual Pension No automatic tax-free cash lump sum* No automatic tax- free cash lump sum* * Option to convert pension into tax –free cash

Protections – Rule of 85 What is it? Age in whole years plus membership in whole years = 85 Must have been a member on 30 November 2006 to qualify Protection up to April 2020 if 60 by 31 March 2020 Protection up to April 2008 if under 60 on 31 March 2020

Protections - Underpin Protection for those nearing retirement To ensure you get the same as you would have before scheme changed = Underpin check Likely that for many members the new scheme is better

Protections - Underpin Who is protected by the Underpin? Active on 31 March 2012, and: Within 10 years of your Normal Pension Age under 2009 scheme on 1 April 2012 No disqualifying break in service of more than 5 years Not taken any pension already before your Normal Pension Age

The Facts – Protections Existing Contracts Have you already got a contract to buy more pension or membership? Could include: Added Years (buying additional membership) Additional Voluntary Contributions (AVCs) Additional Regular Contributions (ARCs) Additional Survivor Benefit Contributions (ASBCs) Preston part-time buy-back These continue under the new scheme - under the same rules as before.

The Facts – Protections Protection if you leave and re-join the LGPS in the future You leave and come back … With a break of 5 years or less (in LGPS or any Public Service Pension Scheme) …then On any pre 1 April 2015 benefits you continue to have a final salary link (used to work out your final salary benefits)

The Facts - Future? Cost Management process Review contribution rates and benefits every three years Ensure the Scheme’s long-term future More robust governance The LGPS remains a great scheme

Example Date of Birth : 01/06/55 Date of leaving : 31/05/2021 Membership to 31/03/15 : 16 years 201 days (FT) Final pay 01/06/20-31/05/21: £ 24,000.00

Example Pre April 2015 benefits Pension: Membership to 31/3/09 10/201 x 24,000 x 1/80 = £ 3, Membership from 1/4/09: 6 x 24,000 x 1/60 = £ 2, £ 5, Automatic Lump Sum: 10/201 x 24,000 x 3/80 = £9,495.62

Example Post April 2015 Benefits YearPensionable PayPension Revaluation 15/16£21, % 16/17£21, % 17/18£22, % 18/19£22, % 19/20£22, % 20/21£23, % 20/22£4,000.00

Example Post April 2015 Benefits YearPensionCalculation Pay divided by 49 + total pension + inflation Total Pension 15/16 21,600 x 1/49 = £ x 2%£ /1721,840 x 1/49 = (£ ) x 2%£ £913.26) x 3% 17/1822,200 x 1/49 = (£452.06£1, /1922,560 x 1/49 = (£ £1,407.31) x 2.5%£1, /2023,040 x 1/49 = (£ £1,914.41)x 4%£2, /2123,520 x 1/49 = (£ £2,479.99) x 3%£3, /224,000 x 1/49 = (£ £3,048.79)£3,130.42

Example Underpin check Benefits from 1 April 2015 if remained in 2009 scheme: 6/061 x 24,000 x 1/60 = £ which is less than 2015 scheme therefore no underpin. Total benefits Pre April 2015 benefits= £ Post April 2015 benefits= £ £ annual pension Lump sum: £ Option to give up pension for additional lump sum.

More information

Contact your Fund Websitewww.nespf.org.uk Telephone scotlgps2015.org

Disclaimer These slides explain the changes to the Local Government Pension Scheme (LGPS) from April 2015 as well as the protections in place for members of the scheme who have built up benefits in the scheme before 1 April It reflects known changes at the time of V7’s publication on The information contained in these slides has been produced by the SLOGPAG communications sub-group. It represents the current understanding of the law. It should not be treated as a complete and authoritative statement of the law. Readers may wish, or will need, to take their own legal advice on the interpretation of any particular piece of legislation. No responsibility whatsoever will be assumed for any direct or consequential loss, financial or otherwise, damage or inconvenience, or any other obligation or liability incurred by readers relying on information contained in these slides.