Copyright 2009 Northumberland County Council LGPS The Local Government Pension Scheme The Northumberland Pension Fund Employee Meetings November 2014

Copyright 2009 Northumberland County Council LGPS The 2014 Scheme

Copyright 2009 Northumberland County Council LGPS We have a new LGPS with effect from 1 st April 2014

Copyright 2009 Northumberland County Council LGPS From the 1st April 2014 the LGPS will become a career average pension scheme. It will be based upon an accrual rate of 1/49 th with past earnings revalued in line with CPI inflation. Pension earned to 31 st March 2014 will be protected and still linked to final salary. There will be some additional protections for those who were over 55 as at 1 st April 2012

Copyright 2009 Northumberland County Council LGPS A 1/49 th is a higher (better) accrual rate than a 1/60 th under the current scheme. A person who completes 30 years under the current scheme gets 30/60 (50%) of the final years pay. A person who completes 30 years under the new scheme would get 30/49ths (61%) of their revalued career average pay – revalued in line with CPI.

Copyright 2009 Northumberland County Council LGPS Old Scheme Pay excluding non- contractual overtime. New Scheme Pay including non- contractual overtime. Pensionable pay

Copyright 2009 Northumberland County Council LGPS Old Scheme Up to £13, % £13,501 to £15, % £15,801 to £20, % £20,401 to £34, % £34,001 to £45, % £45,501 to £85, % More than £85, % New Scheme Up to £13, % £13,501 to £21, % £21,001 to £34, % £34,001 to £43, % £43,001 to £60, % £60,001 to £85, % £85,001 to £100, % £100,001 to £150, % £150,001 or more 12.5% Employee Contributions

Copyright 2009 Northumberland County Council LGPS Old Scheme The contribution rate is based on what the person would have earned if they had been full-time. New Scheme Based upon the persons actual rate of pay. Pay Used To Calculate Contribution rate Part-time Employees

Copyright 2009 Northumberland County Council LGPS Old Scheme Rate based on notional full- time pay therefore 6.5% £12,000 x 6.5% = £780 New Scheme Rate based on actual part- time pay therefore 5.5% £12,000 x 5.5% = £660 Contribution Calculations A part-time worker earning £12,000 a year. If they had been full-time their pay would have been £24,000

Copyright 2009 Northumberland County Council LGPS Old Scheme None New Scheme Yes. A member can opt to pay 50% contributions for 50% of the pension. Contribution Flexibility

Copyright 2009 Northumberland County Council LGPS Old Scheme Age 65 New Scheme Linked to State Retirement Age – Minimum of 65. Normal Retirement Age

Copyright 2009 Northumberland County Council LGPS Old Scheme £1 of pension given up gives £12 lump sum Subject to HMRC Limits New Scheme £1 of pension given up gives £12 lump sum Subject to HMRC Limits Lump Sum Options

Copyright 2009 Northumberland County Council LGPS Old Scheme 3 x Pensionable Pay New Scheme 3 x Pensionable Pay Death In Service Lump Sum

Copyright 2009 Northumberland County Council LGPS Old Scheme 3 Tiers of ill-health with the pension reflecting the impact the illness has on the person’s ability to work. New Scheme 3 Tiers of ill-health with the pension reflecting the impact the illness has on the person’s ability to work. Ill-Health Pension

Copyright 2009 Northumberland County Council LGPS Old Scheme CPI New Scheme CPI Indexation of Pensions in Payment

Copyright 2009 Northumberland County Council LGPS Old Scheme 3 Months New Scheme 2 Years Qualifying or vesting period

Copyright 2009 Northumberland County Council Early Retirement Options – New Scheme Redundancy - a person who is made redundant on or after age 55 will still qualify for the immediate payment of their accrued pension (i.e. pension not reduced to take account of the early payment). From age 55 - a person can opt to retire early. They do not need employer consent. The pension benefits will however be reduced to take account of the early payment of the pension.

Copyright 2009 Northumberland County Council LGPS Pensionable Pay Non contractual overtime will be pensionable in the new scheme For protected final salary rights the old definition of pensionable pay will continue to apply i.e. we will exclude overtime when calculating these rights. We could therefore use 2 pensionable pay figures to calculate your pension i.e. rights earned from April 2014 will be based upon pay including overtime. Protected final salary rights earned in the scheme before April 2014 will be based upon you final pay excluding overtime. Final pay normally means the contractual pay earned in the final year of employment.

Copyright 2009 Northumberland County Council LGPS Assumed Pensionable Pay - APP Where a person’s pay is reduced because of sickness or paid maternity, paternity or adoption leave APP is added to the cumulative pensionable pay – not the actual reduced pay earned. The assumed pay to be added to the cumulative pensionable pay is based on the average of the 3 completed months earnings immediately prior to the reduced earnings period (a 12 week average is used for weekly paid staff). The use of APP protects the rate at which a person earns pension when their earnings are reduced because of sickness or paid child related leave.

Copyright 2009 Northumberland County Council LGPS Additional Contributions Scheme members can still pay additional contributions to increase their pension. This can either be done by paying AVC’s into an arrangement we have with the Prudential or by purchasing additional pension from the main scheme.

Copyright 2009 Northumberland County Council LGPS The rule of 85 Where a person was a scheme member before 1 st October 2006 and has protections under the rule of 85 these carry over into the new scheme. These protections however are complex in their application, particularly where a person voluntarily retires before age 60 e.g. rights which carry rule of 85 protections drawn at age 57 would suffer an actuarial reduction based on the pension being taken 3 years before age 60. If you are considering these options seek advice from the Pension Section.

Copyright 2009 Northumberland County Council LGPS How does a Career Average Scheme work?

Copyright 2009 Northumberland County Council LGPS In a career average scheme your pension is calculated on the average of your revalued earnings over the whole period of your scheme membership and not your final years pay.

Copyright 2009 Northumberland County Council LGPS What does a career average scheme look like? The following example uses the LGPS1/49 th accrual rate. The inflation factors are assumed for illustration only (we do not know in advance what the rate of CPI inflation will be).

Copyright 2009 Northumberland County Council LGPS Career Average Example YearPayAccrual Rate Inflation Factor Pension Earned 117,000X 1/49thX 1.15= £ ,000X 1/49thX 1.11= £ ,500X 1/49thX1.06= £ ,900X 1/49thX 1.03= £ ,000X 1/49thX 1.00= £ Total DuePension= £2,116.28

Copyright 2009 Northumberland County Council LGPS What would the old scheme have provided? Final years pay £23,000. £23,000 ÷ 60 x 5 years = £ pension So new scheme better in this example, but the outcome of which scheme is better very much depends upon how CPI inflation compares with increases in pay.

Copyright 2009 Northumberland County Council LGPS Lets look at the previous CARE example but assume that the person:- Retires at state retirement age. Has 25 years service before April 2008 which is protected on a final salary basis in the 80 th Scheme. Has 6 years service before April 2014 which is protected on a final salary basis in the 60 th Scheme. Their final years pay for final salary protection purposes in £23,000.

Copyright 2009 Northumberland County Council LGPS Pension £23,000 ÷ 80 x 25 years = £7, Plus £23,000 ÷ 60 x 6 years = £2, Plus CARE Pension = £2, Total Pension = £11, Automatic Lump Sum - Pre April 2008 service only £ x 3 = £21,562.50