Copyright 2009 Northumberland County Council The Local Government Pension Scheme Northumberland Pension Fund LGPS March 2011

Copyright 2009 Northumberland County Council LGPS What Does It Cost? Tiered Contributions – April 2011 bands:- £0 to £12, % More than £12,901 to £15, % More than £15,101 to £19, % More than £19,401 to £32, % More than £32,401 to £43, % More than £43,301 to £81, % More than £81, %

Copyright 2009 Northumberland County Council LGPS Tiered Contributions – Part-time Staff Rate based upon notional full-time pay. Example – a person is working 18.5 hours a week and earning £11,000 a year. The full time equivalent pay is £22,000 (i.e. what they’d have earned for 37 hours). The person would pay the rate appropriate to £22,000 i.e. 6.5%. They’d pay £11,000 x 6.5% = £715 a year.

Copyright 2009 Northumberland County Council LGPS What Does It Cost You If you pay tax you get tax relief on the contributions. If you pay tax you’ll probably also be paying a lower rate of National Insurance. This for most people reduces the cost of scheme membership. NCC employer rate 22.5% of pay

Copyright 2009 Northumberland County Council LGPS How will my pension be calculated?

Copyright 2009 Northumberland County Council LGPS Your pension will be calculated as follows:- Final Pay x 1/80 x Service to 31 st March 2008 Final Pay x 1/60 x Service from 1 st April 2008 For service to 31 st March 2008 there is a fixed lump sum of 3 times the pension earned before 1 st April 2008.

Copyright 2009 Northumberland County Council LGPS What do you mean by “Final Pay”? For most people we mean the pensionable pay earned in the final year of employment.

Copyright 2009 Northumberland County Council LGPS Example:- A person aged 65 is retired on the 31 st March They have been a member of the LGPS for 35 years. Therefore they have 32 years service up to 31 st March 2008 and 3 years from 1 st April They have final years pensionable earnings of £35,000.

Copyright 2009 Northumberland County Council LGPS Example Pension £35,000 -:- 80 x 32 years = £14,000 Plus £35,000 -:- 60 x 3 year = £1750 Total Pension = £15,750 Lump Sum - service to 31 st March 08 only:- £14,000 x 3 = £42,000 Standard Lump Sum

Copyright 2009 Northumberland County Council LGPS Giving Up Pension For Extra Lump Sum Under current tax law you can take 25% of your “pension fund” as a tax free lump sum. In a final salary scheme the taxman regards your “fund” as 20 x the pension actual paid + the lump sum. Using the pension paid i.e. after pension has been given up for lump sum makes this a complicated calculation.

Copyright 2009 Northumberland County Council LGPS Maximum Lump Sum In our earlier example the person had a pension of £15,750 a year and a standard lump sum of £42,000. He can if he so wishes give up part of his £15,750 pension and exchange it for an additional lump sum. Each £1 of pension given up buys £12 of lump sum. The extent to which he can convert pension to lump sum is governed by complex tax legislation.

Copyright 2009 Northumberland County Council LGPS Calculation of Maximum Lump Sum Pension = £15,750 Plus: Lump sum £42,000 ÷ 12 = £3,500 £19,250 £19,250 ÷ = £82,500* Less: Standard Lump sum = £42,000 Additional Lump Sum = £40,500 Pension = £15,750 – (£40,500 ÷ 12) = £12,375 Check (£12,375 x 20 + £82,500) x 25% = £82,500* * Maximum Lump Sum

Copyright 2009 Northumberland County Council LGPS Should I Exchange Pension For Lump Sum? This is something you need to decide for yourself. Consider factors like your age e.g. if you’re 55 your life expectancy is likely to be a lot more than 12 years! What is your state of health? What will you do with the lump sum? You’re giving up “index linked” pension. What’s the outlook for inflation. The extra lump sum is tax free but the pension is taxable.

Copyright 2009 Northumberland County Council LGPS Pensions are payable from :- Age 65. From age 55 on redundancy. On grounds of permanent ill-health with reduced capacity to undertake gainful employment. Can be taken from age 60* onwards. From age 55* where the employer consents. From age 55* on flexible retirement grounds with employers consent (your hours of work or grade need to reduce). *Early payment reductions may apply.

Copyright 2009 Northumberland County Council LGPS Pensions Increase You must be aged 55 or have retired on ill-health grounds to qualify for Pension Increase. Increases take effect on the first Monday following 5 th April. It’s based upon the rate of CPI as at the previous 30 th September. If you’ve been on pension for less than 12 months you only receive part of the increase.

Copyright 2009 Northumberland County Council LGPS Benefits on death in service Lump sum of 3 times annual pensionable pay. Spouses* pension of 1/160 of pensionable pay for each year of service the person would have completed by age 65. Children’s pensions may also be payable. Children – persons under 18, or persons under age 23 who have continuously remained in full-time education *including civil registered same sex partnerships.

Copyright 2009 Northumberland County Council LGPS Death In Service – Lump Sum Nomination You can nominate who you would like to get this benefit in the event of your death. If you don’t make a nomination we’ll probably pay the sum due to your estate – that could result in inheritance tax being due. If you make a nomination and your circumstances change please make a new nomination. If you have an unmarried partner two nominations needed 1) Pension 2) lump sum.

Copyright 2009 Northumberland County Council LGPS Nominated Partner If you live with an unmarried partner (including a same sex partner) you may be able to nominate them to receive a pension in the event of your death. You must have lived together for at least 2 years. You both must have been free to marry during this period. Your partner must be dependant upon you or there must be mutual dependency e.g. shared household expenditure. The pension can only be paid if a formal Partner’s Pension Nomination is in place.

Copyright 2009 Northumberland County Council LGPS Hutton Recommendations Schemes should be career average. Career average benefits should be index to average earnings before retirement. Consumer prices post retirement. Current rights should be protected and still linked to final salary. Contribution rates should be tiered as now, but rates may increase. Cont

Copyright 2009 Northumberland County Council LGPS Hutton Recommendations Retirement age should be in line with State Pension Age and increase when it increases. LGPS to remain funded. Pension costs should be capped. Any breach of the cap should result in employee contributions levels or benefits being reviewed. Employee contributions should increase by 3% on average. There are a number of other recommendations regarding scheme management and administration.

Copyright 2009 Northumberland County Council LGPS Hutton – Increased Employee Contributions. Hutton recommends increasing employee contributions by 3%. This may happen in other schemes e.g. Teachers and NHS. Within local government we have more low paid employees and there is concern that a large number could leave the scheme to avoid such an increase. Our increase may be structured so as to collect more from the from the better paid and a lower increase applied to those on lower earnings.

Copyright 2009 Northumberland County Council LGPS Hutton Career Average – What is it? These are normally referred to as CARE schemes – Career Average Revalued Earnings. You earn part of your pension each year, based on your earnings in that year – NOT your final salary. That part of your pension is then increased each year in line with average earnings.

Copyright 2009 Northumberland County Council LGPS – Career Average Example YearPayAccrual Rate Inflation Factor Pension Earned 117,000X 1/60thX 1.15= £ ,000X 1/60thX 1.11= £ ,500X 1/60thX1.06= £ ,900X 1/60thX 1.03= £ ,000X 1/60thX 1.00= £383 Total DuePension= £1727

Copyright 2009 Northumberland County Council LGPS Hutton - Career Average For comparison if the LGPS has remained final salary after 5 years in the scheme his pension would have been:- £23,000 x 1/60 x 5 years = £1916 a year

Copyright 2009 Northumberland County Council LGPS Any Questions!