1. LGPS 2014 - Update

2. LGPS 2014 Treasury Paper released 1 Dec 2011 Protections for members within 10 yrs of NRD Heads of Agreement 20 DEC Eric Pickles issues letter re Cost ceilings for LG Unions threaten to withdraw as agreement was that this is still to be negotiated Letter withdrawn and all LGPS unions come back on-board except Unite

3. LGPS 2014 Jan 2012 Employers/ Unions/ DCLG Start negotiations set up project 30 th Jan Unite rejoins negotiations Other Schemes have formally set out there proposals based on December agreement still Union opposition to member contribution increases LGPS timescales End Feb to 20 th April Employers /Unions consult with members To date no information has been forthcoming [unusually no leaks]

4. LGPS 2014 Pension Scheme Gross cost ceiling EmployersMembers Accrual rate Revalued Civil Service22.5%16.9%5.6% 60thsEarnings NHS Pension21.9%12.1%9.8% 60thsEarnings Teachers21.7%12.1%9.6% 60thsEarnings LGPS20.4%10.9%9.5% 60thsEarnings

5. LGPS 2014 CONTRIBUTION INCREASES 2012/2013/2014 CARE Accrual Rate Revaluation Rate Wef CIVIL SERVICE 43.1ths (2.32%) CPI2015 NHS 54thsCPI +1.5%2015 TEACHERS 57thsCPI + 1.6%2015 LGPSX? ? 60ths? ???2014?

6. LGPS 2014 End April 2012New Scheme proposals released May 2012Employers/Unions Consult with members Autumn 2012DCLG to issue statutory consultation [12 weeks] APF to issue Newsletter to members Early 2013 ?Draft Regs APF to hold roadshows for employers and members April 2013Regulations

7. Annual Allowance and Lifetime Allowance – A Basic Overview

8. Background HMRC Limits Tax registered pension schemes enjoy tax relief Pension contributions are deducted before tax Retirement lump sums are tax free Due to these tax advantages, HMRC imposed limits

9. Pre “A-Day” HMRC Limits The HMRC limit on pensions was nice and simple! Pension contributions in the LGPS could not exceed 15% of pensionable pay Pensions were generally limited to 2/3rds pay

10. “A-Day” Tax Regime HMRC Limits The Tax regime changed on 6 April 2006 (“A-Day”) Previous restrictions removed Replaced with:- Annual Allowance (AA) £215,000 rising to £255,000 Lifetime Allowance (LTA) £1.5m rising to £1.85m

11. Annual Allowance [AA] Annual Allowance The maximum amount of tax exempt pension contributions that an individual can make in one year From “A-Day” started at £215,000 For 2010/11 was £255,000 But it was announced in the Oct 10 Comprehensive Spending Review that the level would be significantly reduced from the 2011/12 tax year

12. Annual Allowance [AA] Annual Allowance From 2011/12 tax year the AA is £50,000 Simple to assess for a Defined Contribution scheme! It’s what contributions are paid in the year But for a Defined Benefit scheme: translate the growth of benefit in the year into a notional contribution This is the “Pension Input Amount” [PIA]

13. Annual Allowance terms Annual Allowance Pension Input Period (PIP) – 1 st April to 31 st March Pension Input Amount (PIA) – the amount by which the pension savings have increased over a PIP Opening Value (OV) – value of benefits at start of PIP Closing Value (CV) – value of benefits at end of PIP

14. Annual Allowance calculation Annual Allowance CV - [OV + CPI]

15. Annual Allowance calculation Annual Allowance Opening Value [OV] is: (16 x PB) + LSB Where: PB is the annual pension that would have been payable at the end of the last PIP LSB is the lump sum that would have been payable at the end of the last PIP The OV is increased by CPI % from previous Sept

16. Annual Allowance calculation Annual Allowance Closing Value [CV]is: (16 x PE) + LSE + AVC Where: PE is the annual pension that would have been payable at the end of this PIP LSE is the lump sum that would have been payable at the end of this PIP AVC is the AVC contributions paid during this PIP

17. Example 1 – Active Member Annual Allowance Joined LGPS on 1/4/09 Pay for the year to 31/3/11 is £72,000 Pay for the year to 31/3/12 is £75,600, [ 5% rise] CPI for September 2010 is 3.1% Annual pension at 31/3/12 3/60 x £75,600= £3,780 Annual pension at 31/3/11 2/60 x £72,000= £2,400 Closing value [CV]16 x £3,780 = £60,480.00 Opening value [OV]16 x £2,400 = £38,400 + CPI from Sept 2010 (3.1%) = £39,590.40 Pension Input Amount for 2011/12 [CV – OV]= £20,889.60 Not over £50,000 so only subject to tax if other pensions exceed balance

18. Example 2 – Tier 2 IHR Annual Allowance Joined LGPS on 1/4/09 Retired on Tier 2 ill health on 5/11/11, on the eve of her 33 rd birthday Received an 8 year enhancement [2 nd tier: (service to age 65 / 4) =(32 /4) ] Annual pension at 31/3/11 2/60 x £24,000= £ 800 Annual pension at 5/11/11 10.6/60 x £25,200= £4,452 Opening value 16 x £800 = £12,800 x CPI from Sept 2010 (3.1%) = £13,196.80 Closing value 16 x £4,452 = £71,232.00 Pension Input Amount for 2011/12 (CV – OV)= £58,035.20 Excess over the Annual Allowance= £ 8,035.20

19. 3 Year Carry Forward Annual Allowance Unused AA from previous 3 years can be used to offset any Annual Allowance excess In the 2011/12 PIP we use a notional AA of £50,000 for each of the previous 3 years Any negative accruals will be treated as zero CPI is used for all years even though RPI was actually still in force during some years

20. 3 Year Carry Forward - Example Annual Allowance YearValue of benefit accrual Unused AA to carry forward Total carry forward 2008/09£30,000 2009/10£55,000 2010/11£40,000 2011/12£65,000 The £15,000 excess in 2011/12 is offset against the £20,000 carry forward for 2008/09 so there is no tax charge £20,000 £0 £10,000 £30,000

21. Example 2 – Tier 2 IHR Annual Allowance Joined LGPS on 1/4/09 Retired on Tier 2 ill health on 5/11/11, on the eve of her 33 rd birthday Received an 8 year enhancement [2 nd tier: (service to age 65 / 4) =(32 /4) ] Annual pension at 31/3/11 2/60 x £24,000= £ 800 Annual pension at 5/11/11 10.6/60 x £25,200= £4,452 Opening value 16 x £800 = £12,800 x CPI from Sept 2010 (3.1%) = £13,196.80 Closing value 16 x £4,452 = £71,232.00 Pension Input Amount for 2011/12 (CV – OV)= £58,035.20 Excess over the Annual Allowance= £ 8,035.20

22. Example 3 (revisited) – Tier 2 IHR Annual Allowance Pension Input Amount for 2011/12 £58,035.20 Excess over the Annual Allowance£ 8,035.20 However, the member has unused AA for the previous 3 years:- 2010/11£44,565.40 2009/10£46,223.80 2008/09£ possible carry over from a previous scheme Therefore this member would not have an AA charge

23. Exemptions Annual Allowance Deferred benefits are not tested for the AA Incoming transfer credits are ignored in the PIP in which they are received “Severe Ill-Health” retirements are exempt from the AA test Definition:- The individual is suffering from ill-health which makes it unlikely that he/she will be able (otherwise to an insignificant extent) to undertake gainful work (in any capacity) before state retirement age N.B. It is imperative that the most up-to-date forms are used by Medical Practitioners when certifying ill health retirements

24. Tax Charge Annual Allowance If a member is in more than one pension scheme they will need to add their PIA’s together and check if the total exceeds the AA If the PIA (or PIAs) exceeds £50,000 after allowing for any carry forward, there will be a tax charge Any tax charge will be assessed on the Member’s marginal tax rate

25. Scheme Pays Annual Allowance If a member’s charge in one PIP exceeds £2,000 they may elect to pay the charge out of their pension benefits It will be mandatory for the scheme to offer this facility where the member’s PIA exceeds the AA for that year A member who exceeds the AA by virtue of savings across multiple pension schemes, without exceeding it in any one scheme, may request that one of the schemes operate Scheme Pays. The scheme will not be under any obligation to do so.

26. Scheme Pays Annual Allowance Under Scheme Pays, the pension scheme will pay the tax charge on behalf of the member Using a factor supplied by GAD, the scheme will calculate a deduction to the member’s pension, to be operated when the pension comes into payment We are still awaiting GAD guidance on Scheme Pays Election to pay under Scheme pays must be made before benefits become payable

27. Notification to Members Annual Allowance Annual Allowance is the responsibility of the member but there are obligations on the fund and employers Where members exceed the AA in a pension scheme, the scheme must provide details of the member’s pension input amount within 6 months of the end of the tax year. Where members request this information, the scheme must provide details of the members pension input amount by the later of 3 months of the request and 6 months of the end of the tax year. Employers must provide information about employees pay and benefits, and length of service to DB schemes by 6 th July following the end of the tax year.

28. Annual Allowance Implications for Employers Statutory requirement to get details to Administrator General reassurance to staff HR implications on recruitment HR implications on Ill health retirements

29. Lifetime Allowance A notional capital value of a member’s benefits at a Benefit Crystallisation Event When a pension / lump sum / death grant become(s) payable

30. Lifetime Allowance Originally set at £1.5m in 2006/07 it rose to £1.8m but as a result of the announcement in the CSR in Oct 2010 it has been reduced back down to £1.5m from 6/4/2012 Calculation of capital value: (20 x pension) + lump sum + AVC Fund This sets the level at which the maximum lump sum amount without tax is calculated

31. Lifetime Allowance Members could have applied for “Fixed Protection” by 5/4/12 to retain up to £1.8m LTA Fixed protection will be lost if member has “benefit accrual” Scheme Pays reduces the level of Allowance

32. Lifetime Allowance Thank you for listening!