ENSIONS FOCU P AUTUMN 2007 – ISSUE 11 S ‘Scarborough Headland’ – David Appleby New LGPS Special Issue The Scheme changes WILL AFFECT YOU ! IN THIS FOREWORD ISSUE… In the last issue of Pensions Focus we gave you the first available details of the new Local 2 Pensions Roadshows Government Pension Scheme which will go live on 1 April 2008. All current members of the scheme will be transferred to the new 3 New Look Local scheme on 1 April 2008. Government Pension Scheme from 1 April 2008 This issue of Pensions Focus is rightly dedicated to bringing you all the detail we know about the new 3 Cost of Pension scheme. The changes will affect everyone and most people will Benefits notice the change when their pension contribution either goes up or down in their April pay. 5 Building up Benefits By now most of you will have received an Annual Benefit Statement. If you have not received a Statement please do contact the 6 What about the 85 Pensions Section to discuss further, contact details can be found on Year Rule? the back page of this issue. 7 Retirement Benefits As ever, I hope you find the content of Pensions Focus to be helpful and easy to understand. Should you have any ideas for future articles please do not hesitate to contact the Operations Manager, 8 Death Benefits Karen Scott at [email protected] 9 Purchasing Additional Service 10 Quick Self Test Quiz 11 Increasing Your Benefits John Moore Retirement Quotations 12 Treasurer to the North Yorkshire Pension Fund 13 Transfers and Nominations 14 When can you get your State Pension? 15 Contact Numbers 1 Pension Roadshows NYCC A 3 day Roadshow was held in May 2007 for North Yorkshire County Council staff. This was our biggest and most challenging Roadshow yet and saw approximately 400 staff attend for a one to one session with a member of the Pensions Team and also representatives from the Prudential. Despite the length and scale of the Roadshow it ran very smoothly and we received very posi- tive feedback from many of the attendees. Hambleton District Council A further Roadshow was held in September 2007 for Hambleton District Council staff. This was a one day Roadshow (as most of our Roadshows are) and approximately 40 staff took the opportunity to talk to the Pensions Team and the Prudential about their own personal circumstances. For those who could not attend the one to one sessions or who just wanted a general overview we delivered 2 presentations over the lunch period covering topics such as the New Look LGPS from 1 April 2008, calculation of retirement benefits and the Rule of 85. There were approximately 100 attendees. Information Sessions Since April 2007 we have also held ‘one to one’ sessions for a large number of pension scheme members. These are conducted in a similar vein to the Roadshows but tend to be on a smaller less formal basis. Since April 2007 we have visited the following sites: North York Moors National Park Balfour Beatty Ashfield Residential Home North Yorkshire Fire & Rescue Larpool Lane in Whitby (NYCC Adult & Community Services) Tadcaster Grammar School (Non Teaching staff) Graham School (Non Teaching staff) Bilton Registration Service (NYCC) George Pindar School (Non Teaching staff) Yorkshire Coast Homes If you would like to arrange for the Pensions Team to visit your workplace, please contact Karen Scott on (01609) 532340. Please note that there must be at least 10 attendees. Overall, the information sessions have been very well received and have provided scheme members with an ideal opportunity to talk to the Pension Team about their own personal circumstances Many thanks to NYCC and Hambleton District Council for hosting the events. 2 New Look Local Government Pension Scheme from 1 April 2008 The LGPS is changing from 1 April 2008. The good news is that the Scheme continues to be a final salary scheme with the calculation of benefits linked to pensionable pay and some improvements and flexibilities have been introduced. All existing members move to the new scheme from 1 April 2008. The main changes are summarised in the following sections. Cost of Pension Benefits How much will I pay? The contributions which Scheme members pay into the LGPS have been fixed for many years and have not increased even though the amount which the Scheme employers have needed to pay has increased. You will have been paying either 6% or 5% (see separate information on page 4 if you are currently paying 5%) of your pensionable pay into the LGPS. From 1 April 2008 the amount you pay will be linked to the rate of pensionable pay which you receive and this will result in either a decrease or an increase in the amount you pay in pension contributions. The table below details the range of pensionable pay and the bands of contributions. Band Range* Contribution Rate 1 £0 - £12,000 5.5% 2 > £12,000 - £14,000 5.8% 3 > £14,000 - £18,000 5.9% 4 > £18,000 - £30,000 6.5% 5 > £30,000 - £40,000 6.8% 6 > £40,000 - £75,000 7.2% 7 > £75,000 7.5% * The figures in the ‘Range’ column of the table will increase in April each year by the rise in the Retail Prices Index cont / 3 New Look Local Government Pension Scheme from 1 April 2008 (cont) Cost of Pension Benefits (cont) Your employer will set the contribution rate you should pay based on the rate of pensionable pay you will be receiving on 1 April 2008. If you are part-time your rate of pay will be uprated to the amount you would be receiving if you were working full-time. Your employer will also decide whether there are any regular contractual extra payments which should be included in the rate of pensionable pay when setting the contribution rate. The employer will decide how often the contribution rate is changed if your pensionable pay increases or decreases. For example, this could be done once a year at 1 April or could be done each time you have a contractual change in their employment. Employees paying 5% in contributions Employees who were in a ‘manual worker’ post on 31 March 1998 have continued to pay the 5% contribution rate from 1 April 1998 (when the rate became a standard 6% for all). It has been decided to increase the contribution rate for those existing manual workers who pay contributions at the protected 5% contribution rate on a phased basis, bringing their contribution rate into line with all other Scheme members from 1st April 2011. This will be done by increasing the rate for these members to 5.25% in 2008/09; 5.5% in 2009/10; 6.5% in 2010/11; and then move to the bands in the table from 2011/12 onwards Therefore if you currently pay the 5% contribution rate you will pay the following rates: From 1 April 2008 - 5.25% From 1 April 2009 - 5.5% From 1 April 2010 - 6.5% (unless the rate in the standard contribution rate table is lower) Term-time workers Scheme members who work fewer than 52 weeks per year and are categorised by their employer as term-time will have their pension contribution rate based on the pay they would be receiving if they were working full-time for the number of weeks per year in that post (not uprated to 52 weeks). How much will my employer pay? The amount which your employer pays will continue to be assessed every 3 years through calculations done by the Fund Actuary. This varies depending on the cost of providing pension benefits. The amount which the employers and employees will pay in pension contributions in future will continue to be looked at by a Policy Review Group which has been set up by the Central Government Department, Communities and Local Government. This Group will look at a number of factors which affect the cost of pension benefits and a decision will be made on whether employee pension contributions should increase. A system is to be agreed to review the cost of the Scheme by 31st March 2009 and this will be known as a ‘cost sharing mechanism’. cont / 4 New Look Local Government Pension Scheme from 1 April 2008 (cont) Building up Benefits How will my benefits build up in the new Scheme? New employees must have a contract of employment of more than 3 months duration in order to be entitled to join the Scheme. Existing employees will move to the new Scheme on 1 April 2008. All Scheme members will build up benefits in the same way from 1 April 2008. Under the new scheme a pension of 1/60th of final pay is built up for each year of membership in the Scheme after 31st March 2008. There is no automatic lump sum. However, it will still be possible to take a tax free lump sum ‘retirement grant’ by giving up some of the annual pension. Each £1 of annual pension will provide £12 of lump sum retirement grant. It is possible to take a maximum lump sum which represents 25% of the capital value of benefits. The calculation of benefits from the LGPS will therefore be split as follows: Service up to 31 March 2008 Service from 1 April 2008 Annual Pension Annual Pension Service x 1/80 x Final Pay + Service x 1/60 x Final Pay and Lump Sum Retirement Grant Service x 3/80 x Final Pay Final Pay The pay figure used in the calculation of pension benefits is known as ‘final pay’.