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Hampshire Pension Fund 2008 pensions update ‘Food for thought’

Hampshire Pension Fund 2008 pensions update ‘Food for thought’. Wendy Brooks & Phil Villiers Pensions Services Hampshire County Council. Summary. For starters - a bit of background How much does it cost – changes to contributions The main course – changes to your benefits

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Hampshire Pension Fund 2008 pensions update ‘Food for thought’

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  1. Hampshire Pension Fund 2008 pensions update‘Food for thought’ Wendy Brooks & Phil Villiers Pensions Services Hampshire County Council

  2. Summary • For starters - a bit of background • How much does it cost – changes to contributions • The main course – changes to your benefits • Some side orders – increasing your benefits • And to finish off - some food for thought

  3. For starters - a bit of background

  4. For starters - a bit of background • Local Government Pension Scheme (LGPS) • national scheme for local authorities • Hampshire Pension Fund • statutory funded scheme • Final salary • ‘Contracted out’

  5. For starters - a bit of background • Contributory scheme • Pre-April 2008: • member contribution = 6% of pay • some ‘manual’ employees pay 5% • net cost reduced by tax relief and NI rebate • employer pays ‘balance of cost’ (17.7% for 2007/8)

  6. For starters - a bit of background • Normal retirement at age 65 • Flexible, early, late retirement options • Ill-health pensions • Pensions in payment increases (‘index-linking’) • Death benefits • Leaving service benefits • Option to transfer in • Option to increase benefits by paying extra contributions

  7. How much does it cost - changes to contributions

  8. Member contributions • Banded contribution rates, based on your whole-time equivalent pay (‘WTE’) • Part-timers pay rate based on ‘WTE’ • Special arrangements for ‘term-timers’ • When deciding which pay banding applies to you: • Your basic pay and any other regular annual payments should be included. • Your employer can decide whether or not to include other payments.

  9. Standard contribution bands

  10. Member contributions • Tax relief reduces effect of increase/ decrease in contribution • Separate rates apply to manual workers who have previously paid 5% rate • The Government will increase the bands every 1 April • Your employer will decide when to change the band for a ‘mid-year’ contractual change to your ‘WTE’

  11. Employer contributions • Employer continues to pay ‘balance of cost’ • For 2008/9, employer pays 18.1% of your pay

  12. The main course - changes to your benefits

  13. ‘Accrual rates’- how we calculate your pension • Pre-April 2008 service (‘old basis’) • as at present, ie • 1/80th pension plus 3/80ths lump sum • still based on your ‘final pay’ when you retire • Post-April 2008 service (‘new basis’) • 1/60th pension • no automatic lump sum • option to ‘commute’ up to maximum of 25% of benefits value • Commutation rate is £12 lump sum per £1 pension

  14. Accrual ratesExamples • Member retires at 65 on 31 March 2028 with final pay of £12000 and 40 years’ whole-time membership • Example 1 – ‘old basis’ (ie if April 2008 changes did not take place) • Example 2 – ‘new basis’ with no lump sum, post-April 2008 • Example 3 – ‘new basis’ with same total lump sum as ‘old basis’ • Example 4 – ‘new basis’ with maximum lump sum allowed

  15. Accrual rates - example 1‘Old basis’ • Lump sum: 40 x 3/80 x £12000 = £18000 • Pension: 40 x 1/80 x £12000 = £ 6000 per year

  16. Accrual rates - example 2‘New basis’ with no lump sum, post-April 2008 • Lump sum: Pre-April 2008: 20 x 3/80 x £12000 = £ 9000 • Pension: Pre-April 2008: 20 x 1/80 x £12000 = £ 3000 per year Post-April 2008: 20 x 1/60 x £12000 = £ 4000 per year = £ 7000 per year

  17. Accrual rates - example 3‘New basis’ with same total lump sum as ‘old basis’ • Lump sum Pre-April 2008 : 20 x 3/80 x £12000 = £ 9000 Post-April 2008 : by commuting pension = £ 9000 Total lump sum = £18000 • Pension Pre-April 2008 : 20 x 1/80 x £12000 = £ 3000 per year Post-April 2008 : 20 x 1/60 x £12000 = £ 4000 per year (Less pension commuted (9000/12) = £ 750 per year) Total pension = £ 6250 per year

  18. Accrual rates - example 4‘New basis’ with maximum lump sum allowed • Lump sum Total lump sum allowed = £33214 • Pension Total pension if maximum total lump sum paid = £ 4982 per year

  19. Accrual rates Examples - summary

  20. Pay and final pay • Pay - definition broadly the same • Final pay • best of the last 3 years • no more ‘certificates of protection’ (currently may apply if employer freezes/reduces pay) • ……instead, average of best 3 consecutive years in last 10 ending 31 March can be applied.

  21. Retirement benefitsEarliest retirement date • Earliest age for immediate benefits is increased from 50 to 55 • Age 50 allowed for existing members up to 31 March 2010 • Applies to all early retirements - voluntary, redundancy and efficiency. Ill-health is only exception. • Also applies to flexible retirement – see next slide.

  22. Retirement benefitsFlexible retirement • Option to draw pension and continue working for same employer • need to reduce hours or move to less senior position • need employer consent • can build up further LGPS benefits for new period of service • Permitted from 55 (age 50 allowed for existing members up to 31 March 2010) • Member can draw all or part of benefit

  23. Retirement benefitsIll-health retirement • Immediate ill-health benefits can be paid to a member with at least 3 months total membership • Tiered package giving increased benefits if you are unlikely to be capable of working again

  24. Death benefits - death grant • Death in service • pre-April 2008, 2 x final pay • increased to 3 x final pay • Death in deferment • pre-April 2008, retirement lump sum • increased to 5 x deferred pension for member who leaves service on or after 1 April 2008 • Death in retirement • pre-April 2008, ‘5 year guarantee’ • increased to ‘10 year guarantee’ for member who leaves service on or after 1 April 2008

  25. Death benefits–Dependants pensions • No more short-term pensions • as death grant higher (see previous slide) • Long-term pensions still 1/160th • not 1/120th • Nominated cohabiting partners’ pensions • 1/160th rate, based on post 5 April 1988 membership • subject to certain conditions, including • completion of special nomination form • ‘free to marry’ • 2 year qualifying period • financial interdependent or fully dependent

  26. Changes to your benefits – what hasn’t changed? • The scheme itself - still the ‘LGPS’ • Its still a ‘final salary’ scheme! • Membership and pay for part-timers based on ‘whole-time equivalents’ • 85-year rule protections as previously published • Age 65 normal retirement date • Leaving service benefits • Late retirement benefits • Pensions in payment increases

  27. Some side orders – increasing your benefits

  28. Increasing your benefits -Additional regular contributions • Added years option replaced by ‘additional regular contributions’ (ARCs) • ARCs buy extra pension in multiples of £250 pa up to a maximum of £5,000 pa • Existing ‘added years’ contracts are unaffected

  29. Increasing your benefits -Other options • You can still pay ‘AVCs’ • up to 50% of your pay • You still have the option to transfer in benefits from a previous scheme to buy additional service • subject to your employer’s policy on ‘12 month’ rule

  30. And to finish off –some food for thought

  31. Food for thought • It’s never too early to think about your pension….but it can be too late! • Update death grant nomination • Transfer in? • ARCs • AVCs • Review other pensions, including state scheme?

  32. Food for thought • Pension v lump sum? • Pension: • Taxable • Index-linked • Paid until you die • Lump sum: • Tax-free • ‘One-off’ payment • Independent financial advice? • Pensions Services and your employer are NOT able to give you financial advice • Go to IFA Promotions at www.unbiased.co.uk

  33. Any questions?

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