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Craig Martin Pension Manager

Changes to the LGPS from 1 April 2014. Craig Martin Pension Manager. 2014 Changes : At a glance. A career average (CARE) defined benefit scheme Increased accrual rate of 1/49 th. Normal Pension Age (NPA) aligned with State Pension Age (SPA) at point of payment

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Craig Martin Pension Manager

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  1. Changes to the LGPS from 1 April 2014 Craig Martin Pension Manager

  2. 2014 Changes : At a glance • A career average (CARE) defined benefit scheme • Increased accrual rate of 1/49th. • Normal Pension Age (NPA) aligned with State Pension Age (SPA) at point of payment • Additional short term flexibility / option to pay ½ contributions for ½ benefits • New pensionable pay definition & employee contribution bands • Retirement from age 55 without employer approval – pension reductions apply • Final Salary protection for accrued benefits

  3. Normal Retirement Age (NRA) aligned to State Pension Age (SPA) at the point of payment • Removal of Scheme NRA (currently age 65, some protections may apply) • Normal Pension Age = Your own SPA (minimum age 65) for benefits built up from 1 April 2014 • Pre-2014 benefits protected • SPA assessed at the point of payment of your benefits • Under current legislation, SPA is planned to increase to: - • Age 66 between November 2018 and October 2020 • Age 67 between 2034 and 2036 • Age 68 between 2044 and 2046 • Queens speech confirmed that: • age 67 change will be brought forward to between 2026 and 2028 • Regular reviews will take place in line with rising longevity

  4. Pensionable pay and assessment of contribution bands • Change to definition of pensionable pay to include: • Basic pay, plus • Non-contractual over-time • Additional hours for part-time staff • Impact on part-time members • Band assessed with reference to actual pensionable pay

  5. Contribution band changes

  6. Additional flexibility – 50/50 option • Short term option to pay ½ contributions in return for ½ the benefits • 1/49th to 1/98th • Intended as a short term solution to financial hardship • Re-enrolled in ‘main scheme’ under automatic enrolment • Lump sum death benefit and ill health benefits remain at full rate

  7. Example of a Career Average Revalued Earnings (CARE) calculation

  8. Additional contributions • Additional Voluntary Contributions (AVCs) • Contributions will continue for current members • Prudential or Standard Life • Additional Pension Contributions (APCs) • to increase ‘earned pension’ in scheme year • pay over any number of years up to leaving/retirement • We expect existing Additional Regular Contributions (ARCs)/Added Years contracts will continue post 31 March 2014 (in draft of LGPS Transitional Regs)

  9. Retirement • NO CHANGE • Rules unchanged governing the payment of pension benefits on the grounds of: • Redundancy • Efficiency • Flexible • Ill health • CHANGE • Normal retirement = SPA • NEW • Retirement from age 55 without employer approval • Early retirement reductions will apply regardless of existing provisions

  10. Benefits built up prior to 1 April 2014 • Normal Pension Age protected = 65 (some protections may apply) • 85-year rule protections continue • “Underpin” protection for members within10 years of normal pension age on 1 April 2012 • Final Salary Defined Benefit continues, for membership as follows: - • To 31 March 2008, 1/80th annual pension + 3/80th lump sum • 1 April 2008 – 31 March 2014, 1/60th annual pension • Final pay at leaving used to calculate benefits

  11. Final pay and Regulation 10 Protection • Final salary link continues for pre 2014 service • Continued application of Benefit Regulation 8: • Last 365 days or one of the previous two years if higher (“best of the last 3 years”) • Add pensions increases (CPI) to pension benefits if previous year used • Applied automatically at point of leaving/ retirement • Anticipate continued application of BR10 protection (to be confirmed) • Pensionable pay average of 3 consecutive years in last 13 years • All at 31st March each year • Can pick any period – doesn’t have to be the highest but must be consecutive • Election to be made at least one month before date of leaving / retirement • Add pensions increases (CPI) to pension benefits

  12. Example of member leaving with pre and post 2014 service Factors • Date of leaving = 31 March 2034 • Male - age at leaving = 60 (SPA = 67) • Total membership = 30 years • Salary on 1 April 2014 = £60k • Salary increases pa = 2% • Final Pay = £87,408 • Revaluation increases = 2.5% • Doesn’t meet criteria for 2014 CARE underpin

  13. Payable @ SPA of 67 Total Pension Total L/Sum £51,434 £13,110 Payable @ age 60 Total Pension Total L/Sum £36,985£13,110 01/4/2014 – 31/03/2034 Payable at age 67 CARE Pension £38,324 01/4/2014 – 31/03/2034 Age 60 CARE Pension £26,060 less 32% for early payment 01/04/2008 – 31/03/2014 (60th) Payable at age 65 Pension £8,740 Less 25% for early payment 01/04/2008 – 31/03/2014 (60th) Age 60 Pension £6,555 01/04/2004 – 31/03/2008 (80th) Rule of 85 applies (age 60) Pension Lump Sum (3 x pension) £4,370 £13,110 01/04/2004 – 31/03/2008 (80th) Age 60 Pension Lump Sum (3 x pension) £4,370 £13,110 No reduction – 85 year rule protection

  14. Next steps • You can download slides directly from this Live meeting facility • Will keep you updated on Transitional Regulations • Communications to staff during February and March • Up to date information and guides available throughwww.eapf.org.uk • Contact us if you have any queries

  15. Any questions?

  16. Changes to the Annual Allowance & Lifetime Allowance Craig Martin Pension Manager

  17. Annual allowance: Definition • Annual Allowance is the amount your pensions savings can increase in any one year before you become liable to a tax charge • If you exceed in one year, can offset against unused allowances from previous three years • Any excess is charged at normal rate of tax • £50,000 limit, reducing to £40,000 from 1 April 2014

  18. Annual Allowance How does it work? Pension/lump sum at 31 March 2014 Based on new Final Pensionable Salary and Pensionable Service at that date Inflation (CPI) increase Pension ‘growth’ x 16 + lump sum ‘growth’ + AVCs = Annual “growth” Pension/lump sum at 31 March 2013 Based on Final Pensionable Salary and Pensionable Service at that date “Pension Input Period” (PIP) Start End

  19. Example calculation of Annual Allowance… Assumption: Pensionable pay is £60k for 2012/13 and £63k in 2013/14 15 years scheme membership and CPI is 3.1%

  20. Example calculation of carry forward Assumes increase in pension of £60k for 2013/14, exceeding the £50k limit by £10k • Member exceeded Annual Allowance in 2013/14 by £10k • The member can now use the £37,972.50 unused relief to offset the £10,000 • Leaves excess amount of £27,972.50 for 2014/15 onwards

  21. What happens if I exceed the annual allowance? • If annual allowance charge is <£2,000 • you will have to pay charge directly to HMRC • Taxed at normal rate of tax, e.g. 40% • If the annual allowance charge is >£2,000 • can elect for the amount to paid by the Pension Fund (if the whole charge relates to EAPF) • Pension Fund will actuarially reduce the value of your LGPS benefits accordingly

  22. Considerations for you • Pension Fund will inform you if you exceed the annual allowance in a year • Changes to LGPS and Annual Allowance threshold: • Accrual rate of the LGPS increasing to 1/49th • Annual allowance threshold reducing to £40k • Impact depends on individual circumstances including: • pay growth and • length of service and • AVCs • Potential options?

  23. Lifetime Allowance: Definition • Lifetime Allowance is the total value of all your LGPS and any other pension benefits that you may have accrued, and any excess over and above the threshold is taxed

  24. Lifetime allowance: How does it work? • Assessed when pension benefits come into payment • 20 x Annual Pension; plus • Any Lump Sum payable; plus • Value of AVC Fund (if applicable) • Compare with current Lifetime Allowance • Anything above the LTA limits will be taxed at special rates

  25. Example calculation of LTA Assumes pension of £50,000 and a lump sum of £112,500 at retirement • (Factor of 20 x pension) + lump sum • (20 x £50,000) + £112,500 = £1,112,500 • £1,112,500 / £1,250,000 x 100 = 90% of LTA • Pension benefits are less than both current and new LTA threshold • No lifetime allowance tax due upon retirement

  26. New LTA protections: Fixed protection and Individual protection • Background and existing LTA protections • Fixed protection 2014 • Have to apply before 5 April 2014 • Protected LTA of £1.5 million regardless of current level of benefits • Not permitted if you have primary protection • No further benefits can accrue from April 2014 (only CPI increase) • Individual protection 2014 • You can apply if the value of your benefits are over £1.25 million on 5 April 2014 • You do not have primary protection • You can continue to accrue benefits and protect benefits up to £1.5 million • Legislation will not be in place until August 2014 but backdated to April 2014 • Individuals will have until 5 April 2017 to apply

  27. What should I do?

  28. Any questions? www.eapf.org.uk

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