Craig MartinPension Manager

Changes to the LGPS from1 April 2014

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

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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

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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

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Contribution band changes

LGPS 2008 Regulations LGPS 2014 CARE scheme

BandWhole-time equivalent

Pensionable PayGross

ContributionsContribution

after taxActual Pensionable Pay

Gross Contributions

Contribution after tax

1 Up to £13,500 5.5% 4.40% Up to £13,500 5.5% 4.4%

2 £13,501 £15,800 5.8% 4.64% £13,501 £21,000 5.8% 4.64%

3 £15,801 £20,400 5.9% 4.72% £21,001 £34,000 6.5% 5.20%

4 £20,401 £34,000 6.5% 5.20% £34,001 £43,000 6.8% 5.44%

5 £34,001 £45,500 6.8% 5.44% £43,001 £60,000 8.5% 5.10%

6 £45,501 £85,300 7.2% 4.32% £60,001 £85,000 9.9% 5.94%

7 More than £85,300 7.5%4.50% or

4.13%£85,001 £100,000 10.5% 6.30%

8 £100,001 £150,000 11.4% 6.84%

9 More than £150,000 12.5% 6.88%

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

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Example of a Career Average Revalued Earnings (CARE) calculation

2014 LGPS

CARE

2014

Defined

Benefit

Pensionable

Pay paid

during

scheme year

(pay rises 1%

pa)

Earned

Pension at

end of

scheme year

Value following revaluation (2.5%) at start of year:

2015/16 (Year 2)

2016/17(Year 3)

2017/18 (Year 4)

2018/19 (Year 5)

2019/20 (Year 6)

Pension for

2014/15

(Year 1)

1/49th £60,000 £1,224 £1,254 £1,284 £1,317 £1,350 £1,383

Pension for

2015/16

(Year 2)

1/49th £60,600 £1,236 £1,266 £1,299 £1,332 £1,365

Pension for

2016/17

(Year 3)

1/49th £61,206 £1,251 £1,281 £1,314 £1,347

Pension for

2017/18

(Year 4)

1/49th £61,818 £1,263   £1,296 £1,329

Pension for

2018/19

(Year 5)

1/49th £62,436 £1,275     £1,308

Value in

Account   £1,254 £2,550 £3,897 £5,292 £6,732 7

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)

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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

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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

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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

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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

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01/04/2008 – 31/03/2014 (60th)Payable at age 65

Pension£8,740

01/04/2008 – 31/03/2014 (60th)Payable at age 65

Pension£8,740

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)Rule of 85 applies (age 60)

Pension Lump Sum (3 x pension)

£4,370 £13,110

Payable @ SPA of 67Total Pension Total L/Sum

£51,434 £13,110

Payable @ SPA of 67Total Pension Total L/Sum

£51,434 £13,110

01/4/2014 – 31/03/2034

Payable at age 67CARE Pension

£38,324

01/4/2014 – 31/03/2034

Payable at age 67CARE Pension

£38,324

less 32% for early payment

Less 25% for early payment

Less 25% for early payment

No reduction – 85 year

rule protection

No reduction – 85 year

rule protection

Payable @ age 60Total Pension Total L/Sum

£36,985 £13,110

Payable @ age 60Total Pension Total L/Sum

£36,985 £13,110

01/4/2014 – 31/03/2034

Age 60CARE Pension

£26,060

01/4/2014 – 31/03/2034

Age 60CARE Pension

£26,060

01/04/2008 – 31/03/2014 (60th)Age 60Pension£6,555

01/04/2008 – 31/03/2014 (60th)Age 60Pension£6,555

01/04/2004 – 31/03/2008 (80th)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

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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 through www.eapf.org.uk

Contact us if you have any queries

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Any questions?

Changes to the Annual Allowance & Lifetime Allowance

Craig MartinPension Manager

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

Date Annual Allowance

2006/07 215k

2007/08 225k

2008/09 235k

2009/10 245k

2010/11 255k

2011/12 50k

2012/13 50k

2013/14 50k

2014/15 40k

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Pension/lump sum at 31 March 2013

Based on Final Pensionable Salary and Pensionable

Service at that date

Inflation (CPI) increase Pension/lump sum at 31 March 2014

Based on new Final Pensionable Salary and

Pensionable Service at that date

Start End

Pension ‘growth’ x 16

+ lump sum ‘growth’ + AVCs

=Annual “growth”

“Pension Input Period” (PIP)

Annual AllowanceHow does it work?

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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%

Opening balance 2012/13 £

Pre 08 pension p.a.Post 08 pension p.a.

10/80 x £60k 5/60 x £60k

7,5005,000

Pre 08 pension p.a.Post 08 pension p.a.

10/80 x £63k 6/60 x £63k

7,8756,300

Closing balance 2013/14 £

Add lump sum 10 x 3/80 x £60k

22,500

Total annual pension 12,500

Multiply annual pension by 16 200,000

222,500

Increase by inflation X 1.031

Opening value 229,397.50

The increase in the member’s benefits for 2013/14 is £251,425 - £229,397.50 = £22,027.50As this is less than £50k annual allowance, no tax charge due

Total annual pension 14,175

Add lump sum 10 x 3/80 x £63k

23,625

Multiply annual pension by 16 226,800

Add AVCs paid in year 1,000

Closing value 251,425

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Example calculation of carry forward

Assumes increase in pension of £60k for 2013/14, exceeding the £50k limit by £10k

Year Increase in pension value

Annual Allowance

Unused relief Carry forward

2010/11 £50,000 £50,000 £0 £0

2011/12 £40,000 £50,000 £10,000 £10,000

2012/13 £22,027.50 £50,000 £27,972.50 £37,972.50

2013/14 £60,000.00 £50,000 £0 £27,972.50

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

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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

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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?

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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

Date LifetimeAllowance

2006/07 1.5m

2007/08 1.6m

2008/09 1.65m

2009/10 1.75m

2010/11 1.8m

2011/12 1.8m

2012/13 1.5m

2013/14 1.5m

2014/15 1.25m 23

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

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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

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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 26

What should I do?

Protection Deadline for registration

Notes

Fixed Protection 5 April 2014 Protects benefits up to £1.5m but no further accrual allowed

Individual Protection 5 April 2017 Only apply if benefits are over £1.25m on 5 April 2014 and you do not have Primary Protection

You can register for both forms of protections if you qualify

What should I do?

Pension Fund will contact you if you qualify for FP14 or IP14 to discuss your options

The Pension Fund can provide further information relating to your EAPF benefits but will not be able to give you individual advice

HMRC has published a Q&A entitled Pension Restriction on tax relief and you can access this from www.hmrc.gov.uk/pensionschemes

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Any questions?

www.eapf.org.uk