Pension Liaison Officer’s Group

Presented by:

Annette WassViv Ray

Shirley CuthbertMike Germon

• ADDITIONAL VOLUNTARY CONTRIBUTIONS

(AVCs)

• ADDITIONAL REGULAR CONTRIBUTIONS

(ARCs)

‘TOPPING UP’ BENEFITS

Methods are:-

• PERSONAL PENSION / STAKEHOLDER / FREE STANDING AVCProvided by an outside source – arranged entirely by the member and paid

for by direct debit from their Bank Account

• PURCHASING ADDITIONAL SERVICEIf election made prior to 1st April 2008 members can continue with buying

service although this is no longer available to new applicants

Methods are:-

• ADDITIONAL VOLUNTARY CONTRIBUTIONS (AVCs)

In house AVCs through Prudential – Devon County Council’s Provider since 2000

Also have some members with Equitable Life – the original sole provider when in house AVCs were introduced in 1987

• ADDITIONAL REGULAR CONTRIBUTIONS (ARCs)Regular monthly payments to purchase additional Local Government Pension - pension can be boosted by a minimum of £250 p.a. to a maximum of £5000 p.a. extra (in multiples of £250 p.a.)

TAX RELIEF

If the member is a tax payer relief is available on all pension contributions up to 100% of pay:-

• PERSONAL PENSION / STAKEHOLDER / FREE STANDING AVCPlan holder pays the net amount but the provider invests the full amount e.g. £100 premium due but £80 actually paid by individual

• AVCs / ARCs / Added YearsFull amount payable deducted from salary before PAYE tax calculated so taxed on lesser amount – relief given at highest rate first!

WHO PAYS?

• AVCs – Member only (no employers contribution)

• ARCs – Member only (no employers contribution)

N.B. There is a provision in the LGPS for Shared Cost AVCs (SCAVCs) but no employer in Devon has exercised this discretion

ADDITIONAL VOLUNTARY

CONTRIBUTIONS (AVCs)

‘MONEY PURCHASE’ TYPE BENEFITS

Contributions deducted from pay

Sent to Prudential for Investment – several options available from safe to ‘risky’!

Maximum 50% of Salary (can backdate to April of current tax year)

Tax Relief

OPTIONS ON RETIREMENT?

• TO BUY AN ANNUITY

From the In House AVC provider (Prudential / Equitable Life) or

From an outside provider (Open Market Option)

• TO PURCHASE ADDITIONAL LOCAL GOVERNMENT PENSION

All or part of the fund can be transferred to buy LGPS pension subject to certain conditions

• TO TAKE TAX FREE CASHSince ‘A’ day in April 2006 it’s been possible to take tax free cash from AVC funds (sometimes the full fund) as long as combined AVCs and LGPS Lump Sums

remain within the HMRC limit of 25% of the value of member’s benefits

• TO TRANSFER TO THE LGPS FOR SERVICE CREDIT

If In House AVC fund started prior to 13th November 2001, active member is over 50 and has ceased AVCs can buy LGPS with AVC fund under former Regulation 66

Also possible on retirement where member retires on Ill Health grounds at any age

• CAN OPT FOR A MIXTURE OF THE OPTIONS

• FOR EXAMPLE :-

25% TAX FREE CASH

BALANCE TRANSFERRED TO BUY LOCAL GOVERNMENT PENSION ON RETIREMENT

ADDITIONAL REGULAR CONTRIBUTIONS (ARCs)

• MEMBERS CAN ELECT TO BUY ADDITIONAL LOCAL GOVERNMENT PENSION FOR JUST THEMSELVES

OR

• THEMSELVES AND THEIR DEPENDANTS

How much does the additional pension cost?

• TABLES FOR COST PROVIDED BY THE GOVERNEMENT ACTUARY’S DEPARTMENT (GAD)

Based on: Age, Gender, Dependant’s cover required, Length of time payments to be made, Cost per £250 extra to be purchased

Tables can be amended from time to time and adjustments to payment would be effective from the following April

EXAMPLE OF COST

MALE aged 46 wants to buy £2000 p.a. extra pension for Himself only and spread the payments over 14 years:-

1 x £250 extra = £22.16 per month (from GAD Table C)

Therefore:-

8 x £250 for £2000 p.a. extra = 8 x £22.16 = £177.28 p.m. for 14 years

• TO BUY THE SAME PENSION WITH DEPENDANT’S COVER WOULD COST SLIGHTLY MORE – SEE GAD TABLES

• CAN MAKE MORE THAN ONE ELECTION AS LONG AS TOTAL PENSION PURCHASED IS NO GREATER THAN £5000

Can a member cease ARCs before the end of

the payment period?YES:-

• LEAVER WOULD AUTOMATICALLY STOP

• ACTIVE MEMBER CAN CHOOSE TO STOP

Additional Pension bought to date of cessation would be pro rated in both cases

BUT…….

• IF MEMBER RETIRING ON TIER 1 OR 2 ILL HEALTH GROUNDS ANY ADDITIONAL PENSION BEING PURCHASED IS AWARDED

IN FULL AS IF PAYMENTS WERE COMPLETE

Will the additional pension be paid in full on

Retirement?• YES IF:

Retiring or benefits being brought into payment at or after age 65

• YES IF:Retiring on Tier 1 or 2 Ill Health Grounds

• NO IF:Retiring before age 65 for reasons other than Ill Health as above – actuarial reduction

will be applied even if main benefits are protected under the old ’85 year rule’

Can additional Pension be converted to Lump Sum

Retiring Allowance?

YES!!!Additional Pension is just added to the member’s accrued Local Government Pension and can be converted to Tax Free Cash within the HMRC limits (25% of the value of the members benefits in total)

What happens to the Additional Pension on

Death?DEATH IN SERVICE

• OWN PENSION ONLYNo benefits payable

• OWN AND DEPENDANT’S BENEFITSDependant’s benefits payable to Spouse/Civil Partnership/Nominated

Partner/Eligible Children – calculated using the full amount of additional pension the member set out to buy even if payments are incomplete at the date of death

DEATH AFTER RETIREMENT

• FOR BOTH OWN PENSION ONLY AND FOR OWN AND DEPENDANT’S COVER

Normal 10 x Pension in payment less pension already paid Death Grant applies to the additional pension as well

• IF DEPENDANT’S COVER Dependant’s benefits payable to surviving Spouse/Civil Partner/Nominated

Partner/Eligible Children

DEATH ON DEFERRED PENSION

• FOR BOTH OWN PENSION ONLY AND FOR OWN AND DEPENDANT’S COVER

Normal 5 x Pension Death Grant applies to the additional pension element as well

• IF DEPENDANT’S COVER Dependant’s benefits payable to surviving Spouse/Civil Partner/Nominated

Partner/Eligible Children

Does the Additional Pension Increase?

• INCREASED IN LINE WITH THE CONSUMER PRICE INDEX (CPI)Any Additional Pension being bought is inflation proofed with effect from the date that the first contribution for it’s purchase is paid and continues to be increased

once the pension becomes payable (i.e. where Pensions Increase is due)

• DEPENDANT’S BENEFITS ARE ALSO INCREASED IN LINE WITH CPI

Are there any conditions that apply in order to

make an election?

• MEDICAL REQUIRED

• PAY MUST BE SUFFICIENT TO COVER THE MONTHLY DEDUCTIONS

• MEMBERS MUST HAVE THE POTENTIAL TO PAY FOR ANY EXTRA PENSION OVER A PERIOD OF AT LEAST 1 YEAR

How can AVCs and ARCs get started?

• PRUDENTIAL AVCsBy written Application Form – Available from Devon Pension Services

Online @ www.prudential.co.uk/content/scheme/localgovavc/home

By telephone 0845 607 0077

• ADDITIONAL REGULAR CONTRIBUTIONSElection form and Medical Certificate available from Devon Pension Services

Forms can be downloaded Online @ www.devon.gov.uk/pensions

COMPARISONS AVCs ARCS

Maximum Conts 50% No limit other than pay

Charges Approx 1% p.a. None

Age Limit? None Need to be 63 or less

Medical Required No Yes

Flexible Payments Yes No – fixed monthly

amounts

AND FINALLY……………IT’S POSSIBLE TO

PAY ALL TYPES OF ADDITIONAL CONTRIBUTIONS AT THE SAME TIME – SALARY ALLOWING!!!

Employer ARCs and Augmented Service

– What are they?– When are they awarded?– What is the cost to employer?– What is the benefit to the member?– Comparing the 2 choices

Employer Additional Regular Contributions (ARCs)

– Employer must have a policy on awarding ARCs– Employer can award a maximum additional pension of £5,000– Employer can make the award anytime during member’s

employment.– GAD tables available to calculate cost depending on age of

member.– Cost must paid to pension fund within one month of award– Additional pension awarded does not provide for additional

dependants pension.– If member leaves before age 65, pension awarded will be

actuarially reduced.

Augmented Service– Employer must have a policy on awarding augmented service– Employer can award a maximum of 10 years service.– Employer can make the award anytime during member’s

employment or up to 6 months after the member has retired on redundancy or efficiency grounds or member held a joint appointment.

– Augmented Service does not effect 85 year rule date– Fund actuary will determine cost of augmented scheme to

employer.– Cost must paid to pension fund within one month of award.– If member leaves before normal pension age then benefits

derived from augmented service award will produce an employer ‘Strain Cost’. (Axis does not calculate this amount)

ComparisonARCs• Provides pension• No dependants benefits• Employer pays now• Tables available• Pension reduced if retires

early• Need employer policy

Augmented Service• Provides service• Dependants benefits• Employer pays now• Actuary to provide cost• Strain Cost if retires early• Need employer policy

Default Retirement Age (DRA)

• Government committed to phasing out DRA of 65. Expected to be abolished from 01/10/11.

• Compulsory Annuity Age of 75 – consultation looking at abolishing it from April 2011. Interim provisions included in Finance (No 2) Act 2010 to alter age 75 to 77. Depending on outcome of consultation changes to LGPS may follow.

• LGPS Admin Regs 50 (6) states “A person who is entitled to a retirement pension under regulation 16 (retirement benefits) or 17 (retirement after normal retirement date) of the Benefits Regulations may choose to defer payment until a date no later than the day before his 75th birthday.”

• The pension should be uplifted by 0.02% and the retirement grant (if payable) uplifted by 0.01% for each day after the member’s 65th birthday but before the member’s actual retirement date.

Example Mr A N Example, preserved benefit,

65 on 3/9/2010,

elects for payment 04/09/2015,

1828 days late,

Pension = £5326.03pa x 1828 x 0.02% = £7273.23pa

Lump sum = £15978.09 x 1828 x 0.01% = £18898.88

Academies

• New scheduled employer

• Employers contribution rate

• How to become an academy

Charter Mark • On 19th August 2010 we were awarded the Charter Mark Award for

the third year running.

• Charter Mark was set up by the Cabinet office in 1992 as a tool to help organisations improve their customer service

• All current award holders will loose their award on the 30th June 2011.

• There is a new replacement for Charter Mark called, Customer Service Excellence

• Customer Service Excellence Award is a lot harder to attain

• We are looking at doing a Pre assessment in the new year,

• Our aim to achieve this award in June 2011.

VACANCY MANAGEMENT POLICY

• Introduced by Devon County Council in November 2009

• Stated that when an employee leaves employment approval would be needed from the Financial Management Team on whether the post could be replaced.

• June 2010 policy was amended to state that when an employee leaves employment that post remains vacant and cannot be replaced unless it is a providing a frontline service i.e Social worker etc.

• So far at Devon Pension Services, we been unable to fill 2 full time posts and one part time post

ELECTRONIC INTERFACING

• Information is extracted from your payroll database and recorded onto a spreadsheet

• The Spreadsheet is then passed to us on a monthly basis

• This information can then be loaded direct to AXIS (Our Pensions Database)

• Advantages

• You would no longer need to complete EAS1s or EAS1As

• We would no longer need to input the information manually

• You would need to contact your IT department to design a program that can extract this information

• We have already set this system up with DCC payroll in February of this year

• Currently testing this with Plymouth City Council

• This may not benefit smaller employers

• Looking at Online EAS1s

• If you are interested you can contact Jane Aplin on 01392 688221 or email Jane.Aplin@devon.gov.uk

Latest LGPS news• Retail Price Index out,

Consumer Price index in• Transfer Factors under active

review• Ill-health certificates

–‘obtaining any gainful employment’ change to ‘capable of undertaking any gainful employment’.

Latest LGPS news• 3rd Tier Ill health retirements –

reinstatement albeit with % reduction after age 60 (55 with employers agreement).

• Pension credit benefits payable from age 60 with % reduction.

• Valuation• EAS5s

Latest LGPS news• Re-employed & rejoining deferred

members now permitted to aggregate any of their previous periods of membership, provided that they elect to do so in the first 12 months of their new period of membership.

• Additionally, until 1 October 2011 there is the opportunity for all active members to aggregate in this way.

Contact InfoViv Ray, Deputy Pensions Manager

Email: viv.ray@devon.gov.uk Tel: 01392 688211

Mike Germon, Deputy Pensions ManagerEmail: mike.germon@devon.gov.uk Tel: 01392 681776

Annette Wass, Additional Benefits Team Manager Email: annette.wass@devon.gov.uk Tel: 01392 688219

Shirley Cuthbert, Employer Liaison Officer Email: shirley.cuthbert@devon.gov.uk Tel: 01392 688218

Web address www.devon.gov.uk/pensionsPensions Shared mailbox pensions@devon.gov.uk