April 2015 . Introduction Rachel Lamb Peninsula Pensions Devon County Council Wednesday2015

April 2015 www.peninsulapensions.org.uk

Introduction Rachel Lamb Peninsula Pensions Devon County Council Wednesday2015

What will we look at today? Background Look at the 2015 Scheme The facts What has changed What remains the same How you may be affected Protections

Scheme naming structure Police Old Scheme 1987 Scheme or PPS 1987 Police New Scheme (NPPS) 2006 Scheme or PPS 2006 Police 2015 Scheme 2015 Scheme or PPS 2015

Why is my scheme changing? Hutton report published March 2011 People living longer Increasing cost of pension provision Recommendations for public sector pension reform: Affordable Sustainable Fair As a result, all public service schemes are being or have already been reformed.

How do the changes affect you? There are 3 membership categories 1. Fully Protected Stay in current Scheme. 2. Tapered Some protection dont start accruing CARE 2015 until a date determined by a tapered table. 3. No Protection Benefits accrue in 2015 scheme from 1 st April.

Group 1 Fully Protected Within 10 years of current Normal Pension Age (NPA) 55 as at 1 st April 2012 - PPS 1987 and NPPS 2006 members aged 45 or over as at 1 st April 2012. You are an active 1987 Scheme member and had 10 years or less to age 48 and were 10 years or less from a maximum unreduced pension as of 1 April 2012. Remain in current scheme No change!

Group 2 Tapered Protection Phased move to the PPS 2015 4 taper tables Taper date depends on age for 1987 & 2006 members and service for 1987 members

Taper Date Categories in the 1987 Scheme and the 2006 Scheme who on 1 April 2012 were aged between 41 and 45 years; in the 1987 Scheme who on 1 April 2012 were 10 years or less from being able to retire on maximum, unreduced pension and were aged between 34 and 38 years. in the 1987 Scheme who on 1 April 2012 were aged 38 or over (up to age 45) and were between 14 and 10 years from being able to retire on a maximum, unreduced pension; in the 1987 Scheme who on 1 April 2012 were aged less than 38 who are more than 10 years from being able to retire on a maximum, unreduced pension. This applies when your age minus the years from being able to retire on a maximum, unreduced pension, was between 24 and 28 years.

Group 3 No protection All other members moved to the 2015 Scheme from 1st April 2015.

What type of scheme is PPS 2015? Occupational Un-Funded Defined benefit Benefits set out in law One of several Public Service pension schemes

The Facts Whats new? Change from Final Salary to Career Average New Accrual rate 1/55.3 th Individual Pension Accounts New Normal Pension Age 60 Deferred Pension Age equal to State Pension Age (with a minimum of age 65)

The Facts Whats not changing? Guaranteed defined benefit scheme Tax free contributions Option to take tax free cash lump sum Index-linked pensions Built in Ill-health benefits / life cover Pension for dependants Employer pays contributions

PPS 2015 summary Pension based on 1/55.3 th of pay. Normal Pension Age (NPA) of age 60 (no reduction). The Normal Minimum Pension Age (NMPA) is 55. You have the option to retire at any time after NMPA and to take immediate payment of your pension; if you decide to retire with immediate payment of your pension after NMPA and before NPA, your 2015 Scheme benefits will be actuarially reduced by reference to NPA. Individual CARE Pension Account. Active pension account revalued in line with Consumer Price Index (CPI) + 1.25%. Deferred and pensioner benefits revalued in line with Consumer Price Index (CPI).

PPS 2015 continued Can buy Added Pension. Can buy out Early Reduction if leave before NPA. Commute pension to lump sum at rate of 12:1. Ill Health cover. Death in service benefits. Family/Dependants benefits.

How does CARE work? Each year the member builds up a slice of pension (1/55.3th) based on their salary in that year Each slice is adjusted in line with the Consumer Price Index (CPI) + 1.25% until retirement. This can be negative or positive. At retirement, the slices built up each year are added together to calculate the total pension Early retirement reductions applied if benefits are taken before age 60

Example: CARE Pension (Year 1) Pension = 1/55.3th of your pay Pensionable Earnings = 21,000 21,000 55.3 = 379.75 379.75 added to account on 31 March. Plus uprate by CPI + 1.25% e.g. 2% CPI + 1.25% = 3.25% 12.34 (i.e. 1.0325 of 379.75), added in April 392.09 Total pension earned in Year 1

Example: CARE Pension (Year 2) Opening balance 392.09 Year 2 accrued pension 21,210 55.3 = 383.54 Net pension 392.09 + 383.54 = 775.63 Closing Balance, Year 2 775.63 x 1.0325 = 800.84

How your pension builds up

New Contribution Rates 3 contribution rates / pay bands / tiers Part time Police contribution based on whole time equivalent pay Calculated as at 1 April, adjusted mid year on material change

Contribution Rates Salary bandsPPS 1987PPS 2006PPS 2015 Tier 114.25%11.00%12.44% Tier 214.25%12.05%13.44% Tier 315.05%12.75%13.78% Tier 1 covers officers with full-time Pensionable Earnings at and below 27,000 per year; Tier 2 covers officers with full-time Pensionable Earnings above 27,000 but below 60,000 per year Tier 3 covers officers with full-time Pensionable Earnings at and above 60,000 per year

Pensionable Pay/Earnings Basic salary London weighting Increase in pay on temporary promotion Temporary salary Competency Related Threshold Payments (the latter to be phased out by April 2016) Allowances are not pensionable (Overtime pay, housing allowance and transitional rent allowance will not be pensionable)

Assumed Pensionable Pay (APP) Any loss/reduction of pay due to: reduced pay while on sick leave, paid adoption leave, paid maternity leave, paid parental leave, paid maternity support leave or paid adoption support leave; receiving statutory pay; absence from duty because of being called out, or recalled, for permanent service in Her Majestys armed forces in pursuance of a call-out notice served, or a call-out or recall order made, under the Reserve Forces Act 1996; or pay during any period of relevant service as defined under s.97 of the Police Act 1996 for which pension contributions have been paid ie international organisations / national crime squad/ national intelligence etc NB: provided that you have not opted out of the 2015 Scheme during this period APP equivalent to expected normal pay

Assumed Pensionable Pay (APP) Member can elect to pay contributions for any unpaid periods of: Sickness / Injury (maximum 12 months) Maternity / Adoption / Parental Leave Member cannot elect to pay contributions for : Reserve Forces special leave differs if during the period of service member has pensionable service in: (a)an existing scheme that relates to the armed forces or another scheme under section 1 of the Act that relates to the armed forces; or (b)any other occupational pension scheme.

Added Pension Contributions Additional pension can be purchased under the 2015 scheme in line with GAD guidance. Purchasing added pension (where you can increase your pension by paying additional contributions) is currently limited to 6,500 per year. The limit may be altered by HM Treasury (HMT). Added pension is revalued by Consumer Price Index in line with the Pensions (Increase) Act 1971. Scheme members with existing pre 2015 contracts will continue with that contract.

What about the benefits accrued pre 1 April 2015? (or pre taper date) The pension that you have built up before you transfer to the 2015 scheme is fully protected and will be calculated on your final salary at retirement (if you stay in the 2015 scheme) This will be paid in addition to the benefits earned under the 2015 scheme.

Your retirement benefits Includes: New CARE Scheme pension Previous Final Salary pension Any transferred in membership Any commuted lump sum

When can I retire? Normal Pension Age (NPA) 60. Age 60+ you can immediately take 2015 benefits. Retiring before NPA 2015 benefits will be reduced. Benefits accrued in 1987 & 2006 schemes retain existing NPA for benefits accrued under those schemes. If you meet current scheme eligibility to retire, you can receive existing scheme benefits.

Scheme Flexibility ~ Buying out Reduction Option to buy out the early payment reduction If you have reached NMPA (55) and you are entitled to claim your pension early and you are either an Active Member who has not reached NPA or a Deferred Member who has not reached your SPA, you may opt to buy out the Actuarial Reduction which would have otherwise applied in the calculation of your annual pension. If you choose to do this, the payment to buy out the Actuarial Reduction may be made by you, your employer or shared between you and your employer.

Double Accrual Guarantee Recognises the expectation to double accrual for members in the old 1987 Police scheme. The formula: N x R/Q Pro Ratas the expected accrual weighted accrual formula

Double Accrual Guarantee Formula N x R/Q x Final Salary N = The accrual that the officer would have built up had they remained in the 1987 scheme until end of their service, and full time throughout. Includes 1987 and 2015 service (maximum 40/60) R = 1987 service 1987 actual pensionable service up to 31 March 2015, or taper date (maximum 30 years) Q = Calendar Years service in 1987 & 2015 (max 30 years)

An example.... N x R/Q N = 30/60 (max 60ths if no change) R = 16 years in 1987 scheme (upto 31/3/15 or taper date) Q = 25 (total calendar year PPS 1987 & 2015) FS = 20000 (30 60) x (16 25) x 20,000 = 6,400 PPS 1987 by comparison (20,000 60) x 16 = 5333.33

Options for Lump Sum Optional lump sum at retirement. Up to 25% of pension can be commuted. Subject to HMRC limits 12 for every 1 commuted.

Lump Sum Options - 1987 Scheme Can commute of pension into lump sum. Pension converted using age related commutation factors. Or Lump sum to not exceed 2 x pension (for those members with 25 years service after age 50)

Tax Charges on Lump Sums Commutation factors introduced for members retiring after 20 April 2011, brought about potential tax charges for members with a commutation factor higher than 20:1. This commutation factor meant the value of the commuted lump sum exceeded the maximum permitted by HMRC (currently set at 25% of total value of vested benefits). Lump sums subject to a 40% tax charge for the element of lump sum in excess of the 25% limit.

Deferred Benefits Benefits deferred if member leaves before entitlement to immediate payment. Normal Pension Age is individuals State Pension Age (minimum of age 65.) Can be taken early from age 55 with reduction (with buy out option relating to reduction). Can be paid on Ill Health grounds if you have become permanently medically unfit for any regular employment

Ill Health Retirement - Protection Protected members will continue to have full provisions for ill health as per the scheme they are a member of at 31 st March 2015, i.e old or new schemes. Tapered members will be subject to ill health rules of the scheme they were a member of at the 31 st March 2015 up until their tapered protection date.

Ill Health Retirement - Enhancement Lower tier ill health Benefits will be calculated based on the amount of your accrued pension at the time of your ill-health retirement. There will be no reduction for early payment and no enhancement. Higher tier ill health Enhancement based on formula:

Ill Health Retirement Other Members who; Do not have protection, or Protection has expired, or Previous membership of the 1987 or 2006 Scheme without transitional protection due to opting out. Will have ill health upper tier enhancement calculated in accordance with the 2015 Scheme. Accrued benefits in their previous scheme will form part of the lower tier pension.

Death Benefits Death in Service lump sum 3 x FINAL PAY Death on pension Death gratuity estate If you die as a Pensioner Member within 2 years of becoming a Pensioner Member, then your estate may be granted a gratuity. If, when you die, the various benefits payable under the 2015 Scheme (excluding the lump sum death grant) are less than the total of your own pension contributions, an extra benefit equal to the balance of those contributions will be paid to your estate.

Pensions for Survivors Spouse* Civil Partner* Co-habiting partner* Conditions apply Wide age disparity clause Children's pension For any eligible children *payable for life

Cost Cap Scheme designed within cost parameters. 2% above or below may result in scheme changes. Normal Pension Age subject to regular review. Valuation in future years will be done to assess if costs as expected.

Transfers to Money Purchase From 6th April 2015 no transfers will be allowed from unfunded public service schemes into defined contribution arrangements.

Questions? www.peninsulapensions.org.uk

Disclaimer The information contained in these slides are the authors interpretation of the current regulations. The information is subject to change due to various factors including, but not limited to, changes to rules and regulations introduced by the Government Actuary's Department, HMRC and/or the Home Office. Changes can happen at short notice and may be implemented prior to the Council issuing any future revised documentation. Readers should take their own legal / financial advice on the interpretation of any particular piece of legislation. No responsibility whatsoever will be assumed by Peninsula Pensions for any direct or consequential loss, financial or otherwise, damage or inconvenience, or any other obligation or liability incurred by readers relying on information contained in these slides.

Documents

April 2015 . Introduction Rachel Lamb Peninsula Pensions Devon County Council Wednesday2015