PENSION LIAISON OFFICERS’ GROUP (PLOG)

Local Government Pension Scheme

11 May 2011

PENSION LIAISON OFFICERS’ GROUP (PLOG)


Agenda

1. Welcome/Attendance (David Anthony) 2 Auto-enrolment and NEST (Andy Cunningham)3. Ill Health Insurance (Andy Cunningham)4 AVCs with Prudential (Prudential)

BREAK 5. Pension Reform (David Anthony)

– Hutton Review– Budget

6. New Monthly and Yearly Returns (Martin Summers)7. Pension Remunerations and Pensionable Pay (Martin

Summers)8. Pension Tax Relief Update (Martin Summers)9. Future Developments (David Anthony)


2. Auto-enrolment 2012 and NEST

What is ‘Auto-enrolment’?• New legal obligation to automatically enrol ‘eligible employees’

into ‘qualifying workplace pension scheme’

• Eligible employees:

- Aged between 22 and state pension age

- Earn above the personal allowance amount

• Qualifying workplace pension scheme:

- Defined Contribution Scheme/NEST

- Defined Benefits Scheme (such as the LGPS) or certain other types of scheme



What is ‘Auto-enrolment’? (continued)

Employer Contributions• Employers must contribute at least 3%

Start dates and entry requirements• October 2012-2016, depending on the size of the organisations

(largest organisations first)• Requirement to automatically enrol people into a eligible

scheme (although they can still opt-out)



What is NEST?

• NEST = National employment savings trust• Arm’s length non-departmental Government body set-up to give

organisations a straightforward way to meet 2012 requirements• Defined Contributions (DC) Pension Scheme• Employers can use NEST for just some of its employees• Key advantages are that:

- It is Government backed (hence secure)

- It is likely to be widely used, therefore members who change jobs are likely to still be able to access the same scheme



Further information:

Auto-enrolment

www.pensionsadvisoryservice.co.uk

NEST

www.nestpensions.org.uk


3. Ill Health Insurance

What is it?

• Insurance to protect you against the risk of incurring pension strain costs as the result of one or more people going on ill-health retirement.

• Provided by Legal & General in collaboration with Hymans

How much will it cost?• It depends on the profile and number of take up.


3. Ill Health Insurance

Points to consider

• Ill health strain costs are currently recovered through future contributions rather than upfront – hence they are spread over time

• For employers with a relatively large number of members or for those in a funding pool (e.g. town and parish councils) – the risk would appear manageable, particularly given the point above

• Smaller, stand alone employers (particularly those with shorter contracts) may find the risk ‘unmanageable’, particularly if they ceased and the costs became payment quickly.

Next Steps• Hymans/Legal & General are likely to send out a letter shortly providing

further details.


4. AVCs and Prudential

Separate slides…


5. Pension Reform – Hutton Report

THE DEALPublic Service Workers

• A good pension in retirements

• Defined benefit pension

• Accrued rights protected

• Fair process of change

• Better Management of Schemes

Taxpayer

• Fairer sharing of benefit of living longer

• Future-proofed

• Fixed costs

• Greater transparency of costs

• Single legal framework



Recommendations:

The Member• Move from Final salary to CARE• Maintain Final Salary for accrued benefit• Normal Retirement Age aligned to State Pension Age

The Employer • Ceiling to be set for Ers contributions (agreed by Government)

• Not permit entry to non public sector workers



Recommendations:

Scheme Governance

• Properly trained & competent Pension Committee• Member nominees on Committee• Common framework for public pension schemes• Revised legal framework for scheme – separate entity?



Scheme Administration

• LGPS remains funded• Improved transparency – centralised data / benchmarking• More co-operation / sharing of contracts



The Unknowns:

• Accrual rate? • Timescales – by 2015• Transition arrangements• How many schemes to administer?• Employers contribution ceiling and mechanism• Definition of ‘non public sector worker’

Await the Governments decision on what to implement – but no ‘cherry picking’


5. Pension Reform – Budget

• RPI to CPI for Pension Increase • Employers reducing staff levels• Pay freeze for public sector workers• Proposed increase of employees conts

– On average 3% – protect lower paid

• Increased opt-outs?

• Long term affordability of the scheme!


6. New Monthly and Yearly Returns

• Review of information to be submitted

• Pension Regulator requirements on data held– Common data

• Changes to format/data required

• Pilot with small number of employers


6. New Monthly and Yearly Returns (continued)

• Monthly returns

• Pension Contributions – in line with contributions paid

to the fund

• FTE percentage

• Pensionable remuneration – this is to confirm that

contributions received are in line with the FTE (audit requirement)



• Starter/Leaver and Changes information

• One spreadsheet

• Different tabs for each set/type of data



• Annual returns

• Pension contributions – all contributions paid

• Pensionable remuneration

• FTE percentage

• Reconciled against contributions received during the year


7. Pension Remunerations and Pensionable Pay

• Employers responsibility– Best of last 3 years

• Members responsibility– Miscellaneous Regs– Choose best 3 year average in the last 10 years

• Level of knowledge

• Training


8. Pension Tax Relief Update

• Changes April 2011 and April 2012

• April 2011 – annual allowance reduced from £255,000 to £50,000

• April 2012 – Lifetime Allowance reducing from £1.8million to £1.5million



• Annual Allowance

• What fund has done for members?

• Information provided in Newsletter to active members distributed in January 2011

• High earners communicated too individually

• Website information – calculator provided




• Reported by Pensions Department to members and HMRC

• Tax payable by scheme or member?

• When is tax paid and benefits adjusted?

• Further clarification to follow




• Brief outline

• Growth in the value of pension “pot” during the year

• Affected members – high earners, long service, significant pay increase, augmented benefits



• End of previous year• • Pension £10,000 per annum• Lump Sum £20,000• • £10,000 x 16 + £20,000 = £180,000• • Assume CPI is 3% =£185,400•



• End of current year• Pension £14,000 per annum• Lump Sum £27,000• • £14,000 x 16 + £27,000 = £251,000• • Growth in benefits• £251,000 less £185,400 = £65,600• • Excess above annual allowance = £15,600 (taxable)



• Lifetime Allowance

• Reduction in allowance from £1.8m to £1.5m

• Protection for members already above the limit

• Members apply to HMRC for confirmation of personal Lifetime Allowance (similar to 2006 changes)


9. Future Developments

• Annual Benefit Statements– Combined DWP info

– (July-Sep?)

– Members surgeries

• Communications– Active Members newsletter

– Roadshows for post Hutton scheme

– Enhance members & non-members knowledge of benefits

– Reward Statements


9. Future Developments

• Secure Portal– Electronic transfer of data

– Password protect!

• Workflows & Imaging – Task management system

– Benchmarking data

• Stakeholders Surveys

Documents

PENSION LIAISON OFFICERS’ GROUP (PLOG)