NHS Pensions. The future known knowns and known unknowns

Transcription

1 1 NHS Pensions The future known knowns and known unknowns Dale Walmsley FIA 18 November 2015

2 2 US Secretary of Defense, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns the ones we don't know we don't know..

3 3 NHS Pension Scheme, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns the ones we don't know we don't know..

4 4 Known knowns Effect on Pensionable Pay Annual Allowance Lifetime Allowance End of contractingout

5 5 Known knowns Effect on Pensionable Pay Annual Allowance

6 What is the Annual Allowance? A limit on the pension savings an individual can build up in any one year Above which a tax charge may apply Covers all contributions to DB and DC schemes Unused allowances from last 3 years can offset future years : 255, : 50, : 40,000 From 2016: Between 10,000 & 40,000 6

7 7 Test against the Annual Allowance DB Real increase in value over the year DC All contributions paid over the year VS 40,000 No past service 1 / , = 40,000 With 30 years past service & 5% real salary increase ( ) / 80 66,000 (16 + 3) = 40,285

8 Annual Allowance tapering Step 1 Rent Salary (not ee conts) Bonus Car Up to 110k Unaffected AA = 40k Above 110k Go to step 2 Step 2 Rent Salary (not ee conts) Bonus Car Value of pension Up to 150k Above 150k Unaffected AA = 40k Will be affected 150k to 210k AA reduces by 1 for every 2 of income over 150k (e.g. AA of 25k where income is 180k) Above 210k AA is 10,000 8

9 Annual Allowance charge Taxed at highest marginal rate on amount over the Annual Allowance SELF-ASSESSMENT TAX RETURN SCHEME PAYS (if charge > 2,000) Via HMRC Charge paid at retirement (interest at CPI + 3% pa) Member benefits reduced Dependant benefits unaffected 9

10 10 Known knowns Effect on Pensionable Pay Lifetime Allowance

11 What is the Lifetime Allowance? A limit on the pension savings an individual can build up over a full career Above which a tax charge may apply Covers all contributions to DB and DC schemes : 1.8m : 1.5m : 1.25m From 2016: 1m (+ CPI from 2018) 11

12 12 Test against the LTA of 1.25m DB Total value of pension DC Total fund values VS 1.25m 1995 Section 40 yrs / ,000 (20 + 3) > 1.25m 2008 Section 40 yrs / 60 94, > 1.25m 2015 Scheme 40 yrs / 54 85, > 1.25m

13 13 Test against the LTA of 1m DB Total value of pension DC VS Total fund 1m values 1995 Section 45 yrs / 80 78,000 (20 + 3) > 1m 2008 Section 45 yrs / 60 67, > 1m 2015 Scheme 45 yrs / 54 60, > 1m

14 14 LTA protections April 2014 When the LTA reduced from 1.5m to 1.25m Fixed Protection 2014 (deadline passed) Retain the 1.5m LTA No further pension build-up Individual Protection 2014 (deadline 5 April 2017) Retain a personalised LTA between 1.25m and 1.5m Can continue pension build-up April 2016 When the LTA reduces from 1.25m to 1m Fixed Protection 2016 Retain the 1.25m LTA No further pension build-up Individual Protection 2016 Retain a personalised LTA between 1m and 1.25m Can continue pension build-up

15 15 Known knowns Effect on Pensionable Pay End of contractingout

16 16 End of contracting-out April 2016 Extra NI up to 480 pa State pension is changing NHSPS members lose NI rebate Multi-tier to single tier Also NI increase for employers

17 17 Known unknowns Effect on Pensionable Pay 2016 valuation Member contributions Tax relief

18 18 Known unknowns Effect on Pensionable Pay 2016 valuation

19 19 Valuation as at 31 March Past service benefits Is there enough money in the pot to pay for benefits earned in the past? 2. Future service benefits How much, as a percentage of pensionable payroll, will future benefits cost?

20 20 Employer Cost Cap 2012 valuation used to determine employer contribution and cost cap: Employer contribution rate: 14.3%, Employer cost cap: 11.6% Cost cap intended to provide protection to the taxpayer and to cover unforeseen events and trends that significantly increase scheme costs Action will be needed if the costs described above breach a 2% margin either side of the cost cap (Scheme Advisory Board to advise) e.g. change future benefit accrual and/or member contributions Costs brought back to the cost cap Costs increase by 2.1% Cost floor 9.6% Cost cap 11.6% Cost ceiling 13.6%

21 State Pension Age 21

22 22 Known unknowns Effect on Pensionable Pay Member contributions

23 23 Tiered member contribution rates 2015/16 to 2018/19 Long term Tier Whole-Time Equivalent Pensionable Pay Rate 2019/20 onwards 1 0 to 15, % 2 15,432 to 21, % 3 21,478 to 26, % 4 26,824 to 47, % 5 47,846 to 70, % 6 70,631 to 111, % 7 111,377 and over 14.5%?

24 24 Known unknowns Effect on Pensionable Pay Tax relief

25 25 Current tax system EET Exempt Contributions exempt from income tax (AA/LTA) Exempt No personal tax on investment growth Taxed Pensions taxed as income (25% tax-free)

26 26 Fundamental reform TEE? Taxed With a government top-up on contributions Exempt No change with investment growth Exempt Pensions paid tax-free

27 27 Other options? Flat-rate income tax relief Altering the Annual Allowance and/or Lifetime Allowance

28 28 Unknown unknowns Effect on Pensionable Pay

29 29 Unknown unknowns?? Effect on Pensionable Pay Autumn Statement 25 Nov 2015

30 30 Contact details Dale Walmsley FIA Actuary First Actuarial LLP Furness House, Furness Quay Salford Quays, Manchester, M50 3XZ D: T: E: W: Regulated by the Institute and Faculty of Actuaries in respect of a range of investment business activities. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY.