Your LPFA Pensions Update

Transcription

1 London Pensions Fund Authority Your LPFA Pensions Update Welcome to the October edition of your LPFA employer pensions newsletter In this issue: Exit Payments Late Retirement LPFA Employer Forum Have your say October 2016

2 Exit Payments As you will be aware the Government have been consulting on exit payments. We have spent some time reviewing the latest update from the LGA relating to the latest Government position and we have included this below. Details of how this will be built into the LGPS should become clearer as we approach the key timetable dates set out in the final section of the update, with DCLG submitting proposals by Christmas that will take effect in June Exit Cap There will be a further consultation this autumn on the regulations for the 95k exit payment cap. Therefore the regulations will not be in force in October as originally anticipated. Following this consultation it is hoped that regulations will be published and in force early Exit Payment Recovery The recovery regulations for those earning 80,000 or more who leave public sector employment and return within a year are expected to be published and in force this year, subject to being passed by both Houses of Parliament under the affirmative process. Government Response The Government has responded to the further consultation on exit payments, set out various proposals and has confirmed it intends to proceed with plans for further reform. Summary of the proposals: A maximum tariff for calculating exit payments of three weeks pay per yearof-service. Employers could apply tariff rates below these limits. A ceiling of 15 months on the maximum number of months salary that can be paid a redundancy payment. Where employers distinguish between voluntary and compulsory redundancies there may be a case for maintaining a differential by applying a lower l i m i t. L i ke w i s e, w h e r e e m p l oye r s o f f e r vo l u n t a r y e x i t p a c k a g e s t h a t a r e n o t c l a s s e d a s redundancies there may be a case for applying a different maximum. Employers could apply lower limits, as some do at present. A maximum salary on which an exit payment can be based. As a starting point the Government will expect this to align with the existing NHS scheme salary limit of 80,000. A taper on the amount of lump sum compensation an individual is entitled to receive as they get closer to their normal pension age. 2

3 Action to limit or end employer-funded early access to pension within exit packages. As part of an overall package the Government will consider proposals appropriate to each workforce, including action to: To cap the amount of employer funded pension top ups to no more than the amount of the redundancy lump sum to which that individual would otherwise be entitled. R e m o v e t h e a b i l i t y o f e m p l o y e r s t o m a k e s u c h t o p u p s a l t o g e t h e r, o r o f f e r greater flexibility to employers as to the circumstances in which they are available. I n c r e a s e t h e m i n i m u m a g e a t w h i c h a n e m p l o y e e i s a b l e t o r e c e i v e a n e m p l o y e r f u n d e d p e n s i o n t o p u p, s o t h a t t h i s m i n i m u m a g e i s c l o s e r t o o r therwise linked more closely with the individual s normal pension age in the scheme in which they are currently accruing pension benefits or to which they would be entitled to belong if they were accruing benefits. Who is in scope? Current and future public sector employees. The major workforces covered by existing statutory compensation schemes and o t h e r c o n t r a c t u a l e x i t a r r a n g e m e n t s. T h e s e a r e t h e C i v i l S e r v i c e, N H S, L o c a l G o v e r n m e n t, Te a c h e r s, P o l i c e, F i r e f i g h t e r s a n d ( t a k i n g a c c o u n t o f t h e u n i q u e n a t u r e of the occupation) Armed Forces. Those covered by any new compensation schemes set up for public sector employees. In other areas, and for smaller public sector workforces, the Government would encourage reforms consistent with the principles set out in this response. D e vo l u t i o n : T h e p o l i c y w o u l d e x t e n d t o a l l e m p l oy m e n t s w h e r e c o m p e n s a t i o n p o l i c y and practice is within the competence of the UK government. The Scottish government, Welsh government and Northern Ireland Executive would determine if and how they wanted to take forward similar arrangements in relation to devolved bodies and workforces. Transitional arrangements The Government will consider the case for protection for those with exits formally agreed on terms that applied before new workforce exit compensation arrangements come into effect. The Government expects the details of such protection will form part of the agreements reached by the relevant department with each workforce in scope of the reforms. Timing The response confirms that the Government expects departments to produce packages consistent with the framework above and consult on these where appropriate. The Government will expect departments to produce these proposals within three months of the publication of the response (i.e. by 26 December 2016) and to have completed negotiations and made the necessary amendments to exit arrangements within nine months of the publication of the Government response (i.e. by 26 June 2017). Given that the compensation arrangements and employer-funded early access to pensions are both contained within statutory instruments for the LGPS this will be a challenging timetable. 3

4 Late Retirement The Government Actuary Department has issued revised factors for retirements for those who delay their retirement beyond State Pension age (SPA). These changes come into effect from 4 January 2017 and are significantly reduced from those in place previously. The factors for actuarial increase have been reduced from 0.014% to 0.01% for annual pension (for each day worked past SPA) and from 0.007% to 0.001% in respect of lump sums. The examples below show how members may be adversely affected by choosing to continue to delay payment after the 4 January effective date. 1 ) M e m b e r w h o s e p e n s i o n w a s d u e i n t o p a y m e n t o n 3 1 / 1 2 / a n d d e l a y s t h e i r retirement by 1 year Pension Element Basic value Increase for late retirement Annual Pension 11, Lump Sum 25, ) Member whose pension due into payment on 31/12/2015 and delays their retirement by 1 year 1 month Pension Element Basic value Increase for late retirement Annual Pension 11, Lump Sum 25, In the example above we have ignored any additional pension earned but does hopefully show the extent of the reduction. Whilst this will affect relatively small number of scheme members, you may wish to inform any such members of this significant reduction. The Local Pensions Partnership (LPP) are working on a plan to contact any members affected and will keep you informed of how we will do this. If you need any further assistance please contact: neil.lewins@localpensionspartnership.org.uk Technical Team 4

5 Employer Forum The date of the next employer Forum is approaching and will be taking place on Thursday, 17th November 2016, at LPP offices, followed by Lunch. The Forum will be a great opportunity for key contacts to get the latest update of the 2016 valuation results along with the chance to question our fund actuary. Our speakers will update you on the new Local Pension Partnership, how all employers are legally obliged to comply with new Pensions Regulator requirements and also you will hear our traditional review of the year. To register for the Employer Forum please RSVP by following the link: Venue details: Ground Floor, Room G Union Street London SE1 0LL. Agenda: 09:30 Arrival and registration Tea/coffee and help desks 10:00 Welcome and Review of the Year Mike Allen, LPFA Managing Director 10:45 Working with Employers/Regulatory Compliance Tony Williams, Head of Employer Risk Services 11:00 Review of Local Pensions Partnership Greg Smith, Director of Strategic Projects and Group Company Secretary 11: Employer Valuation Results Mark Norquay, Barnett Waddingham 12:15 Question & Answer Session 12:45 Lunch and networking We do hope you can attend and look forward to meeting you all on the day. If you have any questions; please do not hesitate to get in touch. communications@lpfa.org.uk 5

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