Minimum retirement age now 55 see page 4

Transcription

1 Spring 2010 West Yorkshire Pension Fund Active member newsletter Minimum retirement age now 55 see page 4

2 2 Introducing our new director Following Stuart Imeson s retirement on 23 October last year, Rodney Barton was appointed as Director of West Yorkshire Pension Fund. Rodney qualified as a chartered accountant in 1977 with Price Waterhouse in Johannesburg and later transferred to their Liverpool office. In 1982 he was appointed Senior Technical Assistant to the County Treasurer at Merseyside County Council where he held several senior accountancy-related posts until he was made Chief Investment Officer of the Merseyside Pension Fund in In 1995 he was appointed as Head of Investments with Humberside Pension Fund (now the East Riding Pension Fund) and was responsible for managing funds of over 500 million. Rodney has also served on the advisory committees to several private capital funds in the United Kingdom and the United States. WYPF is valued During the next year WYPF, like all LGPS funds, will go through a valuation. The valuation will match our assets how much money we have in the fund, to our liabilities how much we have to pay in benefits now and in the future. The contribution rates employers pay are reassessed in the valuation. This ensures that each employer pays appropriate contributions for their WYPF members. Sharing the cost For the first time, this valuation could also mean that the contributions members pay might be adjusted to share the cost of providing the scheme more fairly between members and employers. Or instead of changing members contribution rates, changes to the scheme s benefit structure could be made instead.

3 Could you represent our active members? Would you like to represent active pension fund members on our Investment Advisory Panel or our Joint Advisory Group? Our first member representatives, who we selected three years ago, are now coming to the end of their period of office. And we d like to hear from you if you re interested in becoming a member representative yourself. We were one of the first LGPS funds to have member representatives on our management committees and we have two committees: our Investment Advisory Panel oversees the way our investments are managed, and the Joint Advisory Group considers pensions issues both locally and nationally. The committees both include representatives for active and retired members. Would you like to know more? If you d like us to consider you for the active-member representative position on either committee, please write to: David Hoyle Business Manager WYPF PO Box 67 Bradford BD1 1UP david.hoyle@bradford.gov.uk The closing date is 28 May We ll send you some information about the role, including how much of your time you will need to give and the personal qualities we re looking for. You can then decide whether to formally apply to take on this important role. 3

4 4 Minimum retirement age rises to 55 As a member of the Local Government Pension Scheme (LGPS) you re normally expected to retire at age 65, or later if you want to carry on working and your employer allows it. But you can retire early at any time from your 60th birthday. (If you choose to take your benefits early they ll probably be reduced.) And there are ways to get your benefits even earlier, but the rules on that have just changed. New rules for all UK pension schemes mean you can t now retire at age 50 if you retire because of: redundancy interests of efficiency, or flexible retirement. From 1 April 2010 the minimum age you can retire for these reasons went up from 50 to 55. If you joined the LGPS from 1 April 2008 onwards, this rule has applied to you all along. No change for ill health retirements This change doesn t affect ill-health retirement. You can still retire at any age if poor health means you can t carry on working.

5 Your contribution rates for 2010/2011 In the Local Government Pension Scheme (LGPS) your contribution rate depends on how much you earn. 5 Contribution rates for the year from 1 April 2010 The pay bands in the table usually increase each year by the rate of inflation but this year the Government has decided that there will be no increase. Your earnings Contribution rate 0 to 12, % 12,601 to 14, % 14,701 to 18, % 18,901 to 31, % 31,501 to 42, % 42,001 to 78, % More than 78, % What if I m part time? If you work part-time your contribution rate is based on the pay you would get if you worked full time, but the contributions you pay are worked out on the part-time pay you actually get. What if I m a protected 5% contributor in the old LGPS before 1 April 2008? If you were, your contributions will go up from 5.5% to 6.5% from 1 April But if you earn 18,900 or less (full-time pay) you will pay the contribution rate appropriate to your pay. Your employer will review your contribution rate and decide if you need to pay a different rate from 1 April They will let you know if there are any changes to your contribution rate.

6 6 Did you know? Did you know your employer pays contributions into the LGPS too? On average, for every 1 you pay into the scheme your employer pays 2. Your employer pays in so there will be enough money in the scheme to guarantee your benefits for the whole of your life. Have you nominated someone to get your death grant yet? If you die while you re still paying into WYPF we ll pay a death grant of three years pay to those you leave behind. Nominating somebody to get your death grant is easy and it makes it much easier for us to quickly pay the money. And you can split your death grant between any number of people or organisations. If you die and haven t made a nomination, the money could go to your estate and be subject to inheritance tax. Or it might even be paid direct to the State. Making a nomination makes sure your death grant isn t liable for any inheritance tax. If you haven t made your nomination yet, now is a good time to think about it. If you would like to nominate somebody, or update your nomination at any time just ask us for a Death grant expression of wish form. You can get one from too.

7 Partner pensions If you leave a husband, wife or civil partner when you die, we automatically pay them a pension. But if you leave a partner who isn t your husband, wife or civil partner, they won t get a pension unless you nominate them. How to nominate your partner To be able to nominate your partner you must: be free to marry them or enter into a civil partnership with them, and have been living together as husband and wife or civil partners, and be financially interdependent, for at least two years. is based on your membership after 6 April But you can pay extra contributions to include any membership you have before then if you want. Please contact us for more information on this. 7 If you want to nominate your partner please phone us on Both you and your partner must sign the forms when you nominate them. The cohabiting partner pension Photo: Muramasa

8 annual meeting report Max Ramirez, a UK Pension and Insurance Specialist with Goldman Sachs, gave the keynote address at our 9th annual meeting for members at the Queens Hotel in Leeds on 23 October As usual, we report here on the questions delegates put to our management team and the answers they gave at the meeting. Question 1 Why does it take so long to send the members annual benefit statement out when my employer gives the details of my salary and contributions to the pension fund in the May following the end of the tax year? Answer There have been difficulties over the last two years for a number of reasons. The new-look LGPS scheme that was introduced on 1 April 2008 meant lots of changes needed to be made to our computer system by our administration software providers and that took longer than we would have liked. These changes have also made the employers part of the process more complicated too, which has slowed things down for many employers. The data received from many employers has contained errors which have had to be resolved before we could load the data onto our pensions administration system and use it to generate statements. Our auditors have also, over the last couple of years, significantly increased the level of checking we have to apply to the financial information employers send us, and this has slowed the process. We are investigating ways of receiving and posting contributions more quickly, which will in turn enable us to issue benefit statements earlier. Question 2 Why does WYPF insist that part of pension benefit must be taken as a lump sum and not allow the option of using all my benefit to provide a pension? An option not to take a lump sum must also be favourable to WYPF as well. Answer The new look LGPS that was introduced in April 2008 changed the way benefits are calculated. For membership built up after 31 March 2008 you receive an annual pension based on 1/60 of your final pensionable pay. You do not have an automatic entitlement to a lump sum but you can exchange part of your pension for a one-off tax-free lump sum. For membership built up to 31 March 2008 you receive an annual pension based on 1/80 of your final pensionable pay and an automatic tax-free lump sum of three times your pension.

9 9 Question 3 If the UK corporate bonds have fixed interest then why has the Market value depreciated by over 22% compared to book cost? (Are the fixed rate mortgage lenders wrong in keeping the rate fixed during the term to pay their FAT Cat Bonus?) Foreign equities have done better (+) than UK equities ( ); what is the secret? Answer Like Equities, UK corporate bonds have a price at which you can buy or sell them, which moves around on a daily basis. This means the underlying market value will move depending on the price. As at 31 March 2009, the value of the UK corporate bonds was 22% less than the price paid for them, reflecting the fact that corporate bonds were cheap and offering a much higher income return. UK corporate bonds do pay a fixed rate of interest based on the nominal value of the stock held. For example, if you buy 100 nominal stock in a corporate bond which has a coupon of say 5%, an investor will receive 5 in income (interest) each year. However, if the investor paid 200 for the 100 nominal stock, the yield is 2.5% ( 5 on 200 invested). Or if the investor paid 50 for the 100 nominal stock, the yield is 10% ( 5 on 50 invested). Regarding Foreign equities and UK equities, then different equity markets will perform differently based on market perceptions relating to the economy and growth prospects of companies. Also the exchange rates of foreign currencies against sterling will have an impact on investment returns, as the weaker sterling is against foreign currencies the higher the returns will be on foreign equities. Question 4 1. The two major political parties have proposed that the state pension should be linked to average earnings and not the RPI [Retail Prices Index]. If implemented will this policy also apply to West Yorkshire Pension Fund? 2. There is talk among the politicians of linking pensions to changes in income rather than the current link to price inflation. Would such a change affect state pensions only, or would it also affect pensions received from WYPF? Public service pensions are increased under the provisions of the Pensions (Increase) Act 1971 and Section 59 of the Social Security Pensions Act The latter provides for public service pensions to be uprated at the same time and by the same percentage as the increase in the additional pension provided under the State Earnings Related Pension Scheme (SERPs), which is based on the Septemberto-September increase in the Retail Prices Index (RPI). The underlying purpose of this legislation is to maintain the purchasing power of state retirement and public service pensions. We would therefore expect your WYPF pension to go up at the same rate as the state pension but would need legislation to confirm this. Question 5 What investments are being made in green technologies/companies? Recent reports indicate that global investment is increasing, e.g. South Korea is spending $31billion in 27 green technologies, Europe in 2003 invested $50 billion worth, North America $30 billion.

10 10 Part of the USA s $787 billion stimulus package is for green initiatives. I also read that the top green investment companies outperformed the FTSE 100. WYPF has many investments in green technologies/companies. A large proportion of the UK listed investments use green technology and have adopted sustainable practices in their normal business activity not least because it is financially advantageous. On the overseas portfolio, an example of a green investment is the Impax Environmental Unit Trust, but there are many other overseas companies that WYPF invests in that would fall into the category of green investments. Also, WYPF is investing in the European Clean Energy Fund, which is a private equity fund. We have no evidence to suggest that green investment companies have outperformed the FTSE 100 over any given period. Question 6 I have lived with my partner for over 21 years and retired in With current legislation not allowing my partner any benefits when I die, does the WYPF plan to lobby the Government to make legislation retrospective to allow the cohabiting partner of a scheme member to receive some benefit on the death of the member. WYPF has been a keen supporter of the extension of rights to cohabiting partners. In fact, we believe that changes to the current scheme allowing cohabiting partners pensions have been as a result of us (and other Funds) lobbying the Government. However, changes to scheme rules rarely apply retrospectively and it is unlikely that any further lobbying from us would change the current position. Question 7 Bearing in mind that there are so many fair-trade towns and cities in West Yorkshire has WYPF got a fair-trade policy. For example do your offices use FT tea, coffee and sugar and do you book meeting rooms or buildings that will serve FT products. Bradford Council, who administers WYPF and employs WYPF s staff, is a Fairtrade council and it provides fairtrade refreshments at meetings held within its promises. There are occasions though when we need to use external meeting rooms, like here at the Queens Hotel. External meeting rooms are selected based on the range of facilities they provide and price. Like the majority of workers in local government, WYPF staff do not get refreshments provided at work and have to buy their own. Question 8 1. What is the current solvency position? 2. What does implied average contribution rate (for Employers) mean (re 2007 valuation)? 3. The latest fund account states Income received was 381.8m and benefits paid out were 351.1m. This gives a surplus of 30.7m in 2008/9, NOT over 250m as stated. Comments?

11 11 1.The solvency position will move around based on the current strength of the stock markets, which impacts on the value of the Fund s assets, and movements in bond yields which have an impact on the liabilities of the Fund. The current solvency position is somewhere in the 70% to 75% region. 2. For the 190 employers in WYPF, the implied average contribution rate for employers is the percentage of their payroll, on average, that each employer will pay into WYPF. Each employer does, however, pay their own individual contribution rate into WYPF based on the demographics of the employer (e.g. number and age profile of current employees and number and age profile of pensioners receiving benefits, etc). 3. In 2008/09, WYPF also received investment income in the form of dividends and interest from its investment portfolio totalling 226 million which should be added to the surplus of 30.7 million, giving a positive cash flow of around 257 million in the year. Question 9 I m concerned about local authorities slimming down their workforce. What will be the implications of this on the fund? It is difficult to say. Clearly it could mean a slowdown in the number of new employees joining the LGPS and therefore on contributions income, but equally it would mean there would be fewer potential beneficiaries who would add to the liabilities of the WYPF. WYPF has seen a steady increase in the number of scheme members over many years which could slow down if local authorities are slimming down their workforces. However, the introduction of the new system for Personal Accounts may offset this, as at present some 19% of employees who are eligible to be members of the LGPS have decided not to join. Question 10 In view of the massive profits and bonuses in the financial services industry, can the WYPF confirm that in buying services from any of these organisations that it insists on transparency of fees being charged and that it selects the most competitive bid? In any tender for financial services (e.g. the recent tender for banking and custody services), then the fees to be charged are very transparent and formed part of the evaluation of the tenders received. In terms of WYPF s investment portfolio, several types of investments generate a fee to a fund manager (e.g. private equity funds, fund of hedge funds, property unit trusts), and the fee structures are very transparent and known before investments are made. Having said this, there are moves planned by institutional investors to seek a reduction in the levels of the fund managers fees, as they can be viewed as generous. The Local Authority Pension Fund Forum (LAPFF), of which WYPF is a member, is also currently engaging with the banking sector on issues relating to directors remuneration and bonus schemes in the aftermath of the credit crunch.

12 Moving house? It s very important we keep in touch, so if you re one of the 5% of people in the UK who move house each year, don t forget to give us a call and let us know. Can I get this newsletter in other formats? Please let us know if you would like this newsletter in one of these formats: Braille large print, or tape (CDs available soon) You can also get this newsletter and previous issues on our website at Protecting your money Under the National Fraud Initiative, public agencies and local authorities share and compare the information they hold about us. When information doesn t tie up, it s investigated, often involving the police. We ve been taking part in the NFI for several years and we ll go on doing so after all, it s your money we re looking after! Published spring 2010 by West Yorkshire Pension Fund Cover photo: Eric Wüstenhagen PO Box 67, Bradford, BD1 1UP Phone: wypf@bradford.gov.uk Website: The information in this newsletter relates to WYPF active members only and can t be treated as a statement of law.