Local Government Pension Scheme (LGPS) 2014 Protections

Transcription

1 Local Government Pension Scheme (LGPS) 2014 Protections I ve been a member since before 1 st April 2014 what happens to my service before then? q All the pension built up to 1 April 2014 will continue to be calculated in the same way as before and is linked to your salary when you come to retire. It means that the pension built up prior to 1 April 2014 can still be taken unreduced at age 65, and there are further protections for those members who meet the rule of 85. This ensures that the pension benefits under the old arrangement are unaffected by the changes. To guarantee that no members within 10 years of age 65 as at 1 April 2012 find themselves worse off, there will be a protection underpin. This means that those members who would see their normal pension age increase due to the movement in state pension age will get a pension at least equal to that which they would have received in the current scheme, if they retire at age 65 or after. Some members who were in the LGPS prior to 1 st October 2006 will have Rule of 85 protection. These protections still apply for members who take their retirement benefits from age 60, i.e. all pension benefits built up prior to 31 st March 2008 will still be paid out at age 60 unreduced. The protections won t apply if a member chooses to leave and take their benefits under the new rules between the ages of 55 and 60. See below for full explanation. How are my benefits calculated? qqqqqqqllllllllllllllllqqqqqqqqqqqqqtrrrrrrrrrrrrrrrrqq Your pension prior to the 1 st April 2014 will be calculated when you come to retire in the same way as it is now, only pension built up after the 1 st April 2014 will be calculated under the new LGPS 2014 Career Average Revalued Earnings regulations: Pre 1 st April 2008 Service Linked to Final Salary Automatic Lump Sum Pension built up at a rate of 1/80 th Retirement age of 65, but some members will have a protected age of 60 under the 85 year rule Service between 1 st April 2008 and 31 st March 2014 Linked to Final Salary Ability to change some pension for a tax free lump sum Pension built up at a rate of 1/60 th Retirement age of 65 1 LGPS Protections Issue Date October 13

2 New LGPS 2014 Career Average Revalued Earnings (CARE) Option to exchange some pension for a tax free lump sum Pension built up at a rate of 1/49 th Retirement age in line with state pension age (or age 65 if later) Rule of 85 Transitional Protections aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa Rule of 85 transitional protections do not apply to members who choose to leave employment and take their benefits between ages 55 and 60. If you are an existing member covered by transitional protection following the removal of the Rule of 85, retiring before your Normal Pension Age will entail a slightly more complicated calculation of benefits as it did when the LGPS 2008 was introduced. To qualify for Rule of 85 protections you must have been a member of the LGPS on 30th September 2006 or earlier. The 85 year rule is satisfied if your age at the date you draw your benefits and your scheme membership (each in whole years) add up to 85 or more. If you would not satisfy the 85 year rule by the time you are 65, then all your benefits would be reduced if you choose to retire before 65. The reduction will be based on how many years and days before 65 you draw your benefits: If you are part-time, your membership counts towards the rule of 85 at its full calendar length. Not all membership may count towards working out whether you meet the 85 year rule. Working out how you are affected by the 85 year rule can be quite complex, but this should help you work out your general position. If you will be age 60 or over by 31 March 2016 and choose to retire before age 65, then, provided you satisfy the 85 year rule when you start to draw your pension, the benefits you build up to 31 March 2016 will not be reduced. If you will be under age 60 by 31 March 2016 and choose to retire before age 65, then, provided you satisfy the 85 year rule when you start to draw your pension, the benefits you ve built up to 31 March 2008 will not be reduced. Also, if you will be aged 60 between 1 April 2016 and 31 March 2020 and meet the 85 year rule by 31 March 2020, some or all of the benefits you build up between 1 April 2008 and 31 March 2020 will not have a full reduction. 2 LGPS Protections Issue Date October 13

3 Examples aaaaaaaaaaaaaaaaoaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa A member with full protection A member reaches age 62 on 31 March 2015 at which time he will have 23 years service. His salary on retirement is 16,600. As he is over 60 and meets the Rule of 85 before 1 April 2016, his whole pension is protected and will not be reduced for early payment if it is drawn from his 62 nd birthday. His pension will be calculated in three parts. Firstly, in respect of LGPS 1997, secondly in respect of the LGPS 2008 and finally in respect of the new Scheme: Part 1: LGPS 1997 Benefits 16 years membership Pension (16/80 x 16,600) Automatic Lump Sum (3 x 16/80 x 16,600) 3,320 9,960 As the member in this example meets the 85 year rule criteria all of his part 1 service is protected in full Part 2: LGPS 2008 Benefits 6 years membership Pension (6/60 x 16,600) 1,660 As the member in this example meets the 85 year rule criteria all of his part 2 service is protected in full Part 3: LGPS 2014 Benefits 1 years membership CARE Pension 339 As the member in this example meets the 85 year rule criteria all of his part 3 service is protected in full The member s total annual pension is 5, with an automatic lump sum of 9, (which can be increased by exchanging pension for an increased lump sum). A member with partial protection A member will reach age 60 on 31 March 2018 when he will have 30 years service. If he retires on his 60 th birthday his pension built up before 1 April 2008 will be paid unreduced, whereas his pension built up after this date will be partially reduced. His salary on retirement is 16, LGPS Protections Issue Date October 13

4 The full level of reduction that would be applied to the post 31 March 2008 pension is 25%. However as his retirement date falls halfway into the period when protection is tapered off, these reduction factors only apply to one half of his benefits built up after 31 March So this part of his pension is reduced by 12.5%. His pension will be calculated in three parts: Part 1: LGPS 1997 Benefits 20 years membership Pension (20/80 x 16,600) Automatic Lump Sum (3 x 20/80 x 16,600) 4,150 12,450 As the member in this example meets the 85 year rule on 31st March 2018, all of his part 1 service is protected in full Part 2: LGPS 2008 Benefits 6 years membership Pension (6/60 x 16,600) reduced by 12.5% 1,660 As the member in this example meets the 85 year rule on 31 st March 2018, all of his part 2 service is partially reduced Part 3: LGPS 2014 Benefits 4 years membership CARE Pension reduced by 12.5% 1,355 As the member in this example meets the 85 year rule on 31 st March 2018, all of his part 3 service is partially reduced The member's total pension is 7, with a lump sum of 12, (which can be increased by trading pension). Underpin Protection aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa Specific protection - the underpin - is proposed to apply to members who were within 10 years of age 65 on 1 st April Some of these members would see their Normal Pension Age increase due to movements in the State Pension Age. For these members who retire on or after age 65 a calculation will be done at retirement to ensure they will get a pension at least equal to that which they would have received in the LGPS LGPS Protections Issue Date October 13

5 Contact Us aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa If you require any further information please contact us using the details below Cheshire Pension Fund, Cheshire West and Chester Council, HQ, Nicholas Street, Chester, CH1 2NP. 5 LGPS Protections Issue Date October 13