Understanding your Local Government Pension Scheme (LGPS) Annual Benefit Statement (ABS) at 31 March 2018

Transcription

1 Understanding your Local Government Pension Scheme (LGPS) Annual Benefit Statement (ABS) at 31 March 2018 The purpose of these notes Your annual benefit statement is a very important pension s document that you MUST read. We acknowledge that people value the pension scheme differently to each other, and that some, whilst wanting to know more about it, are put off by its perceived complexity or by the jargon used to explain its key points. This document sets out to explain some of the detail behind the condensed statement you received during August In previous years, these notes featured on the printed statement, but the size meant many members were put off reading it. The LGPS has changed over the years and you owe it to yourself and your family to understand how benefits are calculated, as your LGPS pension may form a major element of your retirement income. Hopefully this document helps you to understand the different benefits/calculations between the former final salary scheme (for benefits relating to membership before 1 April 2014) and the Career Average Revalued Earnings (CARE) scheme (for membership from 1 April 2014). We explain such things as the pension calculation, the definition of pay and survivors benefits from each of the scheme designs. We must stress that, since the pension scheme became a CARE scheme on 1 April 2014 which we explain below - your pension benefits since then are calculated and banked each year. This means that if anything is wrong it will be very difficult to correct, especially if you notice something years down the line. As a very minimum please check the pay figure(s) used! As you may expect, the benefits quoted are based on pay figures provided by your employer. These pay figures aren t increased in any way even the projected benefits at Normal Pension Age (NPA) are based on the 2017/18 pay figures provided. This means that your estimated benefits are quoted in today s money so that you can compare your income at retirement with today s standard of living. Any future changes to your pay will directly affect your LGPS benefits. Please note: this statement relates only to your LGPS benefits with the Teesside Pension Fund for the post shown. If you have benefits in more than one post you will receive a separate statement for each and if in other funds, statements from them. What does my statement tell me? The 2018 statement has been reduced by removing many of the supporting notes (which now feature on this document). What remains is: Your Personal Details o This area confirms key information that we hold for you, including your employer at 31 March 2018 Projections if you remain a contributing member of the scheme until your NPA o This area confirms your benefits at your expected retirement age, along with an estimate of your spouse s/civil partner s/cohabiting partner s pension where we have one of these recorded as your partnership status. Where we have you recorded as single, the survivor s pension details will be zero o If you were a member of the scheme before 1 April 2008, we also show the automatic lump sum that you are entitled to

2 Summary and breakdown of your benefits at 31 March 2018 o This area confirms your combined benefits from both the final salary scheme (for membership up to 31 March 2014) and the current CARE scheme (for membership from 1 April If you joined the scheme on or after 1 April 2014 this area will only detail your CARE benefits o The death benefits that would have been due had you have died in service on 31 March 2018 are also shown here. In all cases a lump sum death grant will be quoted. There will also be an estimate of your spouse s/civil partner s/cohabiting partner s pension where we have one of these recorded as your partnership status. Where we have you recorded as single, the survivor s pension details may be zero o The breakdown boxes separately show the final salary benefits (if these apply to you) and your CARE benefits. The pay figure(s) used are shown in these breakdown boxes Membership Details (service) in the pre-1 April 2014 Final Salary Scheme o If you were a member of the scheme before 1 April 2014, your final salary benefits are calculated using your final salary pay and your service (up to 31 March 2014). Due to the scheme changing to a CARE design on 1 April 2014, service from this date is no longer used to calculate your pension. IT IS CORRECT that the service in this area stops at 31 March 2014 All benefits quoted are the standard benefits provided by the scheme, including any automatic lump sum for pre-april 2008 membership. At retirement, you will be given the option to alter what you receive by giving up some of your pension to receive a bigger tax-free lump sum. For each 1 of annual pension you give up you will increase your lump sum by an extra 12. Entitlements under the scheme Final salary benefits (for scheme membership up to 31 March 2014) Your statement will include any benefits you may have accrued prior to 1 April 2014 calculated under the final salary scheme using the final salary definition of pensionable pay. The calculation of any final salary benefits will depend on your period of membership, as the calculation of benefits changed in For any service before 1 April 2008, the final salary scheme calculated pension benefits as 1/80 th of pensionable pay for each year of service. An automatic lump sum of 3/80 th of pensionable pay for pre-april 2008 service was also provided and, if it applies to you, this lump sum will be included on your statement. For service after 31 March 2008, the formula to calculate pensions increased to 1/60 th of pensionable pay, but with no further automatic lump sum building up after that date. Final Salary pensionable pay: Your final salary benefits use a pensionable pay figure based on a figure your employer has told us that you were paid in the year to 31 March So, even though no further service (after 31 March 2014) counts towards the final salary scheme, these benefits will use your pay at (or near) retirement to calculate any final salary benefits. If you worked part-time, this is the pay you would have received if you had been full-time. Also, the final salary pay ignores any reductions due to sickness or injury, or reductions relating to maternity, paternity or adoption leave or reserve forces leave. Pensionable service: This includes the period for which you have paid contributions, along with any service that you have transferred-in from other pension schemes and any additional service that you have bought up to 31 March Any periods of part-time employment are calculated in

3 proportion to the full-time hours for that post. For example, 2 years working at half-time would give 1 full year towards your pension. As your benefits are based on the full-time equivalent pay you will not be any worse off. Survivor benefits: from the final salary scheme are calculated as 1/160 th of your final salary pay, and also include survivor benefits from any added years and/or additional regular contribution contracts you may have paid in to. The final salary benefits as at 31 March 2018 shows the unreduced figures (if you are under NPA) as if you had left service on 31 March If you are older than NPA, these are the benefits that would have come into payment on 31 March CARE benefits (for scheme membership from 1 April 2014) CARE benefits, for service after 31 March 2014, are determined by which section you contribute to. The section shown on your statement is the one you contributed to on 31 March Whilst most members contribute to the Main section, and build full benefits, members can halve their contributions by electing to join the 50/50 section. By doing so, the member builds up half the level of CARE pension during this period. Full ill-health and death cover, however, remains in place whilst contributing to the 50/50 section. If you do elect for the 50/50 section, your CARE pension is calculated as 1/98th of your CARE pensionable pay for this period (as opposed to 1/49 th of CARE pensionable pay if in the Main section). If you were in the 50/50 section on 31 March 2018, the projection to your NPA has been calculated at 1/98 th. If you have more than one job, you can elect to be in the 50/50 section for all, or some, posts. This reduced section is not designed for the long-term; perhaps only when times are tough financially. It is for this reason that employers have to re-enrol members in the 50/50 section back into the Main section every 3 years. Members wishing to remain in the 50/50 section at that point would need to make another election. The statement also confirms whether you have bought additional pension during the year under an Additional Pension Contract (APC or Shared Cost APC with your employer), along with any additional pension granted following a transfer of earlier pension benefits during the year. Any APC contract, or transfers-in, received after 31 March 2018 will not be included on this year s statement (due to them being received after the effective date). Such benefits will feature from next year. CARE pensionable pay: Pensionable pay for your CARE benefits should equal the actual pay received in the year to 31 March 2018 (including any overtime). If you received reduced or nil pay because of one of the following: sickness, injury, because of maternity, paternity, adoption leave or because of reserve forces leave, the CARE pay figure may include Assumed Pensionable Pay (APP) that has been calculated by your employer. APP is the average of the pensionable pay received during the 3 complete months (or 12 week period if weekly paid) before entering the reduced / nil pay period. We have shown the CARE pensionable pay, as provided by your employer, relating to either / both CARE sections that you have contributed to during the scheme year. So, if you were a member of the 50/50 section at any time during the year, there should also be a 50/50 pensionable pay figure. Projections if you remain a contributing member of the scheme until your normal pension age (NPA): This is based on your potential pensionable service to your NPA in the current CARE scheme. As the new NPA is greater than 65 for many members, the pre-2014 final salary benefits would

4 include an actuarial increase to account for these benefits becoming payable later than 65. The projected figures do not include this increase on any pre-april 2014 final salary benefits, as the factors to determine the increases could change into the future. The same pay amounts that were used in the present value figures have been used for the projected figures: no assumed pay increases between now and NPA have been included. The projected CARE pension is shown in today s money as we haven t included any inflationary increases provided by the annual Treasury Revaluation Order. As this increase is linked to Consumer Prices Index (CPI) inflation, which differs each year, we do not know what these increases will be in advance. In reality, your CARE pension is adjusted on 1 April every year, to keep pace with inflation. The CPI figure that has been applied on 1 April 2018 was +3.0%, and is not included in this year s statement. If you have an additional contract that you are still contributing to (such as an added years or additional regular contribution (ARC) contract from the pre-2014 scheme, or an APC from the current scheme), we have included the full benefit from these on the assumption that these contracts will be completed by then. Survivor benefits: from the CARE scheme are calculated as 1/160 th of your APP for each year of membership you had in the scheme, plus 49/160 ths of any pension amount you had credited into your pension account following a transfer of previous pension rights. To this, we have added an amount equal to 1/160 th of your APP for each year of membership you would have built up from your date of death to your NPA. When can you retire? As the LGPS changed from a final scheme to a CARE scheme on 1 April 2014, the normal pension age (NPA) changed for many members. Benefits built up in the final salary scheme (for membership up to 31 March 2014) are still unreduced if claimed at age 65 (age 60 if you TUPE transferred from the Learning and Skills Council), but they cannot be claimed separately to the CARE benefits built up after 1 April CARE benefits have an NPA equal to your State Pension age (or 65 if this is later). So, if a member claims their benefits at age 67 (at their current State Pension age), their CARE benefits won t be reduced and their pre-1 April 2014 final salary benefits will be actuarially increased due to them being claimed 2 years later than their old final salary NPA of age 65. This statement does not include such actuarial increases, as these could change in the future. Please note: your State Pension age may increase in the future. Should this happen, you will have to wait until that increased age if you want to claim your benefits unreduced. Visit for confirmation of your current State Pension age. You can, however, retire and draw your benefits at other ages. The earliest that you can request benefits to be paid is age 55. Where benefits are drawn before NPA, they will be reduced to take account of them being paid for longer. The extent of the reduction depends on how early they are paid. Alternatively, you can delay taking your benefits right up to the eve of your 75 th birthday. Current early reduction factors Number of Years Paid Early % Pension Reduction Men % Pension Reduction Women % Lump Sum Reduction (for membership to 31 March 2008)

5 N/A N/A N/A In cases of ill-health, there is no lower age limit for payment, but there is one important condition: you must have at least 2 years membership, or have brought in a transfer from another pension scheme that can count towards the 2 years membership, before benefits can be claimed. Any Pension Sharing or Earmarking Order, following a divorce or dissolution of civil partnership, or Scheme Pays election (resulting from breaching the maximum amount of tax-free pension build up in a year) have not been included in the figures quoted. Therefore, the benefits quoted do not include any of these reductions; we will, of course, provide details of the effects of these reductions closer to retirement (as the extent of the reduction applied could well depend on when you claim your benefits). How are survivors benefits calculated? Lump sum death grant: If you die in service as a member of the LGPS a lump sum death grant of three times your assumed pensionable pay* at your date of death is paid, no matter how long you have been a member of the LGPS, provided you are under age 75 at the date of death. If you also have a deferred benefit and/or a pension in payment from a previous period of membership of the LGPS, the lump sum death grant that will be payable is the greater of: the total of any lump sum death grants payable from the deferred and/or pensions in payment three times your assumed pensionable pay at your date of death i.e. the in service death grant *Assumed pensionable pay for these purposes is calculated as the average of the pensionable you received for the 12 weeks (or 3 months if monthly paid) before you die or leave employment due to ill-health retirement. Where an independent registered medical practitioner certifies that, during the period used to determine assumed pensionable pay, you were working reduced contractual hours because of the ill-health which led to death in service, the assumed pensionable pay is calculated on the pay you would have received during that period had you not been working reduced contractual hours. If you pay Additional Voluntary Contributions (AVCs) arranged through the LGPS (in-house AVCs), the value of your AVC fund is also payable, as is any extra life cover. The Teesside Pension Fund has absolute discretion over who receives any lump sum death grant. This means it can be paid to the person(s) you have nominated on your expression of wish form, to your personal representatives or to any person who appears at the time, to have been your relative or dependant. You should complete an expression of wish form so that your wishes as to you would like to receive any death grant can be taken into account. This form can be downloaded

6 from our website: You can complete this form, or make a new one, at any time. If any part of the death grant has not been paid within two years, it must be paid to your personal representatives, i.e. to your estate. If you have paid AVCs and a lump sum is to be paid from your AVC fund, The Teesside Pension Fund has absolute discretion over who to pay that sum to, provided that you paid into the LGPS on or after 1 April Please note, if you also have previous, separate LGPS benefits, whether in the Teesside Pension Fund or elsewhere in England or Wales, the death grant will be the higher of 3 times Assumed Pensionable Pay for your active post(s) or the lump sum death grant from those earlier benefits. Earlier benefits could mean a period of benefits that are preserved (known as deferred benefits), a pension already in payment, or previous tier 3 ill-health benefits that are currently suspended. Adult survivor s pension: The scheme pays a pension to an adult survivor after your death, such as your husband, wife, and registered civil partner or, subject to certain qualifying conditions, your eligible cohabiting partner. We have quoted a survivor s pension if your pension record shows you as married, or in a partnership. If you die without leaving an adult survivor, no survivor benefits will be paid (other than to any eligible children). An adult survivor s pension would be payable for life, even if they re-marry, enter into a civil partnership or cohabit. We have shown the survivor benefits as at 31 March 2018, as if you had died on that date, as well as projected figures as if you were to die at NPA. Where a survivor s pension is quoted, this includes benefits from both the final salary scheme and CARE scheme (where both applies); these notes explain how survivors benefits are calculated from each of the 2 schemes. Your membership from 1 April 2014 Your membership up to 31 March /160 th of the pensionable pay or assumed pensionable pay you received in each year plus a proportion of any transfer of pension rights credited to your account plus, an enhancement equal to 1/160 th of your assumed pensionable pay for each year of membership you would have built up from your date of death to your normal pension age. 1/160 th of your final pay x the period of your membership up to 31 March 2014 Please bear in mind that where a male member marries/remarries after leaving employment, the surviving adult s pension will not include any final salary benefits relating to membership before 6 April 1978 in the calculation. If a female member marries/remarries after leaving employment, the surviving adult s pension will not include any membership before 6 April This also applies to the benefits of a survivor from a post-leaving same sex marriage, or the survivor from a post-leaving civil partnership. Eligible cohabiting partner s pension: An eligible cohabiting partner can only receive a survivor s pension if certain criteria have been met. In the past, the member had to complete a cohabiting partner s nomination form, but this requirement has now been removed. We would, however, still recommend a form is completed as this will help us establish that there was a relationship in the event of your death.

7 For eligible cohabiting partners the final salary pension payable is calculated in the same way, although only your membership from 6 April 1988 is used in the calculation (unless you had entered into a contract, before 1 April 2014, to count pre-april 1988 membership as pensionable). Your membership from 1 April 2014 Your membership up to 31 March /160 th of the pensionable pay or assumed pensionable pay you received in each year plus a proportion of any transfer of pension rights credited to your account plus, an enhancement equal to 1/160 th of your assumed pensionable pay for each year of membership you would have built up from your date of death to your normal pension age. 1/160 th of your final pay x the period of your membership from 6 April 1988 up to 31 March 2014, plus any membership before 6 April 1988 if you elected to pay additional contributions to make it count (an election must have been made before 1 April 2014) For more information about the form to nominate a cohabiting partner for a pension and what evidence would be required you should visit the Pension Fund website at If the marital status we have recorded for you is wrong, please let us know. Eligible child s pension: A pension can also be paid to eligible children if they are your natural or adopted child, a step-child or a child accepted as a member of the family, providing they were dependent on you. A child s pension will be paid until they reach age 18, or for longer if they are either in full-time continuous education, or undertaking an approved training course for at least 2 years. The maximum age for a child pension is 23, unless the child is physically or mentally disabled. Additional Voluntary Contributions (AVCs) Changes to pre- April 2014 AVC contracts The statement does not include any State Pension entitlement nor any AVCs that you may be paying, as we do not administer these. Your AVC provider will issue a separate statement of your AVC Fund value. Regulation changes in May 2018 mean that LGPS members with an AVC contract that started before 1 April 2014, you will see some changes to your AVC plan as set out below: When you take your main scheme benefits you will no longer be able to leave your AVC invested and take it later. If you die before taking your AVC and a lump sum is to be paid from your AVC plan, the Teesside Pension Fund now has absolute discretion over who to pay that sum to (rather than it having to be paid to your estate). If the lump sum is paid at the discretion of the pension fund it does not form part of the estate and will not be subject to inheritance tax. For information about the other ways you can use your AVC plan see the national LGPS website - How can any problems be put right? If at any time you have a pension problem relating to your Teesside Pension Fund pension, please let us know and we will look into this. Many problems are caused by a simple misunderstanding

8 and can be dealt with quickly and easily. If talking the problem through doesn t resolve the matter, there is a formal dispute resolution procedure available. Details of this procedure are available on the Fund website: Contact Us If you believe any of the details contained in your ABS are incorrect, for example the pay or service used to calculate your benefits, please let us know by contacting the Pensions Unit; by telephone on (01642) , or by ing us at: pensionsunit@kier.co.uk