LBWF Pensions News. Contact Details. Contents. For members of the London Borough of Waltham Forest Pension Fund

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1 LBWF Pensions News Annual Benefit Statements LBWF Website Facility Annual benefit statements were issued to all members during December, giving you details of your benefits as a Fund member. The annual benefit statement contains important information that may affect your retirement planning, so you should ensure that you examine it closely. It was the intention of the LBWF to provide you with a State Retirement Pension Forecast to be included in your 2007 benefit statement. Regrettably, the Department for Work and Pensions (DWP) has been unable to provide a forecast of your estimated State Pension entitlement this year. This is because Parliament has approved a number of changes to the State Pension rules. The IT systems used by the DWP need reprogramming to reflect these changes and all forecast calculations have been suspended in the meantime. If you would like more information about the State Pension reforms please visit Please note that if your personal details have changed since your last benefit statement, for instance if you have moved house, you should make sure that you inform the Administration Team of your new details to ensure that their records are kept up-to-date. Contact details for the team are provided below. We d like to remind you that the new LBWF Pension Fund website is now available to all members of the Fund. You can access the site via ForestNet or through This website is intended as a guide to the valuable range of benefits to which Fund members are entitled, and to give you an understanding of how the Fund works. It also gives you the opportunity to perform various calculations and projections to assist you with your financial planning. You can also access important Fund forms, such as the Expression of Wish form and there are links to the latest Waltham Forest news and pensions news. We encourage all members of the Fund to visit this site and make use of its facilities, and of course welcome any feedback about the site and any ideas you have about how we could improve it. For members of the London Borough of Waltham Forest Pension Fund Part of the Local Government Pension Scheme (LGPS) Welcome to the fourth edition of Pensions News, the six-monthly newsletter for members of the London Borough of Waltham Forest (LBWF) Pension Fund. The last six months have seen more changes in the world of pensions and specifically the LGPS, and this newsletter aims to inform you of the latest developments and explain how these will affect your benefits. You should read it carefully, as the information inside could affect your retirement planning. As always, we welcome feedback on the administration of the Pension Fund. If you have any queries about your benefits, please contact the LBWF Administration Team at Capita Hartshead, whose details are on the back page of this newsletter. You can also contact the team via the new LBWF Pension Fund website. Phil Cox Head of Human Resources Contact Details If you have any questions regarding your pension entitlement, please contact the LBWF Administration Team via at lbwf.pensions@capita.co.uk You can also write to the Team at: LBWF Administration Team Capita Hartshead Castle House Park Road Banstead Surrey SM7 3BX ISSUE FOUR ~ WINTER 2008 Contents 12 The New LGPS Latest Developments pg 2 Retirement benefits at Normal Retirement Date pg 3 New Member Contribution rates pg 6 The 85-year rule pg 10 The LGPS is changing pg 11 Pensions News pg 11 LBWF News pg 12 Contact Details pg 12

2 New-look LGPS Proposals Latest Developments Retirement benefits at Normal Retirement Date In previous editions of the newsletter, we have been reporting on the plans for a new-look Local Government Pension Scheme which will come into effect from 1 April The proposals followed consultation with Scheme members, employers and trade unions. Although we are still waiting for the Government to confirm some of the details of the new Scheme, we will continue to update you because we want to keep you as well informed as possible about the forthcoming changes. If you are a pensioner member or hold deferred benefits in the LGPS on 31 March 2008, then the benefits that have been quoted to you upon retirement or deferment are protected by statute and are unaltered. The remainder of this update will only affect you if you rejoin the LGPS as an active contributing member. As an active contributing member of the LBWF Pension Fund on 31 March 2008 you will automatically become a member of the new LGPS on 1 April It will remain a final salary scheme, with many improvements to member benefits, some of which we described in the last winter edition of the newsletter. The following information provides an update on some of the key elements touched on in that edition. How will my benefits be calculated upon retirement? Benefits based on your membership up to 31 March 2008 will be calculated using the rules that are in force now, using an accrual rate of 1/80th of final salary for each year of Scheme membership for pension and 3/80ths for lump sums. Benefits based on membership from 1 April 2008 will be calculated using the new rules. This means that current members will have a combination of benefits from the old and new LGPS on retirement. The following case studies provide examples of how your retirement benefits may be calculated when retiring at the Scheme s Normal Retirement Age of 65. In addition, there is a comparison between what your benefits would have been had the new Scheme not been introduced from 1 April 2008, clearly demonstrating that the new Scheme s annual pension and maximum tax-free lump sum are significantly higher than would have been available under the current Scheme. Example 1 Luke joined the LGPS on 1 April 1998, aged 38. He will be 65 on 31 March 2025 and his final salary at age 65 will be 30,000 per year. Ill-health retirement benefits A two tier ill-health retirement package, with some enhancement for those with over two years membership will be introduced. Members who are medically certified as permanently unable to perform their duties because of ill-health, and are unlikely to obtain gainful employment before age 65, will receive their accrued pension entitlement plus membership enhancements up to Normal Retirement Age. Members who are unlikely to obtain gainful employment in a reasonable time but are likely to do so before age 65 will receive their accrued pension entitlement plus 25% of their prospective membership to age 65. Luke s benefits in the current Scheme at age 65: 27 x 1/80th x 30,000 = 10,125 Luke s benefits at age 65, after introduction of the new Scheme: 10 x 1/80th x 30,000 = 3, x 1/60th x 30,000 = 8,500 Total annual pension = 12,250 Flexible retirement 27 x 3/80th x 30,000 = 30, x 3/80th x 30,000 = 11,250 Flexible retirement, with employer consent, was introduced in April 2006 and allows members over 50 (55 for new members from 1 April 2008 and for all existing members from 2010) to request a reduction in their hours and/or grade and request payment of their retirement benefits. This will be extended to allow members to choose whether they receive all or part of their retirement benefits whilst continuing in employment. Benefits paid before age 65 may be reduced to take account of early payment. Benefits payable on death If a member dies in service, it is proposed that a tax-free lump sum of three times final pay will be payable. Under the current rules a tax-free lump sum of two times final pay is payable. If a member who has retired and is in receipt of a pension dies before their 75th birthday, a tax-free lump sum will be payable. The proposed lump sum is the member s pension multiplied by ten, less pension payments already made. Luke may choose to maximise his tax-free lump sum (in addition to the minimum amount of 11,250) by converting up to 25% of the capital value of his LGPS pension benefits into a tax-free lump sum. Every 1 of annual pension given up will be converted into a 12 tax-free lump sum. Taking 25% of the capital value of pension benefits as a lump sum would increase his lump sum by 23,866 and reduce his pension by 1,989. Taking 25% of the capital value of pension benefits as a lump sum would increase his lump sum by 45,268 and reduce his pension by 3,772. If Luke elects to take the maximum 25% of the capital value as a tax-free lump sum his pension benefits will be: 10,125-1,989 = 8,136 30, ,866 = 54,241 12,250-3,772 = 8,478 11, ,268 = 56,

3 Retirement benefits at Normal Retirement Date continued Example 2 Frances joined the LGPS on 1 April 2001, aged 36, and she will be 65 on 31 March Frances works part-time and will continue to work 20 hours per week until age 65. If she worked full-time she would work 37 hours per week. Her final salary at age 65 will be 35,000 per year (this figure has been increased to its full-time equivalent). Example 3 Joseph joined the LGPS on 1 April 2008, aged 33, and will be 65 on 31 March His final salary at age 65 will be 40,000 per year. Joseph s benefits in the current Scheme at age 65: Joseph s benefits at age 65 after introduction of the new Scheme: Frances benefits in the current Scheme at age 65: Frances benefits at age 65 after introduction of the new Scheme: 32 x 1/80th x 40,000 = 16, x 1/60th x 40,000 = 21, x 20/37 x 1/80th x 35,000 = 6,858 7 x 20/37 x 1/80th x 35,000 = 1, x 20/37 x 1/60th x 35,000 = 6,937 Total annual pension = 8, x 3/80th x 40,000 = 48,000 No automatic minimum tax-free lump sum 29 x 20/37 x 3/80th x 35,000 = 20,574 7 x 20/37 x 3/80th x 35,000 = 4,966 Frances may choose to maximise her tax-free lump sum (in addition to the minimum amount of 4,966) by converting up to 25% of the capital value of her LGPS pension benefits into a tax-free lump sum. Every 1 of annual pension given up will be converted into a 12 tax-free lump sum. Taking 25% of the capital value of pension benefits as a lump sum would increase her lump sum by 16,165 and reduce her pension by 1,347. Taking 25% of the capital value of pension benefits as a lump sum would increase her lump sum by 33,630 and reduce her pension by 2,803. Joseph may choose to maximise his tax-free lump sum (in addition to the minimum amount of 48,000) by converting up to 25% of the capital value of his LGPS pension benefits into a tax-free lump sum. Every 1 of annual pension given up will be converted into a 12 tax-free lump sum. Taking 25% of the capital value of pension benefits as a lump sum would increase his lump sum by 37,714 and reduce his pension by 3,143. If Joseph would like any tax-free cash he may choose to convert some of his higher annual pension into a tax-free lump sum. The maximum he may convert is up to 25% of his LGPS pension benefits. Every 1 of annual pension given up will be converted into a 12 tax-free lump sum. Taking 25% of the capital value of pension benefits as a lump sum would generate a lump sum of 91,427 and reduce his pension by 7,619. If Frances elects to take the maximum 25% of the capital value as a tax-free lump sum her pension benefits will be: If Joseph elects to take the maximum 25% of the capital value as a tax-free lump sum his pension benefits will be: 6,858-1,347 = 5,511 20, ,165 = 36,739 8,592-2,803 = 5, ,630 = 38,596 16,000-3,143 = 12,857 48, ,714 = 85,714 21,333-7,619 = 13,714 Tax-free lump sum (available by deduction from = 91,

4 New Member Contribution rates Why will all existing and new members of the LGPS pay new contribution rates from 1 April 2008? To maintain Scheme stability and affordability and also address the inequalities that exist in the current Scheme, the new contribution rates are based on a system of earnings bands. The bands reflect the different salary levels and introduce more equality between contributions and the cost of providing your pension. This differs from the current Scheme where every member pays 6% contributions on all their earnings (except for a small number of manual workers). The following case studies provide examples of how your contribution rates will change from 1 April 2008 if you currently pay 6%. In addition, there is a comparison between what your contribution rate would have been had the new Scheme not been introduced. What contribution rate will I pay from 1 April 2008? The band you will fall into depends on your full-time equivalent salary (in other words, if you work part-time, how much you would earn each year for doing your job full time). For the purposes of determining into which band your salary falls, you must include all permanent pensionable allowances. Example A John is in his twenties and works full-time. His salary on 1 April 2008 is 15,000 per year. John s annual contributions will decrease in the new Scheme. He will pay 5.9% instead of 6% and he will also be able to take advantage of a better accrual rate, a larger lump sum option, and an improved benefit package. John will continue to receive tax relief on all of his contributions. If you are currently paying 6% contributions, the new contribution bands from 1 April 2008 (note that these will increase each year in line with inflation) are as follows: Band Full-time Equivalent Salary Range Contribution rate Example B ,000 More than 12,000 up to 14,000 More than 14,000 up to 18,000 More than 18,000 up to 30, % 5.8% 5.9% Matthew is in his thirties and works part-time. His actual part-time salary on 1 April 2008 is 12,500 per year and his full-time equivalent salary is 25,000 per year. Matthew s annual contributions will increase in the new Scheme. He will pay instead of 6% but he will also be able to take advantage of a better accrual rate, a larger lump sum option and an improved benefit package. Matthew will continue to receive tax relief on all of his contributions. 5 More than 30,000 up to 40, % 6 More than 40,000 up to 75, % 7 More than 75, % Example C Mary is in her forties and works full-time. Her salary on 1 April 2008 is 45,000 per year. Mary s annual contributions will increase in the new Scheme. She will pay 7.2% instead of 6% but she will also be able to take advantage of a better accrual rate, a larger lump sum option and an improved benefit package. Mary will continue to receive tax relief on all of her contributions. 6 7

5 New Member Contribution rates continued I currently pay less than 6% contributions what will I pay from 1 April 2008? The following case study demonstrates how your contribution rates will change from 1 April 2008 up to 1 April 2011 if you are currently paying less than 6%. In addition, there is a comparison between what your contribution rate would have been had the new Scheme not been introduced. If you currently pay contributions of less than 6% (for example, you may be a protected manual worker who is currently paying 5% contributions), your contributions will increase on a phased basis over the next three years. By the end of that period your contributions will be in line with the new contribution bands set out on page 6. The phased increases are: From 1 April 2008 the contribution rate for all members who are currently paying less than 6% contributions increases to 5.25%. From 1 April 2009 the contribution rate for all members paying 5.25% increases to 5.5%. From 1 April 2010 the contribution rate for all members paying 5.5% increases to: Example Henry is in his fifties and works full-time. His pay including pensionable allowances on 1 April 2008 is 18,000 per year. Henry s annual contributions will increase as follows over the next three years: From 1 April 2008 he will pay 5.25% instead of 5% From 1 April 2009 he will pay 5.5% instead of 5% From 1 April 2010 he will pay 5.9% instead of 5% From 1 April 2011 he will pay 5.9% instead of 5% Band Full-time Equivalent Salary Range (these will be increased annually by RPI) Contribution rate He will be able to take advantage of a better accrual rate, a larger lump sum option and an improved benefit package. Henry will continue to receive tax relief on his higher contributions , % Will my contribution rate change in future years? More than 12,000 up to 14,000 More than 14,000 up to 18,000 More than 18,000 up to 30,000 More than 30,000 up to 40,000 More than 40,000 up to 75,000 More than 75, % 5.9% If you currently pay 6% contributions, your initial contribution band is based on your salary and any pensionable allowances at 1 April 2008, or if you commence employment after that date, your starting salary including any pensionable allowances. Your contribution band will be reviewed following a change in your contractual circumstances and/or on a more regular basis as determined by the LBWF. From 1 April 2011 the contribution rate for all members paying between 5.5% and will see their contributions harmonised with those paid by all other Scheme members (see the table on page 6). 8 9

6 The 85-year rule The LGPS is changing but is it still a good scheme? In the summer we reported that the rules surrounding the 85-year rule had not yet been agreed and that we would keep you informed of any developments. The rule has now been changed, but why? The Government s legal advice is that the 85-year rule will be in breach of Age Discrimination legislation which came into force on 1 October For this reason the 85-year rule has been removed, but only in respect of benefits you build up in the future. What protections are there for existing members? Following discussions between the trade unions and local government employers, the Government has amended the LGPS to provide additional protections from phasing out the 85-year rule for employees who are members of the Scheme at 30 September The pension rights existing members accrue up to 31 March 2008 (or up to 31 March 2016 if you will be aged 60 or over by then) will not be affected and will continue to be calculated in the same way as if the changes had not been made. Existing members who will be aged 60 between 1 April 2016 and 31 March 2020 and meet the 85-year rule by 31 March 2020 also have some protection from a full early retirement reduction on benefits built up from 1 April 2008 to 31 March On average, people are living a lot longer than they used to. This is very good news for individuals, but it does mean that there is an increased financial strain on pension funds. The Government has tried to address this by making changes to the LGPS to ensure that it can remain affordable whilst still providing a good level of pension benefits for current and future members. The LGPS is still an extremely good scheme compared to most schemes in the private sector and is a valuable part of your pay and reward package. It is a good quality pension arrangement created especially for employees working in local government and connected employers and has many features, including: The Scheme is employer subsidised employers, on average, pay over twice as much into the LGPS as employees do. A secure pension the Scheme provides you with a secure future income, independent of share prices and stock market fluctuations. Your pension will also receive regular cost of living increases when in payment. Tax-free lump sum on retirement. Early retirement you can choose to retire from age 60 (or earlier with your employer s consent, but not earlier than 55 after April 2010) and receive your benefits immediately, although they may be reduced for early payment. Unreduced benefits are payable immediately if you are made redundant or retired in the interests of efficiency when aged 50 or over. Ill-health retirement at any age. If you ever become permanently unable to do your job, you could receive immediate ill-health benefits. Death benefits lump sum life cover of three years pay under the new Scheme rules from the moment you join and widow s/widower s/civil partner s/children s pensions in the event of your death. What does this mean for me? If you are an existing member of the Scheme at 30 September 2006 and retire before age 65, the benefits you build up in the Scheme after 1 April 2008, or after 31 March 2016 if you will be aged 60 or over by then, will be paid at a reduced rate to reflect the fact that you will be drawing them early. If you will be aged 60 between 1 April 2016 and 31 March 2020 and meet the 85-year rule by 31 March 2020 the benefits you build up from 1 April 2008 will still be reduced, but the reduction will not be the full amount. The change to the 85-year rule will not affect you if you draw your pension at age 65, if you are retired on the grounds of permanent ill-health at any age, or if you are retired on or after age 50 on the grounds of redundancy or in the interests of efficiency. Pension benefits in these circumstances continue to be paid at an unreduced rate. The benefits of pensioners and deferred pensioners who left before 1 October 2006 will also not be affected. If you choose to draw your benefits before age 65 and you cannot accrue 21 years membership in the Scheme before age 65, the removal of the 85-year rule will not affect you. Your benefits would have been reduced anyway under the old rules you will receive the same benefits as before. Only employees joining the Scheme after 30 September 2006 will be wholly affected by the change. Pensions News UK Pensions Reform In the last newsletter we detailed plans for the UK pensions reform as set out in the Government s White Paper and forming part of the Pensions Bill The Pensions Bill was accredited with Royal Assent and passed as law on 26 July This means that those changes outlined will now be put into motion