Pensions Choice 2 Roadshow

Transcription

1 The NHS Pension Scheme Pensions Choice 2 Roadshow B Lucas, Employment Services Manager Feb 14

2 Introduction Pensions Choice 2 What Choice needs to be made and who it affects? What information do I need to know in order to be able to make a choice? An overview of the 2015 Scheme

3 What Choice, and who is affects? You are being asked if you would like to move your 1995 Section benefits into the 2008 Section of the NHS Pension Scheme staff in the Trust Key factors in making your decision are you knowing your Normal Pension Age (NPA) - relates to the NHS Pension State Pension Age (SPA) - relates to the State Pension

4 What is your NPA and SPA? Your NPA is the age that you can retire with the full benefits that you ve earned in the NHS Pension Scheme. Your MPA is the age that you can take Voluntary Early Retirement from - based on benefits earned with a reduction applied for taking them early Scheme NPA 60 or 55 for Special Class / MHO 65 Minimum Pension Age (MPA) Age 50 if joined pre 06/04/2006 Otherwise age You can work out your SPA by referring to hand- out Sheet A

5 Other Section differences Scheme NPA 60, 65 Minimum Pension Age (MPA) Type of Scheme Pension Retirement Lump Sum 55 for Special Class/ MHO Age 50 if joined pre 06/04/2006 Otherwise age 55 Final Salary based on the best of the last 3 years pensionable pay A pension worth 1/80 th of Pensionable pay x scheme membership 3x pension = Tax Free Lump Sum. Option to exchange part of pension for more cash up to 25% of capital value. 1 pension = 12 Tax Free Lump Sum 55 Final Salary based on the average of the best 3 consecutive years within the last 10 years A pension worth 1/60 th of Pensionable pay x scheme membership No Automatic Lump Sum Option to exchange pension for a lump sum up to 25% of capital value 1 pension = 12 Tax Free Lump Sum

6 Comparison of 1995 / 2008 benefits The comparison of benefits below has been made using the same membership and final salary in both the 1995 and 2008 Section 1995 Section 2008 Section Pension Lump Sum Pension Lump Sum At Age At Age

7 How final salary schemes work 1 yr of F/T service = 1 yr of pension membership P/T service is scaled down 2 years of hrs /wk = 1 yr of pension membership At retirement Yrs of membership x final pay = Pension Accrual rate (the 1995 Section also gives an automatic Tax Free Lump Sum)

8 The 1995 Section Example Employee worked F/T from age Their highest salary in the last 3 years was On retirement at age 60 20/80 x = 6260 pension p.a Lump sum = 3 x pension = Tax free On Retirement at age 65 25/80 x = 8437 pension p.a. Lump sum = 3 x pension = Tax free Lump Sums can be increased (up to 5.36 x pension). 1 pension = 12 Lump sum

9 The 2008 Section Example Employee worked F/T from age Their highest salary in line with the 2008 Section requirements was On Retirement at age 60 - VER 20/60 x = % = 6333 pension Or Pension of = 4770 Lump sum = Pension can be converted into Tax free Lump Sum ( 1 pension = 12 Lump) On retirement at age 65 25/60 x = pension ( no lump sum) Or Pension of = 9156 Lump sum = 25131

10 A Comparison of benefits 1995 Section 2008 Section Pension Lump Sum Pension Lump Sum At Age At Age Your Choice what s important for you? Maybe Retirement age Biggest pension possible Flexible Retirement opportunities e.g draw down, retire and come back etc.

11 Scheme Normal Pension Age (NPA) 60, 55 for Special Class/ MHO 65 Minimum Pension Age (MPA) Type of Scheme Age 50 if joined pre 06/04/2006 Otherwise age 55 Final Salary based on the best of the last 3 yrs pensionable pay 55 Final Salary based on the average of the best 3 consecutive yrs within the last 10 yrs Pension Retirement Lump Sum A pension worth 1/80 th of Pensionable pay x scheme membership 3x pension = Tax Free Lump Sum. Option to exchange part of pension for more cash up to 25% of capital value. 1 pension = 12 Tax Free Lump Sum A pension worth 1/60 th of Pensionable pay x scheme membership No Automatic Lump Sum Option to exchange pension for a lump sum up to 25% of capital value. 1 pension = 12 Tax Free Lump Sum Maximum Age 75 Maximum Membership Voluntary Early Retirement Non special Class/MHO 40 years at age 55 & 45 years overall Yes 45 Late Retirement No late retirement factors applied Late retirement factors applied to pension earned before age 65` Pensionable Re- employment following payment of pension Only available to eligible members who retire from active membership following ill health retirement who re- join prior to age 50 Yes if eligible Partial Retirement No Yes Flexible Retirement Ill Health Tier 1 Accrued benefits paid without reduction Ill Health Tier 2 Tier 1 + an enhancement of 2/3rds of prospective membership to NPA Tier 1 plus an enhancement of 2/3rds of prospective membership to NPA Increasing your pension Purchase of additional pension units of 250 Purchase of additional pension units of 250

12 Why do I need to make a Choice? Because you have to join the new 2015 scheme. and Because you can not retire with full benefits earned in the new Scheme until you reach SPA This means you will have pension benefits in 2 parts and 2 NPAs - start date to date of joining the 2015 scheme Can be taken at age 55/60 and from joining the 2015 Scheme to take at SPA e.g between 65 and 68. Had this information been available during the previous choice exercise then some members may not have chosen to stay in the 1995 section. E.g. If more of your service is in the 2015 Scheme you may prefer to move to the 2008 Section.

13 Choice 2 - What next? Read your Choice 2 letter in full to understand the implications for you. Make use of the online calculator at ( To move benefits to the 2008 section, complete the online response form at ( If you don t want to move you don t need to do anything you will remain in the 1995 section by default. The deadline for NHS Pensions to receive Choice 2 decisions is 16 March Once a decision has been made, it cannot be changed.

14 Scheme Arrangements from ? New 2015 Scheme Member contribution rates and bandings remain the same as 14/15 Tier F/T Pensionable Pay Contribution Rate up to 15, % 2 15, to 21, % 3 21, to 26, % 4 26, to 47, % 5 47, to 70, % 6 70, to 111, % 7 111, and over 14.5% Employer contributions increase from 14 to 14.3%

15 Scheme Type of Scheme Final Salary based on the best of the Final Salary based on the average of Career Average Re- valued Earnings last 3 years pensionable pay the best 3 consecutive years within the CARE Scheme last 10 years Pension A pension worth 1/80 th of A pension worth 1/60 th of - A pension worth 1/54 th of each years Pensionable pay x scheme membership Pensionable pay x scheme membership pensionable earnings, - re- valued at the start of each following scheme year - at the consumer price index rate (CPI) plus 1.5% whilst in active membership. - On retirement, all benefits are added up and paid. Retirement Lump Sum 3x pension = Tax Free Lump Sum. No Automatic Lump Sum No Automatic Lump Sum Option to exchange part of pension for Option to exchange pension for a lump Option to exchange pension for a lump more cash up to 25% of capital value. sum up to 25% of capital value. sum up to 25% of capital value. 1 pension = 12 Tax Free Lump Sum 1 pension = 12 Tax Free Lump Sum 1 pension = 12 Tax Free Lump Sum Normal Pension Age (NPA) 60, 55 for Special Class/ MHO 65 Equal to individuals SPA and may increase again Minimum Pension Age (MPA) Age 50 if joined pre 06/04/2006 Otherwise age Maximum Age 75 Maximum Membership Non special Class/MHO 40 years at age 55 & 45 years overall 45 No limit No MHO in this scheme Voluntary Early Retirement Yes Yes Yes, plus ERRBO option Late Retirement No late retirement factors applied Late retirement factors applied to pension earned before age 65` Late retirement factors applied to all pension earned until retirement. Pensionable Re- employment Only available to eligible members who Yes if eligible Yes if eligible following payment of pension retire on NHS Pension ill health grounds and re- join prior to age 50 Partial Retirement No Yes Yes Ill Health Tier 1 Accrued benefits paid without reduction Ill Health Tier 2 Tier 1 + an enhancement of 2/3rds of Tier 1 plus an enhancement of 2/3rds Tier 1 plus an enhancement of 1/2 of prospective membership to NPA of prospective membership to NPA prospective membership to NPA Increasing your pension Purchase of add. pension units of 250 Purchase of add. pension units of 250 Purchase of add. pension units of 250

16 The New 2015 Pension Scheme Headline Changes Retirement age is in line with the SPA Pension Scheme is a CARE Scheme not a final salary scheme Pension is based on actual earnings each year as follows Pension build up = pensionable pay April - March x 1/54 Each year the accrued 2015 pension to date is revalued by the Consumer Price Index (CPI) rate plus 1.5%. This maintains a link to inflation The final pension is calculated by adding together each year of revalued pension No limit to the number of years of membership No Special Class Status or MHO status in the 2015 Section. If a member had MHO Status and could have qualified for doubled years then a special calculation at retirement, know as Uniform Accrual, will be made.

17 How CARE works Year 1. 1/54 x = 278 pension Year 2. 1/54 x = 296 pension Year 3. 1/54 x = 389 pension Year 4. 1/54 x = 426 pension Year 5. 1/54 x = 556 pension Based on a CPI of 1.5% every year (Aug 14) + 1.5% = 3% increase Year 1 Year 2 Year 3 Year 4 Year 5 Year Year Year Year N.B Salary sacrifice schemes have a negative impact on pension benefits in the 2015 Section Year Total annual pension payable 2044

18 When will I join the 2015 Scheme Section NPA Must join the new 2015 Section from No protection Must join the new 2015 Section if born between the dates below but joining will be from a tapered date. This is called Tapered Protection Does not need to join the 2015 Section if born on or before the dates below. Will remain in their existing scheme. This is called Full Protection From existing members with no protection - new joiners on After members with tapered protection See Hand- out B or C. - new joiners after Who will not join - existing members with full protection.

19 Example of a tapered protection Tapered protection NPA = 60 Date of birth Age at Age at Date moved to 2015 Section May years 10 mths 52 years 10 mths June years 9 mths 52 years 9 mths July years 8 mths 52 years 8 mths Aug years 7 mths 52 years 7 mths Aug years 7 mths 51 years 7 mths Aug years 7 mths 50 years 7 mths

20 What happens to my 1995/2008 benefits and when can I claim them? What happens to the pension I accrue up to moving into the 2015 scheme? They remain in the 1995 or 2008 section as appropriate When can I draw my 1995/2008 benefits? They are taken in line with current rules, at the existing NPA: 55 or 60 in the 1995 section and 65 in the 2008 section. They are based on the members final salary in accordance with scheme rules

21 When can I claim my 2015 benefits the same time as any 1995/2008 benefits with a reduction for early payment (Voluntary Early Retirement VER) at the members NPA in the 2015 Scheme on any date between the above two options with a reduction for early payment if appropriate (VER) a member may take their 2015 benefits, return to NHS employment and start building a new pension, providing they are under age 75 and not in receipt of 1995 section benefits.

22 New feature Early Retirement Reduction Buy Out - members can pay additional contributions to eliminate or lower the cost of taking early retirement restricted to a maximum of three years before NPA and not before age 65 amount of buy out may be restricted if additional pension contributions are also being paid the cost of ERRBO depends on: members age at the start of the contract and the number of years being purchased. for a reduction buy out of 3 years the additional contributions range from» 3.6 % at age 20, to» 4.7 % at age 60 additional contributions are payable up to the chosen early retirement age i.e minimum of age 65.

23 ERRBO example: Greg has a NPA of 68 in the 2015 Scheme. Greg wants to take his 2015 benefits at age 65 without any reduction for taking them early. Greg decides to take out an ERRBO in April He is 45. He agrees to pay extra contributions of 4.1% (before tax relief) from age 45. He will pay this in addition to his normal contributions until age 65. The normal reduction that would apply to the 2015 pension being paid 3 years early is eliminated by the buy out and Greg receives his pension in full at age 65.

24 Questions?