Retirement Process Guide v2
Contents Section 1 Welcome Page 3 Section 2 How are my benefits worked out? Page 3 Section 3 Retirement form 1 Page 6 Section 4 Retirement form 2 Page 8 Section 5 Retirement form 3 & trivial commutation Page 10 Section 6 Benefits from additional contributions Page 12 Section 7 What happens next? Page 13 Section 8 Pensions increase Page 13 Section 9 State Pension Page 14 Section 10- Frequently asked questions Page 14 Section 11- Dispute procedure Page 15 Section 12- Communications Page 15 Section 13- Useful information and organisations Page 15 Section 14- Contact information Page 16 Page 2 of 16
Section 1 - Welcome If you re about to take payment of your pension benefits, along with this retirement process guide you will find: Retirement form 1: Retirement form 2: Retirement form 3: This form is only given to members who meet the criteria to take a small pension as a lump sum. If applicable, this option will be covered in your letter. The information in this booklet is to help guide you through the retirement process by explaining how your benefits are worked out and how to fill in your retirement option forms. However, these notes are for guidance only and can t be treated as a statement of law. This guide can t cover every personal circumstance and doesn t cover all members e.g. those whose total pension benefits exceed the lifetime allowance, or those whose rights are subject to a pension sharing order following divorce or dissolution of a civil partnership. If there is a dispute, the appropriate law will apply. We hope you find the information useful, but if you have any questions please contact us. Details of how to contact us can be found of the back of this booklet. You will be given a payroll number once your pension is in payment. Please keep this safe. You may need to quote this number or your national insurance number in any future correspondence to us. If you, or someone you know, would like this guide in large print, Braille, on audio tape, or translated to a different language, please get in touch. Section 2 - How are my benefits worked out? Along with your retirement letter and forms, you ll have a breakdown of your pension benefits. This part of the booklet will help you understand how the figures on your breakdown sheet have been worked out. Your Local Government Pension Scheme (LGPS) retirement benefits are made up of: An annual pension paid monthly A tax-free lump sum paid on retirement. (Only automatic if you have membership before 1 April 2008) Your LGPS benefits are worked out as follows: Membership up to 31 March 2008 Benefits in this period are built up in the final salary scheme and worked out according to length of membership and your final pay when you leave the scheme. For each year of membership, your retirement benefits are based on 1/80th of your final pay. So, if you ve 20 years full time membership up to 31 March 2008, you ll get 20/80ths or one quarter of your final pay as an annual pension, plus an automatic lump sum of three times your annual pension. The calculation is: Annual pension = 1/80 x period of membership x final pensionable pay (pre-2014 definition) Automatic lump sum = 3/80 x period of membership x final pensionable pay (pre- 2014 definition) Page 3 of 16
Membership between 1 April 2008 and 31 March 2014 Benefits in this period are also built up in the final salary scheme and worked out according to length of membership and final pay when you leave the scheme. For each year of membership from 1 April 2008 to 31 March 2014 your retirement benefits are based on 1/60th of your final pay. So, if you ve six years full time membership from 1 April 2008 to 31 March 2014, you ll get 6/60ths or one tenth of your final pay as an annual pension. There s no automatic lump sum, but you can give up some of your annual pension for a lump sum. For every 1 of pension given up, you would receive 12 of lump sum. The calculation is: Annual pension = 1/60 x period of membership x final pensionable pay (pre-2014 definition) Membership up until 31 March 2014 Before the LGPS changed in 2014, your scheme membership included: Any membership of the LGPS worked out in years and days. This doesn t include membership you ve already received an LGPS pension or deferred benefit for (see below if you are part time). - If you ve worked part-time your membership is reduced to its part-time equivalent length to work out retirement benefits, although calendar length is used to decide if you are eligible for a benefit. Any membership bought by a transfer to the scheme from elsewhere, or pension plan Any extra membership you ve bought with additional contributions or by converting an AVC fund into membership. Final pay used for service up to 31 March 2014 For membership built up to 31 March 2014 when the LGPS was a final salary scheme, your final pay, under the LGPS 2008 regulations definition is used to work out your benefits. This is the pay during your final year of scheme membership, or one of the previous two years if higher. If you suffered a reduction in your pay after 31 March 2008 and this reduction happened within your last ten years of membership, you can choose to have your benefits worked out using the average of the best three consecutive years over the last ten years. The 2008 definition of final pay includes: Normal pay Shift allowance Bonus Only contractual overtime and additional hours Maternity pay, paternity pay, adoption pay, Any other taxable benefit specified in your contract as being pensionable If you worked part-time during your final year, your final pay, under the 2008 definition, is the fulltime equivalent that you would ve received, if you d worked full-time. If your pay was reduced in this period because of sickness, your final pay will be the pay that you would ve received had you not been off sick. Membership from 1 April 2014 For all membership from 1 April 2014, the scheme is a career average revalued earnings scheme (CARE). This means for each scheme year (April March) you are a member, the pensionable pay you receive for that year is divided by 49 and added to your pension account. Each following year of membership builds up the same way and is added to your pension account. Whilst you re an active member, to make sure your pension account keeps up with the cost of living, your pension is increased each year by a Treasury Revaluation Order. Page 4 of 16
Pay used for service after 31 March 2014 For membership built up after to 31 March 2014 in the CARE scheme, the 2014 definition of pensionable pay includes: Normal pay Overtime and additional hours Shift allowance Bonus Maternity pay, paternity pay, adoption pay, Any other taxable benefit specified in your contract as being pensionable If your pay was reduced in this period because of sickness, your pensionable/care pay will be the pay that you would ve received had you not been off sick. Please remember Your final salary pay and CARE pay is provided by your employer. If this is found to be wrong after your benefits have been brought into payment, they will need to be worked out again and changes made retrospectively. You should check your pension breakdown carefully and let us know if you think the information is wrong, so we can contact your employer. Retiring early and drawing immediate benefits If you re retiring before your normal pension age, your benefits will normally be reduced because they are being paid early and will be in payment for longer. The early retirement reduction table shown below is used to work out how much your reduction would be. It s based on guidance from the Secretary of State. Where the number of years is not exact, we adjust the reduction percentages accordingly. Reduction table (table issued 8 January 2019) Pension Reduction Retirement Grant Reduction % Years Early Males Females All Members 0 0.0% 0.0% 0.0% 1 5.1% 5.1% 2.3% 2 9.9% 9.9% 4.6% 3 14.3% 14.3% 6.9% 4 18.4% 18.4% 9.1% 5 22.2% 22.2% 11.2% 6 25.7% 25.7% 13.3% 7 29.0% 29.0% 15.3% 8 32.1% 32.1% 17.3% 9 35.0% 35.0% 19.2% 10 37.7% 37.7% 21.1% 11 41.6% 41.6% N/A 12 44.0% 44.0% N/A 13 46.3% 46.3% N/A Page 5 of 16
Section 3 - Retirement form 1 This guide will now take you through the retirement forms included in your retirement pack. Retirement form 1 asks for your personal and bank details to make sure we have everything we need to pay your pension into your bank account. 1. 2. 3. 1. Please give us your email address in the box shown on the form so you will be able to view your payslips online. We ll also keep you updated during your retirement with pensions news and events. Your email address won t be shared with any other organisation unless it s to carry out an administrative function of the fund. 2. Please confirm your marital status and include your birth certificate, your spouse s birth certificate (if applicable) and your marriage or civil registration certificate (if applicable) or decree absolute if you are divorced. We can only accept original certificates. If we ve already seen your certificates, we ll show this on your form. Please make sure you read this disclaimer about your method of delivery. We ll return your certificates in the same way you send them in and take no responsibility for certificates that get lost in first or second-class post. 3. Please fill in the bank details form and remember to include your eight-digit account number and six-digit sort code. If a building society, please include your roll reference. Page 6 of 16
4. 4. You ve the option to give up some of your annual pension to give yourself (or increase) a lump sum. This is called commutation in the regulations. In line with the regulation, you can give up pension for lump sum at the ratio of 1 to 12. This means that for every 1 of annual pension you give up you ll receive 12 of lump sum. The letter accompanying this booklet will show you the maximum amount of pension you can give up. You can give up any amount up to the maximum figure shown on your breakdown sheet. Please note, if you decide to give up some of your annual pension to increase your lump sum, you are permanently reducing your annual pension. However, any spouse s or partner s benefit that may be due after you retire won t be reduced. Any lump sum taken within HMRC limits is tax free. Page 7 of 16
Section 4 - Retirement form 2 Retirement form 2 asks you to confirm what pension benefits you already have in payment. It also asks about what you want to do with your pension lump sum, in case you are planning to reinvest this money as there could be tax issues which we need to make you aware of. 1. 2. 3. 1. This form asks you to give us details of pension benefits from other providers. This is because HMRC restricts pension benefits to a certain amount, known as the lifetime allowance, before a tax charge becomes due (other than income tax). The lifetime allowance from April 2018 is 1.03 million. Your pension benefits from us will count towards your lifetime allowance and the percentage used will be shown in your retirement letter. If this percentage, together with any other pension benefits doesn t exceed 100%, no additional tax charge is due. 2. Don t forget to fill in the overseas transfer section by selecting either the yes or no option. 3. When you take your benefits, in addition to your pension you may also receive a lump sum. This is sometimes referred to by HMRC as a Pension Commencement Lump Sum or PCLS. If you intend to use part, or all your lump sum to fund additional contributions to this pension scheme, or to any other pension arrangement, this is known as recycling and special tax rules Page 8 of 16
4. may apply. If you break the recycling rules you will have to pay a tax charge of between 40% and 55% of the value of your lump sum. Please make sure you are aware of pension recycling rules. Pension recycling applies to all lump sums paid on or after 6 April 2006 and where those lump sums are used to increase pension contributions, regardless of when the contributions are paid. The recycling rule applies when all the following conditions are met: 1. You receive a lump sum (HMRC call this this PCLS) 2. Because of the lump sum, the amount of contributions paid into another registered pension scheme is significantly greater than it otherwise would be. 3. The additional contributions are made by yourself or by someone else, such as your employer. 4. The recycling was pre-planned. 5. The amount of lump sum, taken together with any other such lump sums taken in the previous 12 month period, exceeds: 7,500 for events on or after 6 April 2015, or 1% of the standard lifetime allowance for events before 6 April 2015 6. The total amount of the additional contributions is more than 30% of your lump sum. If you think these rules affect you then you should contact HMRC. 4. Under HMRC rules you must fill in the declaration on the back of retirement form 2 to confirm your total benefits from all your different pensions. Your benefits from the LGPS cannot be paid until this form is filled in and returned. Don t Forget You must tell us about all benefits, such as personal pensions, stakeholder pensions, free standing AVCs, and occupational pensions (including other local government pensions) which are in payment on or before your retirement date. You don t need to include your State Pension, Pension Credit or any dependents benefits following a death (such as a spouse s, civil partner s or dependant s pension). Don t include benefits that are due after the retirement date shown in your letter, as these benefits will be tested against the lifetime allowance at the time they are taken. Page 9 of 16
Section 5 - Retirement form 3 and trivial commutation Trivial commutation is where a small pension benefit can be paid as a lump sum. The trivial commutation option will only be given to you if we think you might meet the criteria. If this applies to you, you will have been given a copy of retirement form 3. If you don t have a copy of this form, please go straight to section 6. How do I know if I can take all my pension as a one-off lump sum? The trivial commutation rules which must be met to take your pension as a one-off lump sum are: You must be at least age 55, or age 60 in the case of a woman with a Guaranteed Minimum Pension (GMP), or age 65 in the case of a man with a GMP, with no upper age limit. You must add all your benefit values, of all pension arrangements including company pensions/personal pensions/stakeholder pensions/ retirement annuities/buy-out plans (but not State Pension), together and if they don t exceed in total 30,000, trivial commutation may be possible. All the benefits in the LGPS must be extinguished including all benefits from other LGPS funds. You don t have to commute all your pension arrangements if you have other pensions. You can commute some and leave others to provide you with retirement income. All transactions must take place within 12 months of the first one. What are my options in the LGPS? In the LGPS, it may be possible for you to take a lump sum under the de minimis rules even if the trivial commutation rules described above haven t been met. However, this option isn t available if you re receiving payment of deferred pension benefits because of leaving the LGPS before 1 April 2008. The de minimis rules are: You must be 55 or over or GMP age You must not be a controlling director of the sponsoring employer The payment must not exceed 10,000 The payment extinguishes your right to benefits under the scheme There must not have been a transfer-out of the scheme in the three years preceding the date of payment If these rules are met we ll pay your benefits built up in our fund as a lump sum, unless a formal request is made by you outlining any exceptional circumstances which should be considered. Will the trivial commutation lump sum be taxed? The lump sum paid will be considered as income for tax purposes. The first 25% of the lump sum payment will be tax free and the remaining 75% will be taxed. Unless you re giving up a pension in payment, in which case the whole lump sum is taxed. Instructions from HMRC mean the tax is taken at source and you are paid the remaining balance. To read more about trivial commutation and small pension pots visit HMRC s website; www.gov.uk/hmrc. The Pensions Advisory Service website, www.pensionadvisoryservice.org.uk, also has some useful information. Page 10 of 16
The total value of your Shropshire County Pension Fund (SCPF) pension is: 20 x your annual pension plus your lump sum (if any) plus your in-house AVC fund (if any). 1. 1. Before we can confirm if your benefits fall under the trivial commutation limit, we need information about other pensions you may have that aren t yet in payment. This is because, while your SCPF benefits may be below the HMRC limit, when your other pension benefits are also included you may be over the limit. It s our policy to trivially commute all pensions that fall below the HMRC limits. (Please turn over the page to see the back of this form and point 2.) 2. In our letter we would give you at least two trivial commutation options: A) Uncrystallised pension benefits: Which means that instead of paying you a lump sum, if applicable, and then the commutation of your pension benefits, all your pension and lump sum are used to calculate the one-off payment. 25% of this figure is tax free and the remainder is taxable. If you wish to take this option, please tick I do not wish to commute any of my annual pension on form 1 and tick uncrystallised pension on form 3. B) Standard lump sum: If you wish to take your standard lump sum (which is tax free) and then commute your pension into a one-off lump sum, please tick I do not wish to commute any of my annual pension on form 1 and tick option 2 on form 3. Page 11 of 16
2. A B C C) Maximum lump sum: If you wish to take the maximum lump sum and then commute your annual pension into a one off taxable lump sum, please tick I wish to commute the maximum annual pension allowed to increase my retirement grant on form 1 and tick option 3 on form 3. Section 6 - Benefits from additional contributions If you have bought additional benefits in the LGPS you will need to take these benefits at retirement. How these benefits can be used at retirement depends on if you were paying: Additional voluntary contributions (AVCs) Additional pension contributions (APCs) Added years Additional regular contributions (ARCs) Additional voluntary contributions (AVCs) Your contributions will stop on retirement and you have a choice of how to use your AVC fund. The options are: 1. Buy an annuity 2. Buy an annuity from the LGPS 3. Buy extra membership in the LGPS 4. Take your AVC fund as cash Please see your letter for which options apply to you. Page 12 of 16
If you are buying added years in the LGPS Any contributions you re still making towards added years will stop on retirement. If you ve bought added years, you ll be given the extra membership you ve paid for when you leave. This will increase the value of your retirement benefits. Each year of membership bought will count as 1/80th of your final salary pay for your annual pension and 3/80ths for working out your lump sum. This is unless you first joined the scheme aged 45 or over, where each year counts at 1/60th for pension with no lump sum. Additional regular contributions (ARCs) If you re still making contributions, these will stop on retirement and you will be given the extra pension you ve paid for. This will increase the value of your benefits. You have the option to give up part of your pension for a lump sum, within HMRC limits. If you ve retired on ill health, the purchase of additional pension is treated as though paid in full. If you ve left employment for any other reason, without completing the purchase, you ll be given the amount of pension purchased. This is worked out as the overall cost divided by the contributions you have made. Your additional pension will also be affected by any early payment reductions. Additional pension contributions (APCs) If you ve bought or are buying extra pension by paying APCs, your contributions will stop on retirement. You will be given the extra pension you ve paid for. This will increase the value of your benefits. If you ve left your employment for any other reason, you ll be given the amount of pension bought. Your additional pension will also be affected by any early payment reductions. Section 7 - What happens next? Once your completed forms have been received and if your payment date/leave date has passed, we ll process your pension benefits and send a letter confirming your annual pension and the payment date of your lump sum, if applicable. This letter should be sent within five working days after receiving your completed forms and other necessary information. If your payment/leave date has not passed, an acknowledgement letter will be sent confirming that the forms have been received but we won t be processing the benefits until closer to the payment due date. If all the forms aren t returned, or have been filled in incorrectly, this may delay payment of your benefits. A final letter will be sent out confirming your payroll number, the date of your first pension payment and how to access your payslips/p60s online. More information can be found in frequently asked questions. Section 8 - Pensions increase Public service pensions such as the LGPS are adjusted annually in line with the Consumer Price Index (CPI) to keep up with the cost of living. Every April we will tell you if any increase has been applied as set by the Pensions Increase Act. You will also get an InTouch magazine, your April payslip and your P60. The annual pensions increase is normally only paid if you are aged 55 or over, except if you have retired on ill-health. Page 13 of 16
Section 9 - State Pension Along with your LGPS benefits, you may also get a State Pension paid by the Government from your State Pension age. The pension is based on the National Insurance contributions you have paid, or have been given as credits, during your working life. More information on your state pension is available from the State Pension Agency, Tel: 0345 606 0265 www.gov.uk/calculate-state-pension Section 10 - Frequently asked questions When will my pension be paid? Your pension will be paid on the 29th of every month (or earlier if the 29th is a Saturday, Sunday or bank holiday). Payment may also be made slightly earlier in December prior to Christmas. All the current pay dates are listed on our website. We will make each monthly pension payment direct to your bank or building society account. When you fill in retirement form 1, remember to tell us which account you want us to pay your pension into. This is very important. When will I receive my first pension payment? When we have all the information we need from you and your employer, we ll do our best to start paying your pension from the next available pay date. We ll also pay your lump sum (if you have one), once your forms have been received and checked that they have been filled in correctly. Will I receive a payslip? We won t send you a paper payslip unless your net pay (the amount that gets paid into your bank) either goes up or down by 20 or more from the previous month. This means you ll be told when your pension payment has changed. You ll also get a paper copy of your April payslip along with your P60 and pensions increase notice. You can view your monthly payslips online, by logging into a secure area on our website. Please visit www.shropshirecountypensionfund.co.uk Will I pay tax on my benefits? Your lump sum is tax-free (in line with current HMRC rules). However, like most types of income, you may have to pay tax on your monthly pension. If you have a P45 from your employer, from your retirement, please forward this to us. Your pension will be taxed using an emergency tax code until the tax office tells us the correct tax code to use. If you want to know more about the tax you will pay, get in touch with HMRC. Contact details can be found in section 13. What if I change my address or bank details? Please let us know if you move to a new house or want us to pay your pension into a different account. You can provide this information in writing or by signing into your online pension account. Remember, payroll is completed in the middle of the month, so please tell us as soon as you can. If we receive returned post from your home address, we may decide to suspend your pension payment until confirmation of your new address has been received. Page 14 of 16
What if I decide to live abroad? If you are thinking of moving abroad, contact us in good time so we can discuss the options with you and make the necessary arrangements. What if I get another job after I retire? If you get another job there will be no change to your pension. It will continue to be paid under current fund policy. What happens to my benefits if I pass away? In the event of your death after retirement, a spouse, civil partner or nominated cohabiting partner s pension and children s pension to any eligible children, will be payable. A death grant lump sum may also be due, the amount of which is based on when you left the scheme and your date of death. If you had an AVC plan and used this to purchase additional pension in the scheme for yourself, survivor s benefits will also be payable in the event of your death from these additional benefits. Where can I get financial advice from? Your retirement can mean making important decisions including financial ones. We are not authorised under the Financial Services Act to give you advice. If you wish to receive independent advice you may wish to talk to a registered independent financial adviser or an organisation such as the Citizen Advice Bureau. You will need to meet the cost of any charges made for the advice. Section 11 - Dispute procedure In accordance with Regulation 74 of the Local Government Pension Scheme Regulations 2013 (as amended), we must tell you that if you are unhappy with any decision about your rights or liabilities under the scheme, you may make an appeal application to the body responsible for the decision; either your employer or the Administering Authority. This is called a 1st stage appeal, and it must be made within six months of the event. We would suggest that you go to the pensions team initially with any matter with which you are not in agreement before considering the appeal process. Standard forms and guidelines on the appeal process can be found on our website, or you can ask for a copy by calling 01743 252130. After you have been through the 1st stage, if you are still dissatisfied you may apply for a reconsideration using the 2nd stage to: Claire Porter: Head of Legal Services Shropshire Council, Shirehall, Abbey Foregate, Shrewsbury SY2 6ND. The Pensions Ombudsman is available to investigate and determine complaints or disputes of facts or law. Contact details can be found under useful information and organisations. Section 12 - Communications InTouch Twice a year the scheme sends out a newsletter to retired members called InTouch. The newsletter features updates from us, including articles from the Pensions Manager and member representatives on the Pensions Committee and Pensions Board. If you have something of interest you wish to contribute please send it to us. Page 15 of 16
Annual meeting An annual meeting is held to update members of the fund. Topics covered include investments, financial performance and administration of the scheme. The annual meeting is open to active, deferred and retired members to attend. Section 13 - Useful information and organisations State Pension Any queries about the State Pension should be addressed directly to the DWP. www.gov.uk Tel: 0800 731 7898 Pension Credit www.gov.uk Tel: 0800 731 0469 Tax Office If you receive a tax notice from the Tax Office, please ensure that this corresponds to the tax code shown on your pay slip. If you have a query regarding your tax code, you should contact the Tax Office: Tel: 0300 200 3300 International Tel: 0044 135 535 9022 Prudential Prudential, Lancing BN15 8GB www.pru.co.uk Tel: 0800 000 000 Citizens Advice www.citizensadvice.org.uk Tel: 03444 111 444 Age UK www.ageuk.org.uk Tel: 0800 169 2081 The Pensions Regulator Napier House, Trafalgar Place, Brighton, BN1 4DW www.thepensionsregulator.gov.uk Tel: 0345 600 7060 The Pension Tracing Service The Pension Service 9, Mail Handling Site A, Wolverhampton, WV98 1LU www.gov.uk/find-lost-pension Tel: 0800 731 0193 Pensions Ombudsman 10, South Colonnade, Canary Wharf, E14 4PU www.pensions-ombudsman.org.uk Tel: 0800 917 4487 The Pensions Advisory Service (TPAS) 11 Belgrave Road, London, SW1V 1RB www.pensionsadvisoryservice.org.uk Tel: 0800 011 3797 You can come and see us in person at: Section 14 - Contact information Shropshire County Pension Fund The Shirehall, Abbey Foregate, Shrewsbury, SY2 6ND Office hours are: Monday - Thursday 8.45am to 5pm Friday 8.45am to 4pm Help Desk 01743 252130 Email pensions@shropshire.gov.uk Website www.shropshirecountypensionfund.co.uk We run a drop-in service on Monday to Thursday office hours Page 16 of 16