Your Pension Welcome to the latest edition of the Local Government Pension Scheme (LGPS) Councillors Newsletter from the Cheshire Pension Fund. This edition of Your Pension is specifically for current Councillor Scheme members and is designed to keep you up to date on the key issues affecting the LGPS and also provide you with additional information about your Annual Benefit Statement. As yet, we have not had any indication from the Government about the implications, if any, for the Councillors Scheme resulting from the current proposals for changing Public Sector Pensions, however we have provided the Government s latest proposals for reform of the LGPS on page 3 of this newsletter. The State Retirement Age is also changing and we have included an update on the proposals for change in this newsletter. We do appreciate, in this unprecedented era of change and proposals for change to the LGPS, that our Scheme Members could become confused by some of the issues, so to help you to keep up to date with the very latest news we have created a new area on our website. Visit our LGPS The Future area at www.cheshirepensionfund.org where there is a dedicated area to keep all scheme members informed on the very latest proposals and consultations. You will also find a questions and answers section covering the most frequent questions that we are asked which we hope will answer any queries you have about your Statement. If you do have any queries or questions about your LGPS benefits which are not answered, please let us know. We also value your feedback as a way of improving our service to you, so please tell us what you think. Our usual contact details are shown on page 06. January 2012 Contents 01 Introduction 02 Frequently Asked Questions 03 Proposed Reform of Public Sector Pension Schemes 04 State Pension Age is Increasing 05 Restricting Tax Relief on Pension Contributions 06 Cheshire Pension Fund At a Glance 06 Contact Cheshire Pension Fund
02 Your Pension How much does my membership cost? Frequently Asked Questions As a Councillor member of the LGPS you pay 6% of your pay into the scheme. This attracts full tax relief if you are a tax payer. Can I be in more than one pension scheme? Yes, your retirement income and pension benefits over and above the basic flat rate state pension will generally be provided by the State Second Pension (S2P), a personal or stakeholder pension plan, or by an occupational scheme such as the LGPS. You can continue to make contributions to other pension savings from your earnings as a Councillor, but you will incur a tax charge if the value of your pension savings increases by more than the annual allowance in any one year, or the value of all your pension savings exceeds the lifetime allowance (see page 05) when you draw them. Please check your tax limits with your independent financial advisor. Can I transfer other pension rights I have into the Scheme? No, the rules of the LGPS do not allow this. Can I pay more? Yes, you can pay up to 50% into an in-house Additional Voluntary Contribution (AVC) plan with Clerical Medical or Standard Life. AVCs are invested separately in funds managed by these companies and you can choose the investment route you want to take. When can I retire? You can retire and receive your LGPS benefits in full once you have attained age 65. The Scheme also makes provisions for the early payment of your LGPS benefits. How are my benefits calculated? Your pension is based on your total membership and your career average pay and is calculated by dividing your career average pay into 80ths and multiplying this figure by your total membership. The formula to work out your annual pension is: Membership x Career Average Pay / 80 The formula to work out your lump sum is: Annual Pension x 3. If you were between ages 60 and 65 on 31 March 2011, the amounts shown on your statement are those we would have paid if you had retired on 31 March 2011 and as such include reductions for early retirement. The closer you are to age 65 when you retire, the smaller these reductions will be. If you retire at or after age 65, we will not reduce your benefits. If you were over age 65 on 31 March 2011 we may have increased your benefits for delayed retirement. The increases apply only to benefits based on membership built up before age 65. So, if you joined the Scheme after age 65, the increases do not apply to you. What is Career Average Pay? Career average pay is your pay for each year or part year ending 31 March adjusted (other than the final years pay) by the Retail Price Index (RPI) between the end of the relevant year and the last day of the month in which your active membership of the Scheme ends. The aggregate of each year's revalued pay is then divided by the total number of years and part years to arrive at the career average. We have included an example here for you. Step 1 Pay figures throughout membership are increased in line with inflation, for all but the final year. Actual Adjusted Pay Pay (Increased by RPI) Year 1: 10,000 10,800 Year 2: 10,300 10,900 Year 3: 10,600 11,000 Year 4: 10,800 11,100 Year 5: 11,200 11,200 Step 2 Add together the adjusted pay figures and the actual year 5 pay figure. Total Adjusted Pay: 55,000 Step 3 Divide by the total number of years (5 in this case) to obtain the career average pay figure. Career Average Pay: 11,000 How are death benefits calculated? The Death in Service Grant is based on twice your career average pay and is payable no matter how long you have been a member of the scheme. A short term pension, at an annual rate equal to your career average pay is also payable to your widow, widower or civil partner for three months immediately following your death. If you have been a member of the scheme for over three months then a long term pension is also payable. Generally this is based on half the pension you would have received had you retired due to ill health at the date of death.
Your Pension 03 Proposed Reform of Public Sector Pension Schemes In this section we bring you up to date with all the latest information on Government proposals for reform of the Local Government Pension Scheme (LGPS). It s important to note that the ongoing consultation makes no reference to the Councillors Scheme so, as yet, we do not know whether it will be subject to any future change or not. Following months of negotiations between the Government and Trade Unions a joint statement has been released and an agreement in principle has been reached that sets out the principles of the new look scheme in addition to a timetable for its introduction in April 2014. Initially the proposals for the scheme identified two areas including the development of a new scheme from April 2015 and a proposal to make short term cost saving of 900m from April 2012. The agreement reached in December 2011 has now rolled the requirements for the short term savings and the longer term reform into a one step process. It is envisaged that this process will allow for scheme regulations by March 2013 with the new scheme to be in place by April 2014. In relation to Local Government specifically, the Chief Secretary to the Treasury, Rt Hon Danny Alexander stated that he had previously made the point that the Local Government Pension Scheme must be treated differently because of its funded nature and therefore further discussions will take place over the next three months. The Local Government Association and the trade unions have, however, agreed that the pension age in the new scheme will be linked to state pension age and that their preference is for a career average scheme. With agreement on the above principles of the scheme the specific detail in relation to accrual rates and contributions will start in early 2012 with agreement on these expected by April 2012. For further information and updates on these discussions please visit our website www.cheshirepensionfund.org and click on the quick link LGPS - The Future.
Your Pension 04 Proposed Changes to the State Pension Age Currently, the State Pension Age (SPA) for men is 65. On 6 April 2010, the SPA for women started to increase gradually from 60 to 65, to match. The Government has also announced its intention to increase the SPA for both men and women to age 66 by October 2020. What will happen to the SPA after this date is currently being considered by the Government but it is likely that further rises will follow. The main reason for this is because on average we are living longer than we were when the State Pension was introduced. Presently, a new born baby boy in England or Wales is expected to live until age 89 and a new born baby girl until age 93. Estimates vary but it is suggested that by 2056 these ages will have increased to 95 and 98 years respectively. We will publish further information about these proposals on our website as soon as they become known. Death Grant Expression of Wish Form As mentioned in the Frequently Asked Questions section, you have lump sum life cover as a member of the LGPS from the moment you join. The cover in question is a one off lump sum equal to twice your career average pay for the year so this could add up to a substantial amount. But whether it s a large or a small amount, you probably shouldn t leave it to chance as to who we will pay. You can fill in a Death Grant Expression of Wish Form to let us know your wishes. You can nominate whoever you like, friends, family, or even an organisation such as your favourite charity. Please note that the Fund has total discretion over who to pay, but generally we will honour your nomination, and will follow it unless we can t, or unless a good case is presented as to why we shouldn t. If you do want to nominate Simply complete the enclosed Expression of Wish Form and return it to us. We will update your record to reflect your wishes. If you don t want to nominate In that case, if you die, we will normally pay the lump sum to your estate, which may suit your circumstances, but please be aware that if you are living with someone, they may miss out under normal inheritance rules.
05 Your Pension Restricting Tax Relief on Pension Contributions Annual Allowance This year the Government introduced changes to tax limits applying to pensions. This limit is called the Annual Allowance and as from April 2011 the allowance was reduced from 255,000 to 50,000. Whilst you are contributing to a pension scheme arrangement you are benefiting from tax relief on the pension savings you build up each year. However as a result of the changes, if your pension grows by more than 50,000 in a year, you may be subject to a tax charge. Each year your pension grows as you gain more membership, but it will also grow if you are awarded a pay rise or you choose to pay more into it through Additional Voluntary Contributions, have chosen to purchase added years or pay additional retirement contributions. Most members will not be affected by an additional tax charge, but those who are must report any breach to HMRC on their self assessment tax return. The Cheshire Pension Fund will confirm in writing to those members who breach the limits and the amount of tax liability due. However, to help members assess if their pension growth will breach the 50,000 limit the home page of our website www.cheshirepensionfund.org has a link to an online pension calculator and factsheet. Alternatively you can contact a member of the pension team to discuss your own personal circumstances (see our contact details on page 06). Lifetime Allowance The Lifetime Allowance (LTA) is the limit on the total value of pension benefits an individual can draw at retirement without incurring a tax charge. The LTA for 2011/12 is 1.8m, but the Government has announced the limit will reduce to 1.5m from April 2012. Within the LGPS this reduction is only likely to impact on very high earners with a significant amount of pension scheme membership. The total value of your LTA is shown on your enclosed Annual Benefit Statement. The Cheshire Pension Fund will contact any members who are affected by a reduction in the LTA.
Your Pension 06 The Cheshire Pension Fund at a glance (2010/11) 2011 Membership Revenue Account Fund Assets Fund Income M Fund Expenditure M Fund Assets M Active Membership 31297 Employer contributions 113.5 Pensions 103.6 Equities 1,733.2 Pensioners 21563 Member contributions 36.0 Lump Sums 23.2 Fixed Income 400.4 Deferred Members 20148 Transfers in 15.4 Transfers Out & Refunds 10.4 Property 179.1 Total 73008 Total Received 164.9 Death Benefits 3.0 Loans 178.2 Administration Expenses 1.9 Private Equity 176.9 Total Paid 142.1 GTAA 66.0 Cash 63.1 Other 7.0 Total 2803.8 Contact Details 01244 976000 pensions@cheshirewestandchester.gov.uk www.cheshirepensionfund.org Cheshire Pension Fund, Cheshire West and Chester Council, HQ, Nicholas Street, Chester CH1 2NP Personal callers with an appointment are welcome to meet a member of staff at our offices in the Forum, which is located behind the Town Hall in Chester City Centre. When contacting the Cheshire Pension Fund please quote your National Insurance Number. Please note that in order to protect your personal data and benefits, we cannot accept changes to personal details over the telephone. The information in this Newsletter can also be provided in large print, audio CD or Braille format. Please contact the Cheshire Pension Fund if you require any assistance.