Broad agreement reached between unions and Government over scheme reform - January 2012

Following recent negotiations between Government, Local Government Group and Trades Unions it appears that a broad level agreement has been reached for future scheme reform. There will now be a one stage reform process rather than the previous proposal which was to consider short and long term reforms. Details of the agreement can be found on the Local Government Association website but the long term reforms will now be introduced in 2014 (a year earlier than expected) and the planned employee increase in April 2012 appears unlikely.

Key elements of longer term scheme reform still include a move to a career average scheme, with a retirement age in line with the state pension age. A list of question and answers (PDF 37KB - opens new window) has been developed for the new scheme including a definition of career average scheme, also known as CARE.

As more information becomes available this website will be updated.

Consultation on increases to employee contribution rates from April 2012 and a change to the benefit structure released by CLG (Communities and Local Government) - October 2011

Following discussions with the Local Government Association and Trades Unions the Government issued a consultation document on Friday 7th October 2011 outlining plans to achieve the £900m of savings required from the LGPS by 2015 via a combination of increasing employee contribution rates and changing the accrual rate i.e the rate at which pension is built up in the LGPS.

Government had previously suggested that a straight increase of 3% on employee contributions was not appropriate for the LGPS since it is a funded scheme and that alternatives were being sought. The alternatives being consulted on raise half the required savings from a smaller increase in employee contributions, and the remainder from a small reduction in the rate at which pension is built up.

The consultation closes on 6th January 2012 and all members will be informed of the outcome.

A number of options are contained within the consultation document but the thrust is that any proposed increases in contribution rates should protect low earners and be progressive, so that high earners pay proportionally higher increases to reflect their more generous pensions. There is also the possibility using the savings to alter the rate the employers pay prior to the 2013 valuation. Please continue to monitor the LPFA website for developments.

A separate consultation on the longer term scheme design will follow.

Please note that the following documents communicate proposals only and a decision regarding changes to the LGPS will be made in January 2012. Upon receiving the decision all members will be informed.

• Key Points on Proposed LGPS Reform of Public Sector Pensions (PDF257KB)
• Detailed Update on Proposed LGPS Reform of Public Sector Pensions (PDF 372KB)

LG Group submits pension proposals to Secretary of State - September 2011

On 20 July 2011 the Secretary of State for Communities and Local Government wrote (PDF 787KB - opens new window) to the Local Government Group inviting it to conduct discussions with the local government trade unions with a view to establishing a package of measures to secure short term savings by 2014/15, equivalent to a 3.2% increase in employee contribution rates, with any necessary legislation to be in place by 1 April 2012. The package could include alternative ways to deliver some or all of the savings, whilst providing protections from contribution increases for the lower paid.

The LG Group has been in discussions with the trade unions since then.

The Secretary of State’s letter of 20 July 2011 initially required the Group to provide him with an update on the outcome of the discussions by 9 September but a short extension to this deadline was subsequently allowed. However, despite constructive discussions with the trade unions, it has not so far been possible to reach agreement on a joint proposal to put to the Secretary of State.

The LG Group has therefore written a letter (PDF 239KB - opens new window) to the Secretary of State (on 21 September 2011) with backing papers (PDF 315KB - opens new window) setting out the Group’s proposals on how the required 3.2% savings can be achieved in a way which is fair to employees and affordable for the taxpayer (as an alternative to the level of increases in contributions that DCLG might otherwise come forward with).

The key elements of the LG Group proposals are:

• no increase in employee contributions for staff with full-time equivalent earnings of less than £15,000, a moderate increase for those earning between £15,000 and £21,000 of 1.5% and an increase of between 2% and 2.5% for those earning over £21,000
• choice for employees, by giving those with full-time equivalent earnings of £15,000 or more who feel they cannot afford an increase in contributions the option of taking a reduced pension accrual rate instead for future service from April 2014. Any employees with full-time equivalent earnings of less than £15,000 who may be finding it difficult to meet the current level of contribution would have the option of taking a reduction in their contribution rate but would, as a result, have a reduced pension accrual rate for future service from April 2014.
• Some examples (PDF 10KB - opens new window) of the effect the choice has on individuals have been prepared.
• raising the normal pension age from 65 to 66 for benefits built up from April 2014. Benefits built up prior to then would retain a normal pension age of 65.

Unlike the other major public service pension schemes, the LGPS is a funded pension scheme backed up by assets and investments. This means that the LG Group has been able to come forward with a proposal which delivers the required level of savings whilst minimising the impact on the lower paid and giving choice to individuals.

We understand that the Secretary of State will issue a statutory consultation document towards the end of September setting out the DCLG proposals for how the 3.2% savings could be met. We would hope that consultation paper will make some reference to the LG Group proposals and it is our intention to continue discussions with the trade unions.

LPFA Green Paper: “A New LGPS by 2015: Reality or Aspiration?”- September 2011

The LPFA have published a Green Paper: “A New LGPS by 2015: Reality or Aspiration?” (PDF 135KB - opens new window) setting out detailed proposals to the Department of Communities and Local Government for a new LGPS together with proposals intended to better enable an implementation date of 2015.

Government consultation on Fair Deal policy - July 2011

LPFA has submitted a response to the Fair Deal Consultation (PDF 115KB - opens new window) – the ability for staff being outsourced to retain comparable pension arrangements.

Whilst the LPFA fund would not currently be hugely impacted by the abolition of Fair Deal, the LGPS as a whole could be – with the need to sell assets to pay pensions earlier than expected if contributor membership levels are reduced. LPFA has therefore responded recommending the retention of Fair Deal.

LGPS reform - 3% contribution increase - alternatives are being sought - July 2011

On 19th July 2011 the Government issued a written statement on public service pensions (PDF 66KB - opens new window) . The statement outlines progress being made with trade union discussions over pension reform and discussions over the proposed 3% increase in employee contributions. The Government had already committed to retaining a defined benefit scheme and to protect benefits accrued up to the point the new scheme is introduced. This statement also confirms that consultation on a new scheme will take place in the Autumn with the implementation likely in 2015. Discussions will continue on a scheme by scheme basis and this is an acknowledgement by Government of the difference between funded schemes like the LGPS and unfunded schemes.

Please keep an eye on the LPFA's website and newsletters for further information as and when developments occur. LPFA has released a press release on the subject (Word - 28KB).

Review of public sector pensions (Hutton's final report) - March 2011

Lord Hutton's final report on Public Sector Pensions was published on 10th March 2011 and LPFA has issued the following press release in response to it.

A summary of Hutton's recommendations and related implications has been prepared by LPFA but please see the HM Tresury website for the full report .

Please note these are recommendations only at this stage and the Government will announce how these will be turned into policy or a new Local Government Pension Scheme.

A dedicated site covering the Hutton review can be found at www.affordable-lgps.org.uk

Once scheme changes have been clarified, LPFA's communications drive will commence, and all members will be informed of the changes.

LPFA Fund Member Forum 2011

The LPFA Fund Member Forum 2011 took place at the Southbank Centre on Tuesday 6th September.

The following presentations were made by Mike Taylor, LPFA Chief Executive, and guest speaker Phillip Coggan, from The Economist:

Fund Member Froum 2011 Presenation slides (Powerpoint 1.6MB - link opens new window)

Pension Paydays 2011/12

The pay dates for pensions are available for the period April 2011 to March 2012.

View pension paydays (PDF 142KB - opens new window).

Aggregation of previous local government scheme membership October 2011 cut off date

Where a deferred member becomes an active scheme member in local government employment he may, by giving notice in writing, choose to have his membership in any former local government employment aggregated with his membership in the new employment. However, such and election must generally be made within 12 months of the date on which he became an active member in the new employment.

By an amendment to the scheme regulations, effective from 30 September 2010, a twelve month window was made available for any active member to aggregate membership where they had previously turned down the opportunity to aggregate or which under former regulations they were previously prohibited from aggregating. Once 30 September 2011 has passed no new options outside the usual 12 month limit from re-entry to local government employment can be accepted without employer consent.

The benefits of aggregation (bringing all of your previous LGPS membership into your current fund) will depend on a number of factors including your pensionable pay. Information on the factors that a member needs to take into account is available in the document ‘Options if you have previous LGPS benefits' (PDF 461KB - opens new window) .

Pensions Increase 2011

We have recently received confirmation that the Pensions Increase to be applied on 11th April 2011 to all pensions in that have been in payment or deferred for at least 12 months, will be 3.1%.

As previously reported, in his Budget of 22nd June 2010, the Chancellor announced the intention to move the revaluation of public service pensions from the Retail Price Index (RPI) to the Consumer Price Index (CPI). HM Treasury have confirmed that the figure of 3.1% is taken from the CPI as at September 2010.

Further details can be found on the HM Treasury website.

Annual Allowance

The amount the value of your pension is allowed to grow in a single year has been significantly reduced from 2011.

If the value of your pension pot grows by greater than £50,000 in any single tax year you could be liable for a tax charge, however you can carry forward any unused allowance from the previous 3 tax years.

The modeller below allows you to calculate the affect of the growth in your pension on an annual basis.

To use the modeller below you need:

• details of your pensionable service to 31 March 2008 (our spreadsheet assumes you have been full time since that date)
• details of your highest tax rate
• alary at end of each tax year since 2008
• details of any AVC’s paid in each tax year since 2008 (if applicable)
• from 2012 you need o enter details of any % pay award (if any) and £ any increment/promotion jump in salary
• finally you will need to assume/estimate/guess the inflation award for future years

Annual Allowance Tax Modeller (MS Excel -36KB)

New Tax rules for 2011

HMRC have now published online guidance on the reduced Annual Allowance (AA) and Lifetime Allowance (LTA), which take effect from April 2011 and April 2012 respectively.

The major changes are:

• A reduction in the Annual Allowance (AA) from £255,000 to £ 50,000 from 1st April 2011
• A reduction in the Lifetime Allowance (LTA) from £1.8m to £ 1.5m from 1st April 2012

This guidance is still pending the actual legislation, the Finance Bill 2011, which is needed to implement the changes that we expect to be confirmed in the 2011 Budget. The budget is expected on 23 March 2011, with the Finance Bill to be published on 31 March 2011.

The HMRC guidance includes features on ‘How does the reduced annual allowance affect me?’ and ‘The Impact of a reduced lifetime allowance on pension savings’ and it can be accessed on the HMRC website.

It should be stressed that, even at their reduced levels, the Annual Allowance (the level of the year on year increase in the value of your pension rights) and Lifetime Allowance (the limit of the total value of all your pension rights at retirement before they attract tax penalties) are likely to apply only to a relatively small number of higher earners. LPFA will be personally contacting those members who our calculations suggest may be affected.

Since the last Treasury documents concerning the proposed new tax rules were posted to Member News, HMRC have consulted on the possible mechanism by which tax will be recovered where a member exceeds their Annual Allowance. Both proposed methods involved recovery of tax by the scheme administrator through a reduction to scheme benefits payable, a reduction that is equivalent to the tax due calculated either year on year or at retirement. The Treasury consultation document and LPFA’s response are appended here.

Summary of changes (PDF 135KB)
Annual Allowance example for defined benefit schemes (PDF 126KB)
Lifetime Allowance (PDF 137KB)