Hymans Robertson LLP is authorised and regulated by the Financial Conduct Authority Ill health early retirements Robbie McInroy Martin Curran February 2016

LGPS (Scotland) ill health benefits Permanently unable to do own job and incapable of immediately working: Tier 1 – The active member of the scheme is expected to never return to work before SPA. They will receive their accrued pension plus 100% of their expected future service as an ‘enhancement’ Tier 2 – The active member of the scheme is expected to be able to work before SPA. They will receive their accrued pension plus 25% of their expected future service as an ‘enhancement’

Ill Health cost challenges – an example Tier 1 ill health pension £20,000 p.a. Strain cost to employer £364,000 Typical employee: 40 years old 15 years service Salary £30,000

Strathclyde Pension Fund experience In the last 5 years around 30% of individual ill-health retirement strain costs in SPF cost over £200k. Recent strain costs: Member AgeSalaryServiceStrain/ Claim 50£12,0009 years£157,000 42£26,00011 years£357,000 44£33,000 2 years£426,000

How ill health strain costs are paid Employer pays towards IHERs via amount built into contribution rate (typically between 2% - 10%)

With LGPS Ill Health Liability Insurance Request for payment in event of valid claim Claim submitted Payment of claim Full and final settlement paid on valid claim Premium paid to L&G and a reduction to the contribution rate applied to reflect this

Advantages: Ill Health Liability Insurance Cost Neutrality – the premium will be offset against your employer contribution rate (1.35%) E.g. if you pay 19.30% this will be reduced to 17.95%. Stabilised contribution rates and balance sheet - as poor ill health experience will be removed Removes potentially catastrophic ill- health early retirements costs Multiple Claims Cover – Insures against the cost of multiple and aggregated claims Free access to L&G ’s 24h Employee Assistance Programme as part of cover

Decision requested on continuing to meet ill health costs as they fall or use of insurance policy to mitigate costs What do employer’s need to do? Based on communication Aug-Nov last year: If you would like to take out an IHLI policy or ask any questions, please get in touch

Any questions? Thank you

Reliance and limitations Hymans Robertson LLP is authorised and regulated by the Financial Conduct Authority and licensed by the Institute and Faculty of Actuaries for a range of investment business activities. The data contained in this document is provided as a source of general information. The information is not to be construed as advice and may be subject to change. No liability for errors of fact or opinions contained herein is accepted.