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Graham Curling PENSIONS Auto enrolment LGPS TPS Lifetime/annual allowance State pension NI changes

. This is important information for you to be aware of Speak to an independent pensions adviser for specific individual queries

1 Auto Enrolment Staging Date 1 st January Everyone should have received a letter back in November outlining how they were going to be affected Further letter in January but in essence…….

Auto Enrolment All new starters have to be enrolled into a pension scheme – WYPF/TPS (Contractual) and then if met a criteria (Auto Enrolled) If you are not in a pension scheme then the College must enrol you in If you choose to opt out by law you will be auto enrolled again on the 3 year anniversary of your opt out

Auto Enrolment Any staff not in a pension scheme on the College’s auto enrolment date by law have to be enrolled into a scheme Illegal for the College to promote opt out, but staff can still choose to opt out of a scheme if they so wish. Will have to get the forms from the pension providers web site and cannot be pre dated.

Auto Enrolment Auto Enrolment Criteria: earn over £9,440 a year*; are aged 22 or over; and are under State Pension age.

. Auto Enrolment * However cash value is calculated monthly so if earnings in a month including additional hours go over £786 this criteria is deemed to be met. This includes additional hours or overtime. Current level is in line with the tax threshold and therefore may increase in April to £10,000 or £ per month………

. Auto Enrolment Having to change some working practices – More than 1 role then you will receive a contract for each role – Enrolled into a pension scheme for each role – Could therefore be a member of both TPS and LGPS

. West Yorkshire Pension Fund (LGPS) (with thanks to the fund)

Currently……. 1 st April 2008 to 31 st March /60 th accrual rate Prior to /80 th accrual rate Defined Benefit Final Salary scheme Fixed contribution rate determined by full time equivalent pay Normal pension age of 65 Earliest age to claim benefits by choice without employers consent is 60

Career Average Pension What does that mean? RECORDS BUILD UP AS A CASH VALUE IN THE PENSION ACCOUNTS 2014 Scheme

Scheme Design Defined benefit as it is now Career Average scheme not Final Salary 1/49 accrual rate CPI revaluation Normal pension age linked to individual state pension age with the earliest being 65 Earliest age to claim benefits by choice without employers consent is 55 New 50/50 option Everyone will be in the new scheme from 1 April 2014

Benefits Pension Lump sum – £12 for every £1 of pension Death in service is 3 x actual pay Survivors’ benefits is 1/160 accrual (same as now) Ill health provisions are the same Refund period 2 years it is currently 3 months

Benefits cont Your benefits in the current scheme Protected… If you’re 57 or over on 1 April 2014 you get whichever is better… the current scheme or LGPS2014…

Basis of contributions Based on actual pensionable pay Includes non-contractual overtime and additional hours for part-time workers No full time equivalent for part-timers Contributions based on actual earnings

Contribution rates and bands

Example Working hours 18.5/37 Pay for 18.5 hours = £12,500 FTE pay = £25,000 Contribution rate LGPS 2008 = 6.5% Contribution rate LGPS 2014 = 5.5% Pay the same now unless part time or earning £43,001 or more Earning £43,001 or more – Higher rate tax earner

Contributions after tax relief

50 / 50 Option Allows members to stay in or join LGPS when pay is low or in financial difficulty 50% contributions for 50% pension – 1/98th not 1/49th But full death benefits – Death in service – Survivors’ pension Linked to auto-enrolment ‘cycle’ – Automatically brought back in

How Career Average will work Final Salary Membership x Accrual rate x Pensionable pay = Pension Career Average Pension Pension for year 1 x revaluation + Pension for year 2 x revaluation + Pension for year 3 x revaluation + And so on …….

An Example Employee A begins employment on 1 April 2014 (6 years to ‘retirement age’)

Active member pension account 6 years to retirement age. Revaluation = CPI (3% a year assumed) £500 pay increase each year assumed

With 6 years membership working full time with a final salary of £15,000 Under Final salary:- Pension = £1,500 6 years x £15,000/60

2008 v Annual Pension £1, Annual Pension £1,809.42

However If you have a significant increase in your salary over the period of your employment then Final Salary pension could have been higher. Part of the intent behind the scheme design is to remove the impact on all members of people who have significant end career pay increases

Retirement Linked to normal pension age (NPA) Match individual state pension age Minimum of 65 Retire before NPA pensions are reduced Retire after NPA pensions are increased

State Pension Age To check visit service.direct.gov.uk/en/state-pension- age-calculator/home.asp

Early Retirement Adjustment

Teachers Pension Scheme (TPS)

2014 Changes The Government is currently consulting on increases to the employees contribution rates to the TPS Increases relate to the outcomes of Lord Hutton’s interim report on his review of public sector pensions in October Employee contribution increases should be phased in over the three years from April 2012/13 to April 2014/15.

2014 Changes Salary BandContribution rate in Increase (against ) Up to £14,9996.4%0.0% (6.4%) £15,000 to £25,9997.2%0.2% (7.0%) £26,000 to £31,9998.3%0.4% (7.9%) £32,000 to £39,9999.5%0.7% (8.8%) £40,000 to £44,9999.9%0.7% (9.2%) £45,000 to £74, %0.9% (10.1%) £75,000 to £99, %1.0% (10.6%) £100,000 to £150, %1.2% (11.2%)

TPS 2015 Final Regulations consultation ran from 13 th September to 11 th November No outcome of the consultation published as yet So what do we know?

TPS 2015 March 2012 Government announced that the new Teachers’ Pension Scheme (TPS) to be introduced in April 2015.

TPS 2015 Who it affects: Those within 10 years of Normal Pension Age (NPA) on 1 April 2012 will be protected from new scheme changes (other than changes to contribution increases). Members will have an NPA of 65 if they joined the TPS since January If they joined before 1 January 2007 and have continued in pensionable service they will have an NPA of 60.

TPS 2015 People who are more than 10 years but less than 13.5 years away from NPA, will remain in the existing scheme for a limited period after 2015 before commencing in the new scheme. All others will automatically start the new scheme in This will give them a pension in two parts: one based on service to 2015 and one based on service in the new scheme from 2015.

TPS 2015 What’s different: Normal Pension Age will be linked to the ‘State Pension Age’. Members will still be able to retire earlier if they wish, although their pension will be reduced to take account of this. (Similar to LGPS)

TPS 2015 The new scheme is a 'Career Average' scheme which means that from 2015 pension benefits will be based on average pensionable earnings between 2015 and retirement, not on final salary at retirement. For each of these years, the member will accumulate a pension based on 1/57th of their earnings. (Currently 1/60ths). Any benefits accrued up to 2015 will be protected and payable, based on final salary at retirement.

TPS 2015 You will still be able to take a tax free lump sum of up to 25 per cent of the value of your pension fund. (Commutation) You will still be able to purchase Additional Pension to top up your main scheme pension. Ill Health Retirement Provisions continue as do Death in service, Serious Ill Health and Phased Retirement). (However some aspects of the current provision may alter)

TPS 2015 Other Likely Changes From the Consultation – as with LGPS overtime will now be classed as pensionable earnings – The consultation document states “The level of contributions payable will be determined in line with the arrangements for scheme valuations. Those arrangements are yet to be finalised and will be the subject of further regulation before the reformed scheme comes into effect”

TPS 2015 Most up to date information can be found on the Department of Education Website Information should be available on the TPS website when regulations are finalised Information on PORTAL Please check these sources on an on-going basis

Lifetime and Annual Allowances

Both set to reduce from April 2014 Lifetime allowance will be reduced from £1.5m to £1.25m Annual Allowance will be reduced from £50,000 to £40,000

Lifetime Allowance Unlikely to ever impact anyone within the College The LTA is normally only an issue to consider for the very highest earners and, even then, probably only those with significant service which results in a high pension. How the LTA is calculated – Each £1 p.a. of pension coming into payment is valued as £20 against the LTA. Cash sums are taken at face value.

Annual Allowance The AA is the maximum amount that can be paid into (or built up in) an individual’s pension over a Pension Input Period (PIP) and qualify for tax relief. If the total pension saving is greater than the AA then a tax charge is due on the amount in excess of the AA. In a DB scheme such as LGPS and TPS, the pension is calculated using the salary and service as if the member actually retired at the date of calculation (regardless of the fact that the member may not have reached the minimum pension age, usually 55).

Annual Allowance Calculated over a pension input period The pension at the start of the PIP is calculated, then the pension at the end of the PIP. The first figure is increased by CPI and deducted from the final figure to calculate how much the member’s pension has increased over the PIP.

Annual Allowance Each £1p.a. increase in pension entitlement over the defined “pension input period” (referred to below) has a valuation factor of 16 applied for comparison against the AA. The increase in any lump sum entitlement is taken at face value. This means that from 6 April 2014 pension accrued during a pension input period in excess of £2,500 p.a. (net of CPI inflation) will breach the AA.

Annual Allowance Who does this impact? Possibly no-one but …… Potentially issues where the new member of staff is taking on a role which results in a pay rise as this increases the chances that the individual could breach the AA particularly if they already have significant service in a pension scheme.

Annual Allowance May also affect those – – Taking ill health retirement – Using redundancy payments to enhance pension benefits – One off contributions – Significant additional payments eg honoraria

Annual Allowance There are ways of offsetting tax associated with either (e.g. unused allowance, scheme pays) Pension schemes are required to give you notice before tax applied Bottom line – seek independent financial advice if you receive notification of either being exceeded.

State Pension and NI Changes

Changes ……. Currently if you are a member of the TPS or WYPF you have contracted out from the second state pension you pay a reduced National Insurance contributions rate on your earnings up to the 'upper accrual point'. This is 10.6 per cent instead of the standard rate of 12 per cent ( tax year rates). Employees' contracted-out rebate due to remain 1.4% in 2014/15 but………

Changes ……. The government has proposed to introduce a flat rate (single-tier) State Pension from April 2016 Not yet passed into law but if it does both the employees and employers contracted out rebate will cease as there won’t be a second state pension to contract out of. Possible impact that employee’s NI Contributions will increase by 1.4% and employers by more