Guernsey pension proposals for the future pensionable service of current scheme members September 2015

To cover u The story so far and what happens next u Some pension terminology u Proposals for current members

The story so far.. u 2012 proposals - rejected u September 2013 proposals – rejected by RCN members u November /December 2013 variation – rejected by RCN u July 2014 ‘independent mediated proposals’ (with threat of imposition of 2013 proposals) – accepted by RCN members in a ballot. u April 2015 States meeting u July 2015 – improvements on July 2014 and September 2013 proposals. Threat of 2013 imposition if rejected. u ASEO July 2015: ‘In response, a majority of unions representing a substantial majority of members are now prepared to recommend this to their members’. u RCN believes that the current proposals are the best that can be achieved through negotiation and recommend them to members on that basis.

If July 2015 proposal rejected by members? u States will ask the Royal Court to allow them to change the employee pension arrangements and impose a new scheme on current members. If successful …. u The scheme imposed would be that consulted on in September 2013 – not the proposals we discuss today. u September 2013 proposals are ‘live’ i.e. already in place for new scheme entrants

September 2013 proposals – for future service u CARE u Everyone moves to the new scheme u 1/80 plus 3/80 lump sum (1/64 th ) u NPA=SPA u Employee contributions 7.5% u Employer contribution ceiling of 14% u Those within 10 years (and at least age 45 at 31/12/2013) of Normal Pension Age (NPA) keep NPA only in new scheme – no other protection u No ‘flexibilities’

Some terminology Defined Benefit (DB) / Defined Contribution (DC) CARE Accrual Lump sum Indexation Normal Pension Age (NPA) / State Pension Age (SPA) Commutation

‘Transitional arrangements’ Staff who on December 31 st 2013 were within ten years of their NPA will remain in their current scheme and not move to the new arrangements. They will pay the new contribution rate of 7% Option to move to the new arrangements should they wish All other staff will move to the new arrangements on January for future pension benefits. Service built up to January is fully protected on a final salary basis and linked to your current NPA. The final salary at actual retirement will be used to calculate pre-2016 benefits Service to 2016 can be taken in full at current NPA but employee will need to retire from States employment.

Transitional examples – age at 31/12/13 - will remain in current arrangements Normal Pension Age (NPA) 5545 or older on 31/12/13 NPA 6050 or older on 31/12/13 NPA 6555 or older on 31/12/13

Proposed arrangements from January For future pension benefits of current scheme members built up after January Career Average - CARE with 1/56 th accrual - optional lump sum (commutation £12-£1) No ‘cap’ on pensionable service Employee contribution 7% / Employer contribution 14.2% Pension age equal to state pension age Nurses and MHOs who currently have a NPA below 60 will have an NPA of 60 if they remain in service until at least age 55 Inflation (in service, in deferment and in retirement): rises at Guernsey RPIX – If above 7.5% dependent upon scheme ability to pay (affordability) Pensionable earnings / contributions above £87,434 will be in a DC scheme

Comparison –current and proposed Current arrangements u Final salary – defined benefit u NPA 60 (pre-2008) or 65 u Accrual 1/80 and 3/80 (pre 2008 = 1/64th) or 1/60 (with optional lump sum) u Contribution 6.5% July 2015 (future service only) u CARE defined benefit u NPA=SPA but only to age set now u Accrual 1/56 th (optional lump sum) u Contributions 7% u Increases RPIX to 7.5% above subject to scheme affordability u For those who on 31/12/2013 they will have full transitional protection i.e. remain in their current final salary arrangements u Option to opt out or reduce benefits after 35 years u Purchase DB/DC benefits u Early retirement ‘buy out’

Comparison – accepted by RCN and proposed 2015 July 2014 accepted by RCN members u CARE defined benefit u NPA=SPA u Accrual 1/80 and 3/80 th lump sum (1/64 th ) u Contributions 6% u Increase RPIX u ‘transitional arrangements ‘ for those within 10 years of NPA – remain in final salary u Additional pension in DC section u Cost sharing arrangements July 2015 proposal (future service) u CARE defined benefit u NPA=SPA but only to age set now u Accrual 1/56 th (optional lump sum) u Contributions 7% u Increases RPIX to 7.5% u For those who on 31/12/2013 they will have full transitional protection i.e. remain in their current final salary arrangements u Option to opt out or reduce benefits after 35 years u Purchase DB/DC benefits u Early retirement ‘buy out’

Working Longer u No increases in SPA/NPA not already agreed by the States will apply to current scheme members. Members will have a SPA/NPA that will not change in future. u Working Longer Review to be established (like UK Health). u If unable to continue in role…….. u “In relation to CARE scheme service, members of the scheme within 5 years of NPA who become unable to carry out their existing duties for reasons other than those linked to ill health will have access to an employer initiated early retirement process (EIERP) for age related capability issues. This entails the employer making all reasonable efforts to find suitable alternative employment. If no suitable alternative employment is available as indicated by completion of the EIERP the employee will be given access to an immediate payment of benefits based on actual service”. u Otherwise pension can still be taken before SPA but may suffer a reduction

Indexation - If RPIX >7.5% Benefits already earned or pensions in receipt need to keep pace with a measure of inflation In-service benefits built up, pension payments and deferred pension benefits (non-active scheme members) will be based on increases in RPIX If RPIX> than 7.5% - will be paid if it is affordable within the scheme

Flexible options u Purchase additional pension in CARE (DB) or DC section u Purchase early retirement actuarial buy out u Compulsory nature of scheme ceases at 35 years service – can continue, can leave or can continue purchasing reduced (50%) benefits. u ‘Phased retirement’ continues to apply but now at 20% and not 25% reduction

Rises in Guernsey SPA u For those joined before January2016 all future benefits will be linked to current approved Guernsey SPA 70 by u No increases in NPA not already agreed by the States will apply. Members will have a NPA that will not change in future. u Your state pension age is only relevant for service after 2016

DC where pensionable pay is above £87,434 u Contributions on excess pensionable pay above £87,434 - Civil Service grade SO6 u Employee contribution – 7% u Employer contribution 12% (at present) u DC arrangement open to all to purchase additional pension benefits u Choice of investment funds

On retirement u If you have service - Pre and post 2016 and retire after 2016 but before your SPA your pension will be built up as follows; u Service to 2016 at your current accrual and at your normal pension age calculated using your final salary at actual retirement – plus any service after 2016 on a CARE basis and reduced for taking it before your SPA

Fixed cost ceiling (‘cap and share’) A form of ‘risk-share’ arrangement – now common Employer will always pay a minimum equal to the employee contribution rate Employer fixed ceiling (cap) of 14.5% of pensionable pay – includes future service costs, past service costs (of the new scheme) relating to active members living longer Floor to employer contribution of 10.5% All other past service costs including reduced investment return will be met by the employer (STATES) ‘Cap and Share’ not implemented until 2 nd valuation – 2019

Other Issues New ‘Governance arrangements ‘ with employers and TUs represented to manage future arrangements ‘Uniform accrual’ applies for MHOs – no change Death in service lump sum 3x annual pay - unchanged Death in retirement – pension paid for 3 months if death occurs 5 or more years after retirement - unchanged Qualifying spouse / partner / child death benefits - unchanged Transfer Club arrangements retained Commutation of up to 30% of value of benefits (was 25%) - £12-£1 Benefit statements to be issued each May

RCN Consultation with members u ASEO July 2015: ‘In response, a majority of unions representing a substantial majority of members are now prepared to recommend this to their members’. u RCN believes this is the best that can be achieved through negotiation u Member meetings u Letter to members u FAQs u Information provided by employer u RCN individual member ballot closes September 25 th u Questions?