Police Pensions User Group 16th July 2014

Police Pensions User Group 16th July 2014

Agenda 11.30 Introduction 11.40 Pension Boards 12:15 2015 Scheme 13:00
Lunch 13:30 Single Tier State Pension 14:15 Tax Calculations for High Earners 15:00 Employment Support Allowance 15:15 Any other business 15:30 Close

Police Pension Scheme Governance

Implementing policy Scheme Regulations

Consultation Policy Advice to Responsible Authority Scrutiny

Oversight of administration Requirement to meet with data requirements by 1 April Ability to impose fines

Record keeping Internal controls Member communications IDRP Reporting late payment of contributions Conflicts of interest of Pension Board Members Publish information about Local Pension Board

Assisting the Scheme Manager with: Compliance with legislation Compliance with the requirements of the Pensions Regulator Other matters as the Regulations may specify

Must have equal numbers of employer and member representatives No conflict of interests (scheme manager responsibility) Knowledge and understanding Responsible for whistle blowing

Organisation National Regional Administrator Individual

Questions How many members and who should they be? How do board members obtain sufficient knowledge and understanding? Who will service the board? What are the reporting lines?

Questions What will be scrutinised? What will be reported? What is conflict of interest?

Police pension reform 2015 16th July 2014

Objectives Share information regarding Police Pension Reform
Discuss key issues Get an understanding of client concerns and requirements

Background Hutton (2011) Reform Design Framework (2012)
Home Office Circular 014/2013 (Detail on scheme make up) 2015 Police Pension Scheme Blueprint Volume 1 – The 2015 Scheme. 2015 Police Pension Scheme Blueprint Volume 2 - Transition

What we know Benefits based on Career Average Revalued Earnings (“CARE”) from April 2015 Pre-2015 benefits retain existing calculations and final salary link Normal Pension Age (NPA) of age 60 Accrual Rate of 1/55.3th (weighted for PPS members who would have qualified for double accrual) Fixed 12:1 commutation rate Active membership revalued in line with CPI % Deferred and pensioner benefits revalued with PI Ill-health enhancements in line with NPPS

What we know Not everyone will move to the new scheme !
Existing members Full protection for officers within 10 years of reaching age 55 or 30 years service as at 1st April 2012 Transitional protection to be tapered for 4 years beyond the 10 year protection announced by the Government Taper calculated by reference to Date of Birth / Service

This means Protected officers Tapered officers Unprotected officers
Stay in current Scheme Tapered officers Transfer to 2015 scheme when protection expires Unprotected officers Accrue benefits in 2015 scheme from 1st April

Officer Categories Protected officers
Older than 45 at 1st April 2012 (Both 2006 and 1987 Scheme) Qualifying service of more than 20 years and older than 38 at 1st April 2012 (1987 Scheme) Qualifying service of 15 years and older than 40 at 1st April 2012 (1987 Scheme)

Officer Categories Tapered officers - Four Types
Pure age taper – all members who on 1 April 2012 are aged between 41 and 45 years Age taper scheme members aged under 38 years and with above 20 years service Service taper scheme members aged over 38 years and with less than 20 years service but over 16 years Corner taper 1987 scheme members before age 38 and under 20 years Tapered Members cannot move to the new scheme until tapering ends

CARE Pension Individual pension pot built up for each year of membership Pay/accrual rate Pay = Pensionable pay earned during year Accrual Rate = 1/55.3th Individual pot revalued each year in line with CPI % (while active) Individual pots added together and paid as one pension

Commutation 2015 Scheme Up to 25% of PPS 2015 annual pension can be commuted for a lump sum. (Subject to HMRC tax limits). The pension will be converted at a rate of £1 pension for £12 lump sum 2006 Scheme Automatic lump sum of up to four times pension 1987 Scheme Commute a quarter of pension or Lump sum = 2.25 * pension (25 years service after age 50)

Eligibility to retire 1987 Scheme
Normal Pension Age in 2015 scheme is 60 If the member meets the 1987 scheme or 2006 scheme eligibility to retire, they can take scheme benefits upon: Meeting the pre 2006 October CRA for their rank Achieving 30 years service Age over 50 with 25 or more years of service Reaching Age 55 in 2006 scheme 1987 Scheme

Eligibility to retire IF
They are aged 60 or over they could also immediately take their 2015 scheme benefits OR If they are under 60 but over age 55 they could immediately receive the 2015 scheme benefits with an actuarial reduction applied Defer the 2015 scheme benefits and receive these at State Pension Age or at a later date with the appropriate actuarial reductions applied

Ill Health Ill health benefits in 2015 scheme to be based on 2006 scheme But Protected members will continue to have full provisions for ill health in relevant scheme Tapered members will be subject to ill health rules of whichever scheme they are in at the date of retirement Unprotected members will have ill health benefits calculated in accordance with the 2015 scheme Expect a rush of ill health applications

Outstanding Issues Scheme Registration
PCC’s are required to register 2015 scheme with HMRC Home Office have released a Q & A of HMRC requirements Pension Scheme Tax Reference (PSTR) Accounting for tax (AFT) registrations

Outstanding Issues Pensionable Pay
Clarity needed over Pensionable Pay to be used for calculation of: Accrued rights / CARE benefits / Ill Health The pensionable pay to be used in the CARE scheme may have a new definition, i.e. likely to be at least ‘actual’ pay Monthly postings from April 2015 CARE pay required

Mouchel / Employer issues
Education Officers will need to understand new scheme Home Office documentation Provide individual transfer dates (if required by regulations) Possible service queries

Timeline Home Office

Timeline Software Provider Mouchel

Any Questions ?

State Pension reform and contracting-out 16th July 2014

Pension Act 2014 State pension reform – New flat rate state pension
Increase in SPA to age 67 for men and women brought forward – phased in between 2026 and 2028 ( ) – future changes will be based on a 5 year review Contracting out for DB schemes will be abolished (already ceased for DC schemes)

State Pension – why reform?
Need to simplify an over-complex system built up over last years: Basic State Pension Graduated benefit SERPS / AP & S2P Removing complexity will allow individuals to know what pension to expect from the State and how much extra they need to save This new state pension will be introduced on 6 April 2016 and apply to people reaching state pension age on or after that date.

What is contracting out?
State Second Pension (previously SERPS), additional State Pension is paid on top of the basic state pension Employees are contracted out if a member of a contracted-out occupational pension scheme Employee AND employer pay reduced National Insurance contributions 78/79 – 96/97 – Guaranteed minimum pension (GMP) Pension Increase on GMP is paid with the additional State Pension and the balance paid by the scheme 97/98 - Pension scheme must meet minimum standards similar to the additional State Pension Pension Increase paid by the scheme on pension accrued from 06/04/1997

Core features of new State Pension
6 April Basic State Pension and additional State Pension will be replaced by flat rate pension for new pensioners (£148.40) Usually need 10 qualifying years to receive any new State Pension, and 35 years to get the full new State Pension Transitional arrangements – actual amount paid will be dependant on NI record

Impact for individuals
No more State Second Pension, so contracting out must end. Individuals who were contracted out will pay standard rate NI from 2016 (an increase in their NI contributions of 1.4%). Estimated that over 85% of people paying extra NICs and retiring in the first 20 years of the new system will receive more in extra state pension in retirement than they will pay in additional NICs payments during their working lives.

Impact for employers SIGNIFICANT INCREASE TO PAYROLL £££££
Employers will see an increase in the National Insurance contributions they pay in respect of their employees - will pay standard rate NI in future (extra 3.4%).

How HMRC propose to assist employers and pension providers with the ending of contracting out
Scheme Reconciliation Service (pensioners and deferred pensioners) Closure Scan (closing open periods of Contracted-out employment for individuals on HMRC records) and providing information to pension schemes (active members) Reporting the Scheme Contracting Out Number (SCON) via Real Time Information submissions from Employers (Mandatory since April 2014) Stop Tracking of Pension Rights after 2016 (transfers) Informing individuals of their Contracted-out Pension membership

Scheme Reconciliation Service
Pensioners and deferred pensioners

Features of Service: Will provide details of scheme memberships for deferred members and pensioners and, where applicable, GMP amounts Not mandatory - schemes have to request service Requests for service must be made by April 2016 Output will be via Shared Workspace HMRC support for queries generated by service will be in place until December 2018

What does this mean for you: Assurance that scheme records for deferred and pensioner members are up to date (accurate scheme records – The Pensions Regulator) Resources/funding implications to carry out reconciliation work (4 years to reconcile – ) GMP liability – transfers between pension schemes Accurate payment of pension increase Do your payroll records match pension records?

Case history – Wrong GMP applied at the wrong time – Pension in payment since 1982. Current pension in payment £ Correct pension £ Total overpayment of pension £

Closure Scan Active members

Closure Scan Features:
Based on current planning assumptions HMRC will carry out a “one off” closure scan in December 2016 to automatically close all open scheme membership entries on HMRC records HMRC estimate is that 6.3 million records will be closed, 1.5m with a GMP (78/79 – 96/97) Starting in early 2017 HMRC will automatically provide schemes with a schedule statement for all members whose records have been closed by the scan, including the GMP amount where applicable

Closure Scan What does this mean for you?
Schemes will be able to use this output to reconcile their active members Assurance that scheme records for active members are up to date Significantly reduce member queries once closure letters are issued to individuals

Reporting the SCON via RTI
Features: Since April 2014 the SCON has been a mandatory field for employers to complete on their RTI submissions - the February 2014 edition of the Employer Bulletin contains details of this requirement – ECON – E R SCON – unique number for each police authority and pension scheme i.e. PPS, NPPS, Local Government Pension Scheme Allows HMRC to identify which pension scheme an individual is a member of and to: complete the closure scan successfully supply you with information about your members provide individuals with information about their pension rights

Information to Individuals
Features: Members of DB schemes whose State Pension age falls after 2016 will receive a statement from HMRC providing information about their contracted-out pension rights Information will be issued to 15.8 million individuals over a 2 year period starting in December 2018 when all reconciliation activity should be completed or at State Pension age if earlier HMRC will provide support for queries generated by statements to individuals What does this mean for you? Potential increase in volume of enquiries from scheme members

Further information HMRC are planning to publish a new, regular Countdown bulletin which will provide updates on the ending of contracting-out You can find the first two editions at:

Communications DWP and HMRC will continue to work closely with pensions industry Government is setting up an Implementation Stakeholder Forum Treasury Technical Working Group

Police Pensions User Group 16th July 2014

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Police Pensions User Group 16th July 2014

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