1. Local Government Pension Scheme Reform Proposals 14/11/2011
Janet Caiazzo – Pensions Manager

2. Presentation Topics Consultation Long term outlook Questions
Pay cut - must take place after 1 April 2008

3. Recommendations for reform
Pay cut - must take place after 1 April 2008

4. LGPS Reform Short term reform
Pay cut - must take place after 1 April 2008

5. LGPS Reform The LGPS currently provides the following member benefits:
Final salary based pension
Insurance cover for Death in Service
Early retirement benefits
Ill health retirement benefits
Dependant’s benefits
Pay cut - must take place after 1 April 2008

6. LGPS Reform Secretary of State for Communities and LG July 2011:
Asked Local Government employers and Trade Unions to enter into discussions
Proposal to deliver short term savings
Target increase in average member contributions of 3.2% over 3 years
Pay cut - must take place after 1 April 2008

7. LGPS Reform DCLG Consultation October 2011:
Government proposals for reform:
Options 1 and 2
Local Government Employers - Alternative proposal
Pay cut - must take place after 1 April 2008

8. LGPS Reform Consultation proposals Existing member contribution rates:
£0 - £12, %
£12,901 - £15, %
£15,101 - £19, %
£19,401 - £32, %
£32,401 - £43, %
£43,301 - £81, %
More than £81, %
Pay cut - must take place after 1 April 2008

9. LGPS Reform Proposed rates: Consultation proposals Government option 1
Pay cut - must take place after 1 April 2008

10. LGPS example
Option 1 - Employee around mid point of £21,000-£32,000 band
£ per month net pay
Current LG Pensions 6.5%
No Pension has opted out
2012/13 Proposed LG 7.2%
2013/14 Proposed LG 8.0%
2013/14 Proposed LG 8.3%
Pay cut - must take place after 1 April 2008

11. LGPS Reform Consultation proposals Government option 2
Proposed contribution rates:
Pay cut - must take place after 1 April 2008

12. LGPS Reform 2012-13 2013-14 2014-15 2015-16 1/60th 1/64th 1/65th ?
Consultation proposals Government option 1
Accrual Rates
(new scheme)
1/60th
1/64th
1/65th ?
Pay cut - must take place after 1 April 2008

13. LGPS Reform Option 2 Accrual rates 2012-13 2013-14 2014-15 2015-16
(new scheme)
1/60th
1/67th ?
Pay cut - must take place after 1 April 2008

14. LGPS Reform Consultation proposals Government options
Both options deliver similar savings by 2014/15
Option 2 is simpler (one change in accrual rate) and requires a lower contribution increase (1%) from scheme members
BUT
may result in a lower benefit package for ‘new scheme’
Pay cut - must take place after 1 April 2008

15. LGPS Reform
Consultation proposals Staffordshire Pension Fund employee profile:
Pay cut - must take place after 1 April 2008

16. LGPS Reform
Consultation proposals Staffordshire Pension Fund employee profile:
Pay cut - must take place after 1 April 2008

17. LGPS Reform
Consultation proposals Staffordshire Pension “Unprotected” employees:
Pay cut - must take place after 1 April 2008

18. LGPS Union perspective
Pay more – get less
Tax on public sector workers – paying for bankers failure
Already made savings
Unfair with pay freeze
Pay cut - must take place after 1 April 2008

19. LGPS Employer’s perspective
Cost of pensions becoming unaffordable
Employees are living longer
Better than many private sector schemes
Risk of members opting-out of scheme
Employees should pay more
Pay cut - must take place after 1 April 2008

20. LGPS Reform Difficult to communicate
Proposals are administratively burdensome
Difficult to communicate
Too many changes for members to understand
Will require changes to computer software
Pay cut - must take place after 1 April 2008

21. Overtaken by events? 12:30 2nd November – Danny Alexander
Reference (model) Scheme accrual rate improved from 65ths to 60thsLGPS
Cost envelope for new scheme increases from 18.8% to 20.4% (total contribution)
To be met centrally (outside of the cost envelope)
Protection for those within 10 years of retirement on 1/4/12
Government “willing to consider” tapering for a further 3 or 4 years

22. Overtaken by events? FACT or FICTION - There are some big questions:
How is the cost met centrally?
Easy for unfunded schemes but what about the LGPS?
Is NPA (Normal Pension Age) the yardstick for “retirement”?
NPA is a special pensions term
Different public sector schemes have different NPAs
In the LGPS we have NRD and CRA!
FACT or FICTION -
DCLG are to write to the LGA imminently with clarification
High level scheme design consultation extended to end of December
Short and long term LGPS changes could be merged into 1
Subject to a bringing forward new scheme from 2015

23. LGPS Reform Long term reform
Pay cut - must take place after 1 April 2008

24. The L/T look for the LGPS
Career Average Revalued Earnings (CARE) pension scheme;
a 1/60th accrual rate; (improved offer)
a normal pension age linked to State Pension Age (or 65, whichever is higher).
By, and from, 2015?

25. Year 1 retirement pension
How CARE works
For example, Tom earns £20,000,
so his pension in year 1 is worked out as:
£20,000 x 1/60th = £333
Maintaining your pension’s value
Revalued by 4% each year
The £333 that Tom earns in year 1 is revalued at the end of the next year. So at the end of year 2, this part of Tom's pension is £333 x 1.04 = £346.
The pension continues to be revalued until you retire
Year 1 retirement pension
Tom's pension for year 1 is £730
after 20 years' service. 25

26. Your pension at retirement
Adding your other years’ pension pots.
You receive a new pension ‘pot’ for each year you are a member
Add up the pension you earned each year (after it has been revalued) to find your total pension
Annual pension at retirement
If Tom has a 4% salary rise each year, by adding all of the other years' pension pots together, he could expect a pension of £14,046 a year after 20 years' service. 26

27. Fairness
Example member: pay at start - £20k, 20 years’ service, 1/60th accrual
Annual Pay increases
CARE revaluation
Final salary pension
CARE pension
Member contribution 2% 4%
£9,700
£11,800
£31,100
£14,000
£38,100 6%
£20,200
£16,900
£47,100
FS pension as a % of contributions:
31% 37% 43%
CARE pension as a % of contributions:
38% 37% 36%
Member contribution rate assumed to be 6.4% throughout. No interest added.
Illustrative only and no allowance for historic schemes, commutation etc 27

28. SPF Communication program – scheme changes
Pay cut - must take place after 1 April 2008

29. Communications
In order to communicate with scheme members the reason for scheme reform and how this will affect them Staffordshire Pension Fund will be implementing a staged communication program using the following channels:
Briefing notes
• Face to face meetings
• Pension Services web pages
• Staffordshire County Council intranet
• Newsletters
• Pay advice inserts
• Pension Fund publications
• Annual Benefits Statements
• Annual Roadshow
• Presentations
• Video
• Computerised modelling of the proposed changes
Pay cut - must take place after 1 April 2008

30. Communications
Frequency and use of any of the above channels will be driven by the need to communicate information quickly
To feedback as soon as it has been made available in the public domain from any of the informed sources identified below.
Need to address 6 key areas of member concern:
1. Why the need for change?
2. What protection will be given to past pension build-up by LGPS members?
3. What future contribution will LGPS members be asked to pay?
4. What cover will be provided to LGPS members whilst they are employed?
5. How will the changes affect when LGPS members can retire?
6. How will future pension build-up for LGPS members be structured?
Pay cut - must take place after 1 April 2008

31. Communications
Regular updates will be provided via bulletins and Newsletters on the Staffordshire Pension Fund Web site :
Pay cut - must take place after 1 April 2008

32. Questions?