Post on 30-Mar-2016
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The Scope of the Hutton The Scope of the Hutton Report – Schemes coveredReport – Schemes covered Local Government Pension Scheme Teachers’ Pension Scheme NHS Pension Scheme Civil Service Pension Scheme Armed Forces Pension Scheme Police Pension Scheme Firefighters’ Pension Scheme UK Atomic Energy Authority Pension
Scheme
Public Sector Schemes Public Sector Schemes Comparison Comparison
SchemeScheme ContributionContribution Employer Cont.Employer Cont. Normal Normal Pension Pension
AgeAge
Average Average Pension Pension
PolicePolice 9.5% - 11%9.5% - 11% 24.2%24.2% 5555 £14,000£14,000
FirefightersFirefighters 8.5% - 11%8.5% - 11% 14.2% - 26.5%14.2% - 26.5% 55 or 6055 or 60 £12,000£12,000
Teachers 6.4%6.4% 14.1%14.1% 60 or 6560 or 65 £10,000£10,000
Armed Armed ForcesForces
0%0% 29.4%29.4% 5555 £8,693£8,693
NHSNHS 5% - 8.5%5% - 8.5% 14%14% 60 or 6560 or 65 £7,000£7,000
Civil ServiceCivil Service 1.5% - 3.5%1.5% - 3.5% 3% - 18.9%3% - 18.9% 60 60 oror 65 65 £6,200£6,200
Local Local GovernmentGovernment
5.5% - 7.5%5.5% - 7.5% 13.20% (avge.)13.20% (avge.) 6565 £4,044£4,044
Why is Change Needed? Why is Change Needed?
Current system is seen to be unfair Life expectancy has increased Increased cost to taxpayer –
unfunded schemes Final salary schemes do not reflect
true pay / contribution history Change is needed to retain high
quality defined benefit schemes
Hutton’s RecommendationsHutton’s Recommendations
No change from a defined benefit basis, but…
Move from a final salary arrangement to one based on career average earnings
Raise the normal retirement age Uniformed service retirement age to
increase to 60 Increased employee contribution Cap on employer contribution accrued rights should be protected Implementation by 2015
The Government’s Response The Government’s Response to the Hutton Reportto the Hutton Report Introduction of career average scheme for
new service Final salary basis protected for old service Increased retirement age for new service
with a link to State pension age Retention of existing retirement age for old
service Increased employee contribution at around
3% more No increase in contributions for those
earning less than £15,000 pa Increase in contributions pegged to 1.5%
for those earning £15,000 - £18,000 pa
Will I Have to Pay More?Will I Have to Pay More?
Increased contributions are possible
LGPS contribution rates were reviewed in 2008
Funded nature of LGPS means that other changes will be implemented instead
Risk of opt-outs – Hutton has Risk of opt-outs – Hutton has said this needs to be avoided said this needs to be avoided
LGPS – current ratesLGPS – current rates
FTE PayFTE Pay Contribution rateContribution rate
Up to £12,901 5.5%
£12,901 to £15,101 5.8%
£15,101 to £19,401 5.9%
£19,401 to £32,401 6.5%
£32,401 to £43,301 6.8%
£43,301 to £81,101 7.2%
Over £81,101 7.5%
How Does a Career Average How Does a Career Average Scheme Work?Scheme Work? Each year is calculated
individually CPI adjustment made to each
year’s benefits Earlier years’ values have more
increases applied to bring them up to date
At retirement, all the revalued individual years are added together
Career Average Schemes – Better Career Average Schemes – Better or Worse than Final Salary? or Worse than Final Salary?
Less generous for employees who have rapid pay progression, particularly in their later years
Similar benefits for those with steady pay growth
Career average method is still a “defined benefit” arrangement
Remember: service to date of change will still be based on final pay
Will I Have to Work Until Age Will I Have to Work Until Age 65? 65? Remember – your benefits built up
to the date of any change will have the same retirement date and calculation as before
New service worked after the date of change may have a later payment date for full benefits
Most employees already have a retirement age of 65 in the LGPS
85 year rule protections will remain
But Didn’t the LGPS Change a Few But Didn’t the LGPS Change a Few Years Ago?Years Ago?
Yes, changes were made to:-Removal of the 85 year ruleBanded employee contributionsChange from 80th’s to 60th’s
Change from RPI to CPI will help reduce scheme costs
Further changes are still needed
Should I Opt Out?Should I Opt Out?
Personal decision occupational pension schemes
are extremely valuable Employer contribution Tax and NI savings Think very carefully before
opting out – independent advice
What You Get NowWhat You Get Now
An index-linked pension linked to pay and service
Tax free lump sum in most cases A range of retirement options
voluntary retirement age from 60 in most cases Early retirement from 55
A range of dependants’ cover including death in service lump sum of 3 x pay
Enhanced benefits if you have to leave work because of permanent ill health
The facility to top up your benefits