Information Sessions 23/02/2015 www.local.gov.uk Introduction - - PowerPoint PPT Presentation

Firefighter Pension Scheme 2015 Information Sessions

23/02/2015 www.local.gov.uk

Introduction

Vicky Jenks Shropshire County Pension Fund

2015 15

The Firefighter Pension Scheme 2015 Paperwork

• SI 2014/2848 Firefighters Regulations 2014
• Awaiting transitional regulations

Membership Categories- How will the 2015 changes affect me?

• Protected – Stay in current Scheme
• Tapered – Some protection – don’t start accruing

‘CARE’ until a date determined by a tapered table

• Unprotected- benefits accrue in 2015 scheme from

1st April

How is Protection Determined

All active members who at 1 April 2012 have 10 years or less to their current Normal Pension Age are protected

• 1992 Scheme members (Active) who at 1st April 2012 were

45 and over – born before 1 April 1967

• 2006 Scheme members (Active) who at 1st April 2012 were

50 and over – born before 1 April 1962

What is tapered protection

• Transitional protection to be tapered for 4 years

beyond the 10 year protection announced by the Government

• Straightforward age taper that applies to 1992

scheme members who on 1 April 2012 are aged between 41 and 45 years, and 2006 scheme members who on 1st April 2012 are aged between 46 and 50 years

Taper Dates (Example 1992)

Date of birth from Date of birth to Date of end of protection 02.09.1970 01.10.1970 05.04.2016 02.10.1970 01.11.1970 13.02.2016 02.11.1970 01.12.1970 20.12.2015 02.12.1970 01.01.1971 29.10.2015 02.01.1971 01.02.1971 05.09.2015 02.02.1971 01.03.1971 12.07.2015 02.03.1971 01.04.1971 24.05.2015 Date of birth from Date of birth to Date of end of protection 02.09.1965 01.10.1965 05.04.2016 02.10.1965 01.11.1965 13.02.2016 02.11.1965 01.12.1965 20.12.2015 02.12.1965 01.01.1966 29.10.2015 02.01.1966 01.02.1966 05.09.2015 02.02.1966 01.03.1966 12.07.2015 02.03.1966 01.04.1966 24.05.2015

Taper Dates (Example 2006)

Modified Retained Firefighters

Retained firefighters who have elected for modified benefits in the 2006 scheme, have a Normal Retirement Age of 55, therefore these special members in the 2006 scheme will have protections on the 1992 scheme basis.

What about the benefits accrued pre 1 April 2015? (or pre taper date)

• The pension that you have built up before you

transfer to the 2015 scheme is fully protected and will be calculated on your final salary at retirement

• This will be paid in addition to the benefits

earned under the 2015 scheme.

What will we look at today?

• Find out the facts about 2015

Scheme:

– What is changing – What remains the same – The protections in place for benefits in the final salary scheme

2015 Scheme Overview

What’s Changing? What’s not changing?

Accrual rate of 1/59.7 Guaranteed Defined Benefit Scheme Normal Pension Age of 60 Employer still pays into the scheme Greater flexibility about when to take

• retirement. Anytime between 55 and 75

Death in Service Lump Sum- 3x pay New option for Partial Retirement Pensions for dependents Additional Pension can be purchased Ill-health cover Option to take tax free lump sum

How does CARE work?

• Each year the member builds up pension based on their

salary in that year

• Each year this pension is increased in line with the

revaluation rate until retirement

• At retirement, the amounts of pension built up each year are

added together to calculate the total pension due

• Early retirement reductions apply if benefits are taken before

age 60

Calculating a CARE Pension

• Pensionable Pay / Accrual Rate
• Revaluation -(Average Earnings Index)
• Year 2 accrued pension
• Net pension
• Closing Balance

£25000/59.7= £418.76 £418.76 x 1.025= £429.23 £429.23 £25500/59.7= £427.14 £427.14 + £429.23= £856.37 £856.37 x 1.025= £877.77

Contributions - 2015 scheme

• 4 contribution rates/ pay bands –
• Contributions deducted from actual

pensionable pay

• Higher paid members may pay more
• Let's take a look at the table …

Contribution rates

Salary bands FPS 1992 FPS 2006 FPS 2015 Up to £15000 11% 8.5% 10% £15000 to £21000 12.2% 9.4% 10% £21000 to £30000 14.2% 10.4% 10% £27,000 to £30,000 14.2% 10.4% 12.2% £30,000 to £40,000 14.7% 10.9% 12.2% £40,000 to £50,000 15.2% 11.2% 12.2% £50,000 to £60,000 15.5% 11.3% 13.5% £60,000 to £100,000 16.0% 11.7% 13.5% £100,000 to £120,000 16.5% 12.1% 13.5% £120,000 to £142,500 17% 12.5% 13.5% Over £142,500 17% 12.5% 14.5%

Contribution rates- an example

Example - Contributions

Ken is an unprotected member of the 1992 scheme

Full time equivalent Pensionable Pay £29,000 Contribution rate before April 2015 14.2 % Contribution rate from April 2015 12.2 %

2015 In Further Detail

• Normal Pension Age
• Retirement options
• Allocation
• Double accrual guarantee
• Commutation
• Ill Health

Normal Pension Age

2015 NPA

• The Normal Pension Age for a 2015 ‘active’ member is 60
• The 2015 minimum pension age is 55 - pension reduced

2006 NPA

• Normal Pension Age is 60
• The 2015 minimum pension age is 55 - pension reduced

1992 NPA

• Compulsory Retirement Age is 55.
• Can retire at between 50-55 with 25 or more years service.

NB. Benefits accrued in the ‘existing schemes’ will retain the existing pension age

Eligibility to retire – 2015 Scheme

Retiring aged 60 or over - benefits from 2015 scheme and previous schemes payable immediately unreduced. Retiring under age 60 -

• 2015 scheme members with 1992 service – over age 55
• Immediately receive 1992 scheme benefits unreduced and

take 2015 scheme benefits with an actuarial reduction OR

• Immediately receive 1992 scheme benefits unreduced and

defer 2015 scheme benefits to State Pension Age (SPA)

Eligibility to retire – 2015 Scheme

Retiring under age 60 -

• 2015 members with 2006 service – Over age 55
• Take both 2006 and 2015 scheme benefits immediately BUT

both would be subject to an early reduction OR

• Instead of taking one or both lots of benefits early with

reductions, you can defer them to receive at SPA.

Employer initiated retirement

• A redundancy where the member is over age 55
• There is a case for business efficiency - again where

the member is over age 55

• Benefits paid before NPA without the early payment

reduction

Partial Retirement

• 2015 scheme allows members to take pension

at age 55 without actually leaving their employment; – a reduction will apply, – could continue to build up more pension.

• But, the 1992 and 2006 schemes require a

member to fully retire in order to access benefits.

Allocation

• An active or deferred member may elect to allocate up to a

third of the amount of annual pension (other than an ill health award) to a beneficiary

• The beneficiary must be a spouse, civil partner, or cohabiting

partner

• The member must give the scheme manager written notice of

an election

Double accrual guarantee

• Recognises the expectation to double accrual for members in

the ‘old’ 1992 Fire Scheme.

• First 20 years accrues at 1/60th
• Service after 20 years accrues at 2/60ths
• Subject to a maximum of 2/3rds of Pensionable Pay
• Therefore after 30 years of actual service, the members

pension is 40/60ths (or 2/3rds)

The formula

A/B x C x APP

• A = Maximum 60ths the member could have accrued had they stayed in

the 1992 scheme at the point of actual retirement / calculation date (capped at 0.6667)

• B = Calendar years service in both the 1992 and 2015 scheme (capped at

30)

• C = Service (in years) accrued in the 1992 scheme only
• APP = Average pensionable pay at retirement

The Result

A/B * C * Average Pensionable Salary

• A = 30/60 (0.5)
• B = 25
• C = 16 years in 1992 scheme
• APP = £20000
• 0.5/25 * 16 * £20000 = £6,400

Commutation

• 2015 Scheme- How Commutation will apply

Up to 25% of FPS 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.

• How Commutation was applied in the 2006 Scheme

Up to 25% of NFPS 2006 annual pension can be commuted for a lump sum. The pension will be converted at a rate of £1 pension for £12 lump sum

• How Commutation was applied in the 1992 scheme

Commute a quarter of pension. The pension will be converted using an actuarial commutation rate. Lump sum = 2.25 * pension (25 years service after age 50)

Tax charges on lump sums

• Commutation factors introduced for members retiring after 20

April 2011, brought about potential tax charges for members with a commutation factor higher than 20:1.

• This commutation factor meant the value of the commuted

lump sum exceeded the maximum permitted by HMRC (currently set at 25% of total value of vested benefits)

• Lump sums subject to a 40% tax charge for the element of

lump sum in excess of the 25% limit

Ill Health Retirement

• No change to fitness or capability tests /

regimes. – A matter for employers

• On-going discussions nationally in regard to

how to manage fitness/medical incapability.

Ill Health 2015

• Accrued benefits in a previous scheme will form part of the

lower tier pension.

• Lower tier ill health – Immediate pension calculated as for
• rdinary retirement without addition to pensionable service, or

reduction for early payment.

• Higher Tier ill health

lower tier ill health pension x service to NPA x 2%. NB. Neither tier includes additional pension purchased.

Pensions for survivors:

• Spouse
• Civil Partner
• Co-habiting partner

– Conditions apply

• Wide age disparity clause
• Children's pension

– For any eligible children

Death in Service lump sum

• 3 x FINAL PAY

Death on pension

• 5 year ‘guarantee’

Death Benefits

Deferred Benefits

• Benefits deferred if member leaves before

entitlement to immediate payment.

• Normal Pension Age is individual’s State

Pension Age (minimum of age 65.)

• Can be taken early from age 55 with

reduction.

• Can be paid on Ill Health grounds.

• The information contained in these slides are the authors

interpretation of the current regulations.

• Readers should take their own legal advice on the interpretation of

any particular piece of legislation.

• No responsibility whatsoever will be assumed by LGA or Shropshire

County Pension Fund for any direct or consequential loss, financial

• r otherwise, damage or inconvenience, or any other obligation or

liability incurred by readers relying on information contained in these slides.

Disclaimer

Any Questions?