Welcome to the Peninsula Pensions Employer Seminar Help yourself to refreshments and take a seat

1. Welcome to the Peninsula Pensions Employer Seminar Help yourself to refreshments and take a seat Presentations to start at 10am Today’s Presenters are: Emma Davies, Annette Wass, Viv Ray, Shirley Cuthbert, Duncan Kohn & Tony Sullivan

2. Agenda • Annette - Additional Pension Contributions (APC’s) • Viv - End of Contracting Out & GMP Reconciliation • Annette - Annual Allowance Refreshment Break scheduled for 11.15-11.30am • Shirley - Pension Admin Strategies & Pension Boards • Duncan - Consultation/Regulation Changes • Emma - Pensionable Pay & Admin Update • Tony - Employer Self Service Time for Questions leading onto an “Open Session”

3. ABSENCES (Parental/Leave without Pay) HOW TO DEAL WITH SERVICE BREAKS AND PURCHASING LOST PENSION Annette Wass Additional Benefits Team Manager

4. ABSENCES BUYING LOST PENSION BY APCs AND DEALING WITH SERVICE BREAKS Pre April 2014 – Service/Pay based benefits SIMPLES! Authorised Unpaid Leave (Parental, Leave Without Pay but NOT Strike) Paid pension contributions automatically for first 30 days Member had choice on return to work whether or not to pay for period after 30 days. Only effected those with absences > 30 days.

5. Strike Breaks If member elected to pay pension contributions – paid 16% of pay lost for not working (effectively paid employees and employers contribution). Pensions Department was told of breaks plus whether or not members had paid pension contributions for period of absence and updated their records as required.

6. Post April 2014 CARE Scheme – based on pensionable pay not service from now on No automatic pension contributions on first 30 days leave – effects all unpaid absences immediately. Less Pay = Less Pension (1/49th of pensionable pay unpaid). Option to buy ‘Lost Pension’ by Additional Pension Contributions (APCs) either monthly or one off lump sum payment from pay. Excepting strike, employer contributes 2/3rds of cost if employee elects within 30 days of return to work or longer period at their discretion (LGPS 2014 was amended - originally no option to extend the 30 days – Phew!)

7. ACTION NEEDED IN LGPS 2014 EMPLOYER / MEMBER / PENSIONS Employer must let member know amount of pay lost and how to buy it back – direct to www.peninsulapensions.org.uk then Absences/Already a Member/Buying Lost Pension Employee Factsheet Member uses calculator to find out cost and prints off application form if wants to buy lost pension – passes to employer to confirm details on form correct and arrange for apc(s) to be deducted from pay.

8. Employer sends application form to Peninsula Pensions with Form to confirm details correct (e.g. Lost pensionable pay, employer share etc.) and dates of break to which application relates. Confirmation Form can be found in Employers Section of Peninsula Pensions website along with further guidance on Absences and APCs Pensions action – update member’s record to show break paid for and Lost Pension being bought. Members pension data will have record of ‘lost’ pension being bought and will add that on to the members CARE pension which will be calculated on the reduced pay the member received.

9. ACTION IN LGPS 2014 – EMPLOYERS Inform pensions of ALL Service Breaks for unpaid absences (except sickness related) as may effect some protections in LGPS 2014 e.g. 85 year rule and the ‘Underpin’ of benefits. EITHER By Spread Sheet – Template can be found on our website under Employer Forms:-

10. OR Via our Interface arrangement (Further details about that facility will be provided in Emma’s update later). Employers must provide the reduced CARE pay for absences – NOT TO BE ADJUSTED IF MEMBER OPTS TO BUY LOST PENSION. And finally…….. If you’re not sure or need help please contact the Additional Benefits Team at Peninsula Pensions!

11. End of Contracting Out & GMP Reconciliation Viv Ray Pensions Project Manager

12. End of Contracting out • What is Contracting out? • Not in SERPS(S2P) • Reduced Ni contributions for employers and employees • When did it commence – 6th April 1978? • Who is effected – members of Local Government Pension Scheme • Pensions Act 2014 states contracting out to cease from 6th April 2016 and the introduction of the new single tier State Pension. • New State Pension to be adjusted if employee in contracted out service. • NI contributions to increase for employers and employees from April 2016 – rebate to cease. Employers need to inform their employees of this change. • Employers cannot pass on this increase • See Peninsula Pensions website for employer details • LGA advised not to produce employee information yet – awaiting Autumn statement!

13. Higher employer NI costsEmployers will pay additional NI costs of 3.4% on earnings between the Lower Earnings Limit (LEL) and the Upper Accrual Point (UAP). Based on 2015/6 tax bands, this could be as much as £1,000 + per employee, per year.

14. Reduction in member take-home payMembers will also see an increase in NI contributions of 1.4% of earnings between the LEL and UAP

15. GMP Reconciliation exercise • Required to match HMRC GMP data with scheme data held. • Exercise to end in December 2018 • What does the GMP effect: • Members increase in LGPS pension (Annual Pensions Increase) • State Pension from 2016 (Contracted out dates of service) • Thousand of queries to investigate. • Pension funds could be left with additional GMP costs if this data is not reconciled. • HMRC records not accurate!

16. Questions

17. HMRC ANNUAL ALLOWANCE AND LIFETIME ALLOWANCE (LTA) Annette Wass Additional Benefits Team Manager

18. HMRC - ANNUAL ALLOWANCE Tax Year 2014/15 = £40,000 (£50,000 2011/12 to 2013/14). Measures the increase in value of Pension Benefits (Pension Input Amount or PIA) – member’s responsibility to let HMRC know PIA for all their pension arrangements. Pension Input Period (PIP) currently 1st April to 31st March in LGPS. Formula for calculating value of input for Schemes like LGPS – Pension x 16 + Lump Sum + AVCs.

19. WHO IS EFFECTED? Mainly High Earners. Those with promotional salary increases (especially if lots of service) Further details about Annual Allowance can be found on our website. Members will be informed by Peninsula Pensions if their LGPS PIA is near or has exceeded the limit .

20. WHAT HAPPENS IF LIMIT IS EXCEEDED? Can use available ‘Carry Forward’ from previous 3 years. Excess if treated as additional income and employee’s tax charge if based at their marginal rate – probably 40% or 45%. Where the tax charge exceeds £2,000 can opt for ‘Scheme Pays’ the charge and LGPS pension benefits are adjusted.

21. FREEDOM OF PENSIONS AND ANNUAL ALLOWANCE New Freedoms don’t effect schemes like LGPS (or in house AVCs under current regulations). BUT…….. If member chooses to ‘Flexi Access’ a Money Purchase (Defined Contribution/DC Scheme) arrangement they have outside of LGPS this could potentially cause their Annual Allowance limit for the LGPS to reduce.

22. CHANGES TO ANNUAL ALLOWANCE FROM APRIL 2016 Reduced Annual Allowance limit for High Earners. Adjusted transitional Annual Allowance for 2015/16. HMRC have acknowledged difficulties for Defined Benefit (DB) Schemes like LGPS – Further Guidance is awaited. All Pension Input Period (PIPs) to be aligned with tax years – could impact on data required from Employers?

23. LIFETIME ALLOWANCE (LTA) Measures the value of pension benefits on payment and tax charge if exceeded (Scheme Pays available). Currently £1,250,000 (£1.25m) but reducing to £1,000,000 (£1m) from April 2016. Calculation on Retirement:- Annual Pension x factor of 20 plus Lump Sum plus AVCs e.g. Pension £30,000 + Lump Sum £50,000 + AVCs £20,000 £30,000 x 20 = £600,000 + £50,000 + £20,000 = £670,000 LTA

24. PROTECTIONS TO RETAIN CURRENT LTA? Protections to be introduced as they were for previous reduction in April 2014 – details yet to be issued by HMRC. Lifetime Allowance limits in future to be increased in line with CPI (Consumer Price Index) from April 2018.

25. Time for a break Back in 15 minutes please

26. Pensions Admin Strategies & Pension Boards Shirley Cuthbert Deputy Head of Peninsula Pensions

27. Living document with effect from 1 April 2015 Separate Strategy for each Fund although same content High level Responsibilities for all Aim 90% in target 2013/14 achieved 88% 2014/15 achieved 81%* * Backlogs decreased Pension Administration Strategy

28. WEF 1 April 2015 have an interest in Public Sector Pensions Best practice guidelines Fines can be enforced LGPS 1st Encounter - Annual Benefit Statements achieved 93% by 31/8/2015 TPR expectation 100% or informed why not/action plan The Pension Regulator

29. Established April 2015 One per Fund The Board will Assist the Administering authority as Scheme manager • Securing compliance with all relevant legislation • Securing compliance with TPR requirements LGPS Pension Board

30. Legislation Update & Freedom and Choice Duncan Kohn Benefits Manager

31. Amendment Regulations Came into force 11th April 2015 but the majority are backdated to 1st April 2014 Main changes Where a member opts into the scheme the regs now clarify that this is from first day of next payment period Regs now clarify that a member is treated as having 2 years qualifying service if they die in service Legislation Update

32. Legislation Update A member of the 50/50 scheme is put back in the main scheme if they go onto no pay as a result of child related leave (as well as no pay due to sickness) Employers can now extend the 30 day period in which employees have to opt to buy back lost pension following their return to work after an absence Where a member is on child-related leave and the employer is calculating assumed pensionable pay, the employer can now count actual pay received where this is higher than APP would be (previously it had to be APP even if actual pay was higher)

33. Legislation Update Regs clarify that an IRMP is still independent even if they are from the same firm as an IRMP who originally advised on the same case A deferred member taking benefits early on ill-health grounds must use their AVC fund at the same time Where a member has opted out and then becomes an active member again they are NOT able to aggregate their benefits and the earlier record must remain separate. This applies to opt-outs after 11th April 2015

34. Legislation Update Where a member has several active records and one or more deferred/pensioner records and dies in service the death grant payable is the higher of ALL the active record death grants added together or ALL the deferred/pensioner death grants added together. Note it is the fund where the person is an active member that is responsible for paying death grant, not the fund which holds deferred/pensioner record if different Where a member dies in service and an IRMP certifies that they were on reduced hours as a result of their condition, the reduction is ignored when calculating the death grant and any survivor benefits. This is backdated to 1st April 2014

35. Legislation Update Forthcoming Amendments ? • Exit Payments Consultation • Government wants to limit exit payments to £95k • Includes strain costs • May require changes to LGPS regulations for early retirements • Option for pre-2014 leavers to draw reduced benefits from age 55 • Cost neutral, no strain cost • No employer’s consent needed • Employer consent still needed to waive early retirement reduction or for ill-health cases • Under consideration, no decision made yet

36. Legislation Update • Tax Relief Consultation – ‘Strengthening the Incentive to Save’ • Current system EET (Exempt Exempt Taxed) • Government proposal to move to TEE (Taxed Exempt Exempt) like an ISA • Or something in between? • Same for all schemes or treat DB/DC differently? • Issues • Changing payroll systems • Trust Government not to change again in future • Administering two different regimes

37. Consultation closed 30th Sep LGA response - The current system has much to commend it (in particular for the LGPS its fiscal neutrality) but fails to provide much, if any, incentive for those at the lower end of the pay scales Restricting tax relief to a flat rate of 20% could provide the option to remove the Annual Allowance and increase simplicity without having an impact on the net pay of the vast majority of members • If TEE is preferred by the Government, an alternative would be to move to T+EE through which the lower paid would be incentivised to make pensions savings Legislation Update

38. Freedom and Choice

39. March 2014 budget – most radical change in pension policy in 100 years Individuals over 55 with a defined contribution pension pot can access their money flexibly Pre April 2015, only those with very small pots (< £18k) or very large pots (> £310k) could access their benefits flexibly From 27th March 2014 Triviality and Small pot limits increased to £30k and £10k respectively Freedom and Choice

40. Lots more choice… • Take the whole lot as cash subject to marginal tax rates • Buy an annuity • Keep pension pot invested and access it over time via purchasing a drawdown product Pensions Wise – free and impartial advice supplied by Citizens’ Advice Bureau and Pensions Advisory Service. Monitored by Financial Conduct Authority Freedom and Choice

41. LGPS Defined Benefit scheme but is affected by F&C changes: • Increase in triviality and small pot limits = more members able to take LGPS benefits as a one off lump sum • AVC funds are Defined Contribution pots. Waiting for DCLG to establish what (if any) regulation changes will be made to LGPS • Transfers to DC schemes still permitted but will be monitored. Need to ensure member has taken independent financial advice where transfer value over £30k Freedom and Choice

42. More changes to come… • Minimum retirement age to rise to 57 from 2028 • Government to consult on extending freedom and choice to DB schemes Freedom and Choice

43. Pensionable Pay & Admin Reminders Emma Davies Employer Liaison Officer

44. Pensionable Pay • Definition changed for post 31/03/2014 membership: • non contractual overtime included, • payments for loss of future earnings not included , • actual pay paid to a reservist during Reserved Forces Leave is not included. • New definition to include additional hours • No longer required to uprate pensionable pay to full-time • CARE pension calculated on ACTUAL pay (April to March) • Pensionable pay is now applicable to when it was paid, not to the period of work it relates to. • Assumed Pensionable Pay replaces Notional Pay for unpaid periods ** Final Salary link to pre 2014 benefits - Pensionable pay figure remains as 2008 regulation definition **

45. Pensionable Pay Post 1/4/2014 Leaver with post 1/4/2014 membership only: Actual Pensionable Pay for CARE Pension (April to March/DOL) (new pensionable pay definition) • No longer required to uprate pensionable pay to full-time equivalent • Include any payment after leaving (confirm additional amount and date of payment) • Include Assumed Pensionable Pay (APP) • Exclude any pay that relates to pre April 2014. • Split for 50/50 Scheme

46. Pensionable Pay Pre & Post 1/4/2014 Leaver with pre & post 1/4/2014 membership: • Employers will need to hold 2 different pensionable pay figures for employees with pre & post 2014 membership: Actual Pensionable Pay for CARE Pension (April to March/DOL) (2014 pensionable pay definition) PLUS Pensionable Remuneration for full 365 days prior to date of leaving (2008 pensionable pay definition) • Best of last 3 years still required • Reduction in Pay Protections: • pay reduced in previous 10 years (best 3 year average in last 13) • Certificate of Material Change effective (drop 1/4/98 to 31/3/2008) • Still need to confirm any payments after leaving

47. Pensionable Pay Pre & Post 1/4/2014 Pensionable Pay for the last 365 days of membership (2008 definition) Uprate to full-time equivalent (FTE) pensionable pay based on hours: Actual pensionable pay x FTE hours / Hours per week (or % of hours) = FTE Pensionable Pay For example: £12000.00 x 37.00 / 18.50 = £24000.00 £12000.00 / 50.00% = £24000.00 PLEASE NOTE: You will need to split the remuneration figures for any changes in hours or pay so please uprate the part-time pay according to the hours for each period (spreadsheet available on request)

48. Pensionable Pay – Salary Sacrifice HMRC approved salary sacrifice arrangements: Employee’s contractual pay is reduced by an agreed amount (supported by variation to their contract) in return for a tax assessable benefit in kind from which tax liability is removed Salary Sacrifice Scheme which fits above remains pensionable under the 2014 scheme. • Sold leave - Holiday entitlement is sold in return for additional pay. Extra pay = payment in consideration of loss of holidays = not pensionable • Bought leave – employee forgoes pay in return for additional days holiday = authorised unpaid leave of absence = APC’s More info within LGPC Circular 244 – link is on our website

49. Pensionable or not? *First Aid Allowance = depends if “contractual” *Weekend enhancement = if enhances rate of pay = No, paid as an allowance = Yes *Honoraria = depends what its paid for: • if contractual and relates to role= Yes • difference in salary = Yes • due to overtime = No (2008) Yes (2014)

50. Cumulative Pensionable Pay • Total of pensionable pay and/or Assumed Pensionable Pay (APP) in either section of the scheme (50/50 & Main) in the scheme year • Must be provided separately for each section (50/50 & Main) - different accrual rates • Dealing with arrears of pay: • Old scheme = based on period it relates to not when its paid • New Scheme = based on when its paid not period it relates to Any pay received after 31/03/2014 which relates to period before 01/04/2014 should not be included in LGPS2014 cumulatives – allocated back to when it was due