Communities and Local Government CLG

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Scotland and Northern Ireland. Discussions ongoing But both subject to RPI > CPI changeAnd likely changes in futureBoth included in the ballot. Remember

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Communities and Local Government CLG

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1. Consultation on LGPS October 2011 ENGLAND AND WALES Communities and Local Government (CLG)

2. Scotland and Northern Ireland Discussions ongoing But both subject to RPI > CPI change And likely changes in future Both included in the ballot

3. Remember – LGPS not gold-plated 50% pensions < £3,000 per annum Average pension just over £4,000 Women’s pension £2,600 Reflects low pay and part-time work Two-year pay freeze will affect pension

4. CLG consultation launched Launched on 7 October Closing date 6 January 2012 Includes CLG proposals and... Proposals already submitted by LGG LGG proposals can be ‘fully considered’ alongside CLG proposals CLG has two different ‘approaches’

5. CLG proposals– core principles No contribution increase for those earning less than £15,000 full time equivalent 1.5% increase for those earning £15 - £21,000 full time equivalent High earners to pay progressively more But no more than an additional 6% PART-TIME AND TERM-TIME WORKERS   Your benefits in the LGPS are based on your final pensionable pay and your period of membership in the scheme. Full-time members accrue full-time membership whilst part-time and term-time members have their service apportioned based on the hours and weeks they work. As your membership is apportioned the final pensionable pay used to calculate your benefits is based on your full-time equivalent salary.   What do we mean by full-time equivalent salary?   This is effectively what you would earn if you were working full-time in your role. For example, if you are working half full-time hours and earn £10,000 per annum then your full-time equivalent salary would be £20,000 per annum.   How does part-time working affect my membership?   If you work part-time your membership is calculated to reflect the hours you work. For example, if you have worked for the last 10 years at 18.5 hours per week (50% of the full-time equivalent of 37 hours) your membership will be counted as 5 years. However your retirement benefits will be calculated using your full-time equivalent rate of pay.   How does working term-time affect my membership?   If you work term-time your membership is also calculated to reflect the hours per week and weeks per year you work:   For example:   A member who works 18.5 hours per week (i.e. half hours) term-time for 44.1 weeks per year would have their contractual hours adjusted to an all year round basis based on 52.143 weeks as follows:   18.5 hours * 44.1 weeks divided by 52.143 weeks = 15.65 hours per week on an all year round basis. Therefore if you worked for 10 years on this basis your membership would be 4 years 230 days (i.e. 10 years * 15.65 all year round hours per week divided by 37 (full-time hours)).   What contribution rate do I pay as a part-time worker?   Your contribution band is based on your full-time equivalent earnings but what you actually pay as a pension contribution is taken from your actual salary. For example, if you work half full-time hours and earn £6000 per annum then your full-time equivalent salary is £12,000 meaning you would fall in the lowest contribution band and would not be subject to a contribution increase under the current pension proposals as your full-time equivalent salary is less than £15,000 per annum. You would in effect pay 5.5% on your actual pay of £6000 per annum.   What contribution rate do you pay as a term-time worker?   The earnings used to determine your contribution band are those you actually earn over the number of weeks you are paid. You only pay contributions in respect of the actual salary you receive.PART-TIME AND TERM-TIME WORKERS   Your benefits in the LGPS are based on your final pensionable pay and your period of membership in the scheme. Full-time members accrue full-time membership whilst part-time and term-time members have their service apportioned based on the hours and weeks they work. As your membership is apportioned the final pensionable pay used to calculate your benefits is based on your full-time equivalent salary.   What do we mean by full-time equivalent salary?   This is effectively what you would earn if you were working full-time in your role. For example, if you are working half full-time hours and earn £10,000 per annum then your full-time equivalent salary would be £20,000 per annum.   How does part-time working affect my membership?   If you work part-time your membership is calculated to reflect the hours you work. For example, if you have worked for the last 10 years at 18.5 hours per week (50% of the full-time equivalent of 37 hours) your membership will be counted as 5 years. However your retirement benefits will be calculated using your full-time equivalent rate of pay.   How does working term-time affect my membership?   If you work term-time your membership is also calculated to reflect the hours per week and weeks per year you work:   For example:   A member who works 18.5 hours per week (i.e. half hours) term-time for 44.1 weeks per year would have their contractual hours adjusted to an all year round basis based on 52.143 weeks as follows:   18.5 hours * 44.1 weeks divided by 52.143 weeks = 15.65 hours per week on an all year round basis. Therefore if you worked for 10 years on this basis your membership would be 4 years 230 days (i.e. 10 years * 15.65 all year round hours per week divided by 37 (full-time hours)).   What contribution rate do I pay as a part-time worker?   Your contribution band is based on your full-time equivalent earnings but what you actually pay as a pension contribution is taken from your actual salary. For example, if you work half full-time hours and earn £6000 per annum then your full-time equivalent salary is £12,000 meaning you would fall in the lowest contribution band and would not be subject to a contribution increase under the current pension proposals as your full-time equivalent salary is less than £15,000 per annum. You would in effect pay 5.5% on your actual pay of £6000 per annum.   What contribution rate do you pay as a term-time worker?   The earnings used to determine your contribution band are those you actually earn over the number of weeks you are paid. You only pay contributions in respect of the actual salary you receive.

6. CLG proposals – approach 1 Increase employee contributions in April 2012, 2013 and 2014 to raise £450m – 1.5% savings No increase for those paid less than £15,000 1% for those between £15,000 and £19,400 6% above £150,001

7. CLG – approach 1 (continued) Change the accrual rate from 1/60 to... 1/64 in April 2013 and then... to 1/65 in April 2015 Will raise further £450 million Combined with savings from contribution increase = £900 million

8. CLG approach 2 Increase employee contributions in April 2012, 2013 and 2014 Same principles for lower paid Will raise £300 million Change the accrual rate from 1/60 to 1/67 in April 2014 Will raise £600 million Combined = £900 million

9. Discussions with LGG UNISON, GMB and Unite On behalf of 11 unions Want solution – but couldn’t agree LGG submitted proposals to SOS – without union sign-up... And... CLG consultation launched 10 October

10. LGG proposals 1 Retirement age of 66 from 1/4/14 = £330m savings 2 - 2.5% increase in contributions for earners over £21,000 70% LGPS members earn < £21,000 1.5% increase for £15 - £21,000 earners No increase for those below £15,000 Contribution savings = £605 million

11. LGG proposals 2 Retention of 1/60 accrual rate for < £15,000 earners Worse accrual rate of 1/68 for those above £15,000 < £15,000 earners can reduce contributions for worse accrual rate Earners above £15,000 can pay higher contributions to keep 1/60 accrual rate

12. Further possible LGG proposals Vesting period increased from 3 months to 2 years Active members with 3+ months but < 2 years get deferred pension or refund Improve actuarial reduction factors from 4.5 - 5% to 4% for each year before normal retirement age

13. LGG case study 1 FTE salary = £14,700 Current accrual rate = 1/60th Current contribution rate = 5.8% Assume 10 years membership by 2014 then another 10 years to retirement Prior to changes pension = £2,450 After = £2,450 (no change) If opts for 1/68th accrual = £2,162

14. LGG case study 2 FTE salary = £20,000 Current accrual rate = 1/60th Current contribution rate = 6.5% Assume 10 years membership by 2014 then another 10 years to retirement Prior to changes pension = £3,333 After contribution increase of 1.5%, pension = £3,333 If opts for 1/68th accrual = £2,941

15. LGG case study 3 FTE salary = £42,000 Current accrual rate = 1/60th Current contribution rate = 6.8% Assume 10 years membership by 2014 then another 10 years to retirement Prior to changes pension = £7,000 After contribution increase of 2.5%, pension = £7,000 If opts for 1/68th accrual = £6,176

16. What LGG are proposals for? Only for short-term ‘savings’ – £900m Negotiations for long term scheme due to start in October LGG want no change until 2014 Net effect is the same for members LGG wants 2014 date to avoid 2013 valuation – hence 2014 implementation

17. What happens next? LGG proposals sent to CLG and Treasury Formal consultation on CLG and LGG proposals until 6 January Draft regulations laid in parliament in January Can only be withdrawn by Sec of State or majority of MPs ‘praying’ against Pressure needed before January

18. UNISON’S response – proposals not necessary at this point LGPS takes in £4bn more each year than it pays out It will be cash rich for 15+ years £165bn in combined fund Invested in domestic and global economies But... will need changes to reflect longevity improvement at some point

19. Savings already made – twice over! £2bn saved for employers since 2008 Cost reduced from 20% - 18% payroll already Two-year pay freeze has reduced payroll and final salary pensions of LG members 10% reduction in jobs Fewer ill-health retirements More lump sum commutation No 85 rule – retirement age of 65 already

20. Members can’t afford extra cost Median LG earnings – £17,000 200,000 earn < £6.50 per hour Two-year pay freeze with no £250 in either year for NJC workers Below inflation increases before that Major cuts to pay and other conditions Many low paid not in the scheme now – AFFORDABILITY

21. Danger of opt-outs High level of opt-outs could make some funds/schemes vulnerable But... auto-enrolment from 1 April 2012 Many employees who opted out will be opted in to the LGPS! Can opt-out again within 3 months Contributions will be returned CHAOS!! AUTO-ENROLMENT   From 1 October 2012 (subject to each employer’s own introduction date) all eligible workers will have to be auto-enrolled into a qualifying pension scheme A “qualifying scheme” is effectively one where the employer pays a minimum of 3% into it The LGPS is a “qualifying pension scheme” and in effect already operates auto-enrolment as most members are automatically in the scheme on starting a qualifying employment unless they specifically opt-out An eligible worker is an employee aged between 22 and State Pension Age whom earns enough to pay income tax Members can opt-out of their employer’s qualifying scheme but will be automatically re-enrolled every 3 years Although auto-enrolment duties come in from 1 October 2012 individual employers own duties will be introduced gradually over the following 4 years based on the size of the employer, typically by PAYE size The largest employers will have to undergo this exercise first   AUTO-ENROLMENT   From 1 October 2012 (subject to each employer’s own introduction date) all eligible workers will have to be auto-enrolled into a qualifying pension scheme A “qualifying scheme” is effectively one where the employer pays a minimum of 3% into it The LGPS is a “qualifying pension scheme” and in effect already operates auto-enrolment as most members are automatically in the scheme on starting a qualifying employment unless they specifically opt-out An eligible worker is an employee aged between 22 and State Pension Age whom earns enough to pay income tax Members can opt-out of their employer’s qualifying scheme but will be automatically re-enrolled every 3 years Although auto-enrolment duties come in from 1 October 2012 individual employers own duties will be introduced gradually over the following 4 years based on the size of the employer, typically by PAYE size The largest employers will have to undergo this exercise first  

22. Future discussions? We will continue discussions through the formal consultation period But... discussions on long-term scheme from 2015 also start in October!! Treasury hasn’t produced ‘cost ceiling’ yet – so critical information missing An employer ‘cap’ could follow later Process disjointed and unreasonable

23. ‘Reference scheme’ for future discussions 1 Based on Hutton Report Covers all public pensions from 2015 and includes: Career average scheme (care) Benefits to be ‘broadly as generous for low and middle income earners as now’ But contributing for 48 years!

24. Reference scheme 2 NPA to be SPA – or 65 – whichever higher CPI indexation (already implemented) Earnings revaluation of past service for active members Contributions assumed 3.2% above current weighted average Optional lump sum commutation on 12:1 ratio (same as now)

25. Reference scheme 3 Ancillary benefits = those in schemes currently open to new members Members rejoining LGPS after > 5 years can link new and past service Members transferring between schemes have continuous service (inc transfers of re-joiners > 5 years) No cost ceiling yet....DANGER!! PROTECTION OF ACCRUED RIGHTS   If a new scheme is implemented from 2015, what happens to my existing pension benefits?   Your existing pension benefits remain in the scheme and will still increase in value as your salary increases. This is because Lord Hutton recommended that existing pension benefits retain the salary link. This means that your existing benefits will be calculated on your pensionable salary at retirement and not at the date of being moved into a new scheme. You still retain the right to draw your existing pension benefits at your current Normal Pension Age (i.e. 65) and possibly earlier for those that satisfy Rule of 85 transitional protection rules.   ANY DISCRETION OVER TRANSFER OF SCHEMES IN LONG-TERM SCHEME   This is currently unclear and it would appear to be the case that ministers’ preferred position is for existing benefits to remain in the current scheme with benefits linked to salary on retirement.   PROTECTION OF RULE OF 85 – WHEN DOES IT END?   It’s our understanding that existing Rule of 85 terms would still apply for existing pension benefits meaning that any member whom reaches 60 prior to the 31 March 2016 and whose age and service equals 85 or more, will still be able to draw their existing pension from 60 (and possibly from 55 subject to employer consent) without any reduction being applied to their pension. Also members of the LGPS scheme as at 30 September 2006 should still be able to draw benefits accrued on pre 1 April 2008 service without reduction if they satisfy the Rule of 85. The Rule of 85 would not apply for pension benefits earned in the potential new scheme but existing protections for existing benefits would still remain.   Will an Early Retirement Age of 55 still remain?   Yes it should still be possible to apply for early payment of pension benefits at 55 for existing benefits although this would require employer consent. Furthermore, pension benefits paid prior to 65 will be reduced for being paid early subject to Rule of 85 protections. The ability to draw pension benefits as of right at 60 should still remain for existing pension benefits although again these will be reduced for early payment subject to Rule of 85 protection. It is not currently clear what the earliest retirement age would be in the new scheme although 55 would seem the most likely age for this purpose. PROTECTION OF ACCRUED RIGHTS   If a new scheme is implemented from 2015, what happens to my existing pension benefits?   Your existing pension benefits remain in the scheme and will still increase in value as your salary increases. This is because Lord Hutton recommended that existing pension benefits retain the salary link. This means that your existing benefits will be calculated on your pensionable salary at retirement and not at the date of being moved into a new scheme. You still retain the right to draw your existing pension benefits at your current Normal Pension Age (i.e. 65) and possibly earlier for those that satisfy Rule of 85 transitional protection rules.   ANY DISCRETION OVER TRANSFER OF SCHEMES IN LONG-TERM SCHEME   This is currently unclear and it would appear to be the case that ministers’ preferred position is for existing benefits to remain in the current scheme with benefits linked to salary on retirement.   PROTECTION OF RULE OF 85 – WHEN DOES IT END?   It’s our understanding that existing Rule of 85 terms would still apply for existing pension benefits meaning that any member whom reaches 60 prior to the 31 March 2016 and whose age and service equals 85 or more, will still be able to draw their existing pension from 60 (and possibly from 55 subject to employer consent) without any reduction being applied to their pension. Also members of the LGPS scheme as at 30 September 2006 should still be able to draw benefits accrued on pre 1 April 2008 service without reduction if they satisfy the Rule of 85. The Rule of 85 would not apply for pension benefits earned in the potential new scheme but existing protections for existing benefits would still remain.   Will an Early Retirement Age of 55 still remain?   Yes it should still be possible to apply for early payment of pension benefits at 55 for existing benefits although this would require employer consent. Furthermore, pension benefits paid prior to 65 will be reduced for being paid early subject to Rule of 85 protections. The ability to draw pension benefits as of right at 60 should still remain for existing pension benefits although again these will be reduced for early payment subject to Rule of 85 protection. It is not currently clear what the earliest retirement age would be in the new scheme although 55 would seem the most likely age for this purpose.

26. Ballot timetable 28 September – ballot notices despatched to employers 11 October – ballot of members opens 17 October – members without ballot papers phone UNISONdirect on 0845 355 0845

27. Ballot timetable 31 October noon – deadline for members requesting ballot papers from UNISONdirect 3 November – ballot closes at 10am Employers and members notified of result 30 November – if ‘YES’ vote, strike action So.....

28. Vote YES! We need a massive turnout... ... and a massive ‘YES’ vote We need to send a strong message to ministers ... ... to get the basis of the negotiations changed How is my pension affected if I go on strike?   Days on strike do not count for pension contribution or benefit purposes unless you elect to pay 16% of the pensionable pay lost during the strike. You should seek advice before paying; normally the loss will be minimal. For example if you went on strike for 6 days and your pensionable pay was £20,000 you would lose £5.47 per annum pension (i.e. £20,000 X 6/365 ÷ 60) unless you elected to pay the extra contributions If you wish to pay the missing contributions through being on strike you must contact your employer in writing electing to pay them back within 30 days of returning to work or ceasing employment, or any such longer period as your employer agrees to.   How is my pension affected if I go on strike?   Days on strike do not count for pension contribution or benefit purposes unless you elect to pay 16% of the pensionable pay lost during the strike. You should seek advice before paying; normally the loss will be minimal. For example if you went on strike for 6 days and your pensionable pay was £20,000 you would lose £5.47 per annum pension (i.e. £20,000 X 6/365 ÷ 60) unless you elected to pay the extra contributions If you wish to pay the missing contributions through being on strike you must contact your employer in writing electing to pay them back within 30 days of returning to work or ceasing employment, or any such longer period as your employer agrees to.  

29. Our wider campaign Must be political as well as industrial Vital to fill MP’s mailbags through mass letter-writing campaign Councillors too (many are LGPS members) Needs to engage the public ... ... and those in the private sector Winning the propaganda battle is key

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