SPF Employers Forum 05 November 2010 Janet Caiazzo – Pensions Manager

1. SPF Employers Forum 05 November 2010 Janet Caiazzo – Pensions Manager

2. Presentation Topics The 2010 Valuation LGPS Regulation Update Proposed Inland Revenue Changes The Hutton Report Communications SCC Protective Marking

3. 2010 Valuation • Data to the scheme actuary July 2010 • Data to GAD for Cap and Share July 2010 • Fund Level Results to Pension Committee 22 October 2010 • Individual Employer Contribution rates following forum

4. The 2010 Valuation • Data: • Due to the Cap and Share exercise, employer year end submission deadlines were much shorter than normal • We were pleased with the cooperation we received as the majority of employers were able to comply with our deadlines

5. The 2010 Valuation Data:

6. 2010 Valuation - Cap and share • National model fund – results determine national employee rate / benefits package • Employer rate still set locally • Possibly too little, too late? (Hutton)

7. Miscellaneous Regulations 2010 • Ill health: • Change of definition “obtaining” now “capable of undertaking” • Introduction of a 3 year limit from cessation of Tier 3 benefit for uplift to Tier 2 • Benefits restricted if 2nd ill health retirement on re-employment • No review or cessation of Tier 3 if member will be 65 during the 3 years payment period

8. Miscellaneous Regulations 2010 • Ill health: Ombudsman • The scheme employer awards the ill health benefit not the IRMP • The Scheme Employer has to take into account a medical opinion from approved IRMP • Decision to award or not has to be made by the officer with the delegated authority and if challenged be able to prove

9. RPI to CPI Office for National Statistics (ONS) announced the rise for the year to September: CPI increase to apply from April 2011 is 3.1% Based on the previous RPI index would have been 4.6% Represents a substantial cost saving to the scheme

10. Restricting pensions tax relief • From April 2011 • Defined Benefit Schemes will use a factor of 16 to value the pension pot • CPI will be added to the benefit value of the previous year • The annual allowance is £50,000 (not index linked) • Tax will be charged at the persons marginal / highest rate • Life Time allowance restricted back to £1.5 million • How will the tax be paid? • Previous 3 years unused allowance can be brought forward

11. Restricting pensions tax relief • Concerns: • “The group of individuals who can save more than an Annual allowance of £50,000 in a year are concentrated among the higher earners.” NOT TRUE • Many more members caught than just high earners • Disincentive to seek promotion, act up, work hard for a bonus, volunteer for redundancy, ill health

12. Promotion, acting up, bonus Example: Assuming 1/60th accrual, flat factor of 16 and Annual Allowance of £50,000 Value at end of current tax year Pension: 33 x 1/60 x £50,000 x 16 = £440,000 Value at end of previous tax year Pension: 32 x 1/60 x £42,000 x 16 = £358,400 Increased by CPI index 3.1% = £369,500 Total deemed benefit growth = £ 70,500 Taxable benefit if AA set at £50,000 = £20,500 Tax on the excess at 40% = £8,200 i.e. greater than initial £8,000 gross pay increase!

13. The Hutton Report The Independent Public Service Commission headed by Lord Hutton published an Interim report on 7th October 2010 Its purpose was to undertake a “fundamental structural review of public service pensions” Rejected claims that public sector scheme are “Gold plated” as the average LGPS pension is only £4052 pa Intention to issue a detailed final report before 2011 budget

14. Hutton :Options for change – short term • Reconfirmed that RPI to CPI represents a reduction in member benefits of approximately 15% • Implement cap and share – possible increase in member contribution rate: • This would equal a real reduction in net take home pay and could lead to lower paid opting out • The current public sector pay freeze will reduce scheme liabilities

15. Hutton:Options for change – Long term • The Commission will base its recommendations on a set of principles • affordable and sustainable • adequate and fair • support productivity • transparent and simple

16. Hutton:Options for change • What do we know so far? • Defined Benefit Scheme confirmed by Chancellor • Status quo is not tenable-not traditional final salary • LGPS to remain a funded scheme • Employee’s contributions to increase • Retirement age changes in line with longevity will be considered • Early and late retirement options to improve labour market flexibility • Existing service rights will be protected • Scheme design changes will apply to future service accrual for existing members • Review of Fair Deal

17. Hutton:Call for evidence • The Pensions Commission have requested further evidence by 17 December for the next stage of the review – views have been requested on: • Scheme Design • Risk sharing balance for benefit liabilities • Adequacy of retirement income assessment • Employee understanding of scheme benefits • Communication review and employee choice on benefit package

18. Hutton:Call for evidence • Pensions and provision of public services • Should all public sector schemes have similar structures, which non public sector employees should be allowed admission to the scheme? • Administration Costs • Comparison of costs between private and public sector, should the number of LGPS funds be rationalised? • Transition to new arrangements • What is the best way to move to the new scheme and retain confidence of scheme members and tax payers – Can we learn from previous best practise in the private sector?

19. Communications • Annual Benefit Statement for active and deferred members will be sent to home addresses during November and December • Our “Nest Egg” magazine will be issued along with statements to active scheme members – This will include an update on current issues • From 01/10/2010 active scheme members now have another chance to combine previous LGPS service – We have identified members likely to be affected, and will be writing to them with an option to combine

20. Communications • Targeted presentations in December for scheme members likely to be affected by the tax changes from April 2011 • Pensions surgeries at various location throughout the county early 2011 • “What’s New” area on our website continually updated with latest news: • www.staffspf.org.uk

21. Protective Marking Scheme From April 2010 Staffordshire County Council now protectively mark all documents as failure to adequately protect sensitive information can lead to fines of up to £500,000 being imposed Documentation you receive from the Pensions Section will normally be “marked” into one of the following classifications: PUBLIC No restriction or security protection SCC USE For internal use – non sensitive information which may cause misunderstanding if released to a wider audience RESTRICTED Sensitive information that may cause distress to individuals or operational difficulties if released CONFIDENTIAL Highly sensitive information that could cause serious damage to the organisation if released

22. Protective Marking Scheme If possible we would like all external organisations to follow this marking scheme when sending information to the Pensions Section and other SCC departments All documentation classified as RESTRICTED or CONFIDENTIAL if sent by e-mail will be an encrypted “.zip” attachment to the AES 256 standard. You will require WinZip version 9+ or equivalent to open these attachments. If sending sensitive data to us we would ask you to use this method or an equivalent method of encryption At present the section does not have access to the GCSX network, but we are looking to introduce this shortly

23. Protective Marking Scheme Full details of the Staffordshire County Council Protective Marking Scheme can be found on the “Employers” area of our web site: www.staffspf.org.uk

24. Questions?