Pension Liaison Officer Group6TH March 2012

Presented byViv Ray – Deputy Pensions ManagerShirley Cuthbert – Employer Liaison

Annette Wass – Pension Team Manager

Agenda

1. Auto-enrolment2. HMRC Annual Allowance3. HMRC Lifetime Allowance4. End of year process 5. LGPS Reform Project 6. Draft Miscellaneous Regulations7. Communication8. AOB

Auto-Enrolment

Speaker: Viv Ray

(Deputy Pensions Manager)

Auto-Enrolment – Agenda

• What is Auto-Enrolment?• Who has to be auto-enrolled?• Opting-out and refunds• Staging date• What an employer must consider• Useful Website addresses

Auto-EnrolmentWhat is Auto-Enrolment?• Government initiative to encourage all

workers to pay into pensions saving scheme.• All eligible workers must be auto-enrolled

into a qualifying workplace pension scheme (QWPS).

• Auto-enrolment will be phased in over 5 year period starting in October 2012 with the larger employers first.

NB: Government just announced extension

• Government will set up qualifying savings scheme called NEST (National Employment Savings Trust) for those employers who don’t have their own pension arrangement.(NEST does not apply to eligible LGPS

employees)

Auto-EnrolmentQualifying Schemes

• Need to ensure minimum level of benefits payable to employee.

• Local Government Pension Scheme (LGPS) will be a qualifying scheme.

• Employers must pay a minimum level of contribution…this is already achieved in LGPS

• No change for existing members (Regulations might need slight tweaking)

• As now, eligible employees will be automatically enrolled in LGPS, however, they will not be able to opt-out before commencing employment as they can now.

LGPS employers can not choose any other qualifying workplace pension scheme (QWPS).

Auto-EnrolmentWho has to be auto enrolled?• Those not in Qualifying Workplace Pension

Scheme (QWPS)• Age 22 or over• Under State Pension Age• Earn at least £8,105 p.a. (Personal tax

allowance 2012/13)• Work in the UK• If previously opted-out, must be re-enrolled

every 3 years• When employee meets age or pay criteria

However, all employees already automatically join LGPS

Auto-EnrolmentOpting-Out and Refunds

• Once an employee has been auto-enrolled they can opt-out of the LGPS within the first month and receive a refund of their contributions if applicable through payroll.

• If refund of employee contributions is made through payroll, employer’s contributions will also be refunded to employer.

• Employee can only obtain opting-out form from Pension Section once they have been auto-enrolled and not before. Employers cannot provide opting-out forms.

• LGPS regulations currently permit refund of contributions if less than 3 months service.

• Opted-out employees will automatically be re-enrolled at least every 3 years.

Auto-Enrolment

Staging DateStaging is being introduced over a 5 year period starting in October 2012.

Date of staging is determined by size of employer in April 2012

Size of Employer Staging date Timetable

Larger Employer (Over 249 employees) October 2012 – March 2014

Medium Employer (50 – 249 employees) April 2014 – April 2015

Smaller Employer – (Under 50 employees) June 2015 – April 2017

Existing employee New employee

Staging date can be deferred to October 2016 (This date may be extended)

Employer can defer auto-enrolment date by 3 months for certain types of employees

Employee can opt-in at anytime from original staging date

Auto-Enrolment

What must an employer consider!• Must ensure that Auto-enrolment rules are

complied with, this overall responsibility cannot be passed to outside HR/Payroll provider.

• Need to ensure outside HR/Payroll systems provider are able to produce all necessary reports.

• HR/Payroll systems will need to store all relevant information on eligibility and opting-out. (Retain for minimum 6 years)

• Employer will need to provide all employees with written information on auto-enrolment, even for those who are already members of the LGPS.

Cont/

Auto-EnrolmentWhat must an employer consider!Cont/• Clear audit trail to show that you meet your

obligations.• Employer must have in place a robust

procedure for informing Pension Section of new joiners and those who subsequently opt-out.

• Assess estimated costs of changes and extra employer contributions, although some will opt-out.

• Make allowance in budget for these additional costs.

• Certify and register the QWPS with the Pensions Regulator.

Auto-Enrolment

Any Questions?

Auto-Enrolment

Useful website addresses

Pensions Regulator:www.thepensionsregulator.gov.uk

Department of Work and Pensions:www.dwp.gov.uk/policy/pensions-reform/workplace-pension-reforms/

Devon Pension Serviceswww.devon.gov.uk/pensions

THE ANNUAL ALLOWANCE

Presented by

ANNETTE WASS

PENSIONS TEAM MANAGER

The Annual Allowance

• Restricting tax relief now based on growth in pension benefits

• Annual Allowance introduced in April 2006 (A day) and is the maximum growth in pension benefits a member can accrue in one year before tax charges

• 2010/11 £255,000 Annual Allowance

The Annual Allowance

• For defined benefit schemes the growth in pension benefits is measured by taking the increase of benefits between the start and the end of a year and was multiplied by 10.

• EG 01/04/2009 pension £4000

31/03/2010 pension £4500

£500 X 10 = £5,000

The Annual Allowance

NO WHERE NEAR THE £255,000!

Very few Local Government Officers have been effected by that

limit.

The Annual Allowance

HOWEVER………………

AAAGH!!!!!!!

The Annual Allowance

• From April 2011

– Annual Allowance reduced to £50,000

– Factor increased to 16

– Benefits at start of the year increase by CPI

– Test will still apply in year of retirement

– Deferred benefits exempt

– Exemption only for serious ill health retirements

– Carry forward unused allowances going back 3 years

The Annual Allowance

A normal sort of year’s pension input...

01/04/2011 pension = £4000

31/03/2012 pension = £4500

£4000 + 3.1% CPI = £4,124

Growth therefore is £4500 – £4124 = £376

£376 X 16 = £6,016……Under the £50k

The Annual Allowance

A good pay rise?

2010/11 30/60 x £40k = £20,000 x16 = £320,000 plus 3.1% CPI = £329,920

2011/12 31/60 x £50k = £25833.33 x 16 = £413333.28

Difference = Increase in pension benefits £83413.28

In excess of £50k by £33365.12 so a potential tax bill of £13346.05 for a 40% tax payer

The Annual Allowance

Carry Forward…..

Unused Allowances from up to three previous years will be available to offset against any excess pension savings

The Annual Allowance

• Tax Charges under £2000, individual expected to pay HMRC in full

• Above £2000 – option to reduce pension benefits and the pension scheme will pay the tax bill

• Currently waiting for:

LGPS Regs/factors/guidance

The Annual Allowance

• Individual’s responsibility to report on self assessment form

• Tax charge based on highest income tax rate

• Employers must provide data by 6th July

• Pension administrators duty to notify members who exceed Annual Allowance by 6th October

THE LIFETIME ALLOWANCE

The Lifetime Allowance

• Lifetime Allowance introduced April 2006

• Maximum value of pension rights from all sources is looked at to assess if any tax charge due

• Currently £1.8M – Down to £1.5m 2012

The Lifetime Allowance

• Defined benefit pensions are valued by multiplying pension by 20

• E.g. £5000 X 20 = £100,000

The Lifetime Allowance

• May affect high earners with long service

• Tax for exceeding the limit, 55% if taken as a lump sum or 25% (in addition to PAYE) if taken as a pension

The Lifetime Allowance

Another simple example………

Annual Pension 36/60ths x £100,000 = £60,000 x 20 = £1,200,000At £1.2m the value of benefits is still below

the reduced Lifetime Allowance of £1.5m

The Lifetime Allowance

• Protections in place for high earners

• New ‘Fixed Protection’ to be applied for before 6th April 2012

Any Questions?

End of Year processesand

Annual Benefit Statements

Speaker: Viv Ray

(Deputy Pensions Manager)

End of Year

AGENDA

• End of year process

• Timescales

• Validating pension records

• Annual Benefit Statements

• Annual Allowance

Process

• Devon Pension Services (DPS) writes to all employers in March requesting employee data in certain formats, mainly Excel spreadsheet. Data requested is:– Variable hours listing– AVC deductions (new this year)– Hours– FTE salary at April– Pension contribution rates– Pension contributions

Timescale

• Ideally employer will forward employee data to DPS as soon as possible after March each year

• The sooner we get the data the sooner we can work on sorting out any errors.

• If it is a valuation year then we need data by end of April (NB: The cleaner the DPS data is, the more

accurate the valuation outcome will be)• New HMRC Annual Allowance test requires

employers to give data to DPS by the latest of 6th July each year or within 3 months of employees request.

Validation and ABS

• DPS will load data on to the Axis system which should match with employee records

• DPS will look at any errors– Axis record but no contributions– Contributions but no Axis record

• DPS to liaise with employer to sort out errors.

• Accurate Annual Benefit Statements can only be produced if data is correct

• Annual Benefit Statements usually produced in March

• Electronic ABS issued in 2012 for first time

Annual Allowance

• DPS must issue the Annual Allowance pension statement by 6th October each year.

• DPS will issue member’s with necessary Annual Allowance pension statement if they exceed £50k limit or are close(?)

• If employer data is late there can be a fine of £300 per case and then a further £60 per day.

Any Questions?

LGPS Reform

Speaker: Shirley Cuthbert

(Employer Liaison)

Hutton Report

• The Independent Public Service Pensions Commission – ‘fundamental structural review of public service pension provision’

Hutton Report

• Final Report published March 2011• Career Average Revalued Earnings Scheme• Final salary link retained for past service• Normal retirement age linked to State pension

age• Fixed cost ceiling on employer contributions• LGPS remain a funded scheme• Changes brought in before the end of current

Parliament

Hutton Report

• Hutton recommendations accepted as a basis for consultation/discussion in Budget 2011

• Consultation 07/10/11 to 06/01/12 covering short & long term solutions

• LGPS cost ceiling 20.4% of payroll• Reforms to last a generation/25 years

Short Term Reforms

1. Increase in member contributions (1.5%/£450m)Changes in accrual rate (1/64th & 1/65th/£450m)But acceptance that ratio could change to minimise opt out risk

2. Increase in member contributions (1%/£300m)Change in accrual rates (1/67th/£600m)Ditto on opt out risk

1A/2A State pension age link (£300m)

Long Term Reforms• 2015 CARE scheme, basis 1/60th

• Revaluation – Active = Earnings– Deferred = Prices– Pensioners = Prices

• Normal Retirement age linked to State• Employee contributions – Current rate +3%• Pre 2015 service protected - linked to final salary• No one within 10 years of NRA will face any

detriment in the amount of pension they receive at their NPA

New LGPS Project 2014

• Just one change please

• Currently proposed to scrap interim changes & contribution increases

• Move CARE forward to 2014

• Negotiations underway on 2014 scheme design

• Consultation expected autumn 2012

• Regulations in place April 2013

CARE Scheme

Quote from www.lgps.org.uk

“Remember that whilst the project continues no changes will be made to the scheme which is, and will continue to be after the project is complete, one of the best ways available to ensure a decent income in

retirement.”

Any Questions

Draft Miscellaneous Regs

Speaker: Shirley Cuthbert

(Employer Liaison)

Draft Misc. Regs.

• Areas being considered include

- Final pensionable pay to include pay from previous LGPS employer

- Tier 3 ill health retirements cannot receive AVC benefits

- Mandatory Bond or Indemnity required for new admitted bodies

- parent guarantor only if not possible

Draft Misc. Regs.

- Employer policies: These are required for early payment of PB's

- Purchase of pre 06/04/88 NCP benefits timeframe 12 mths after declaration received

- Additional paternity leave should be treated in the same way as additional maternity or adoption leave (LGE Circ 245 Feb 2011)

Communication

Speaker: Shirley Cuthbert

(Employer Liaison)

Communication

• Contact forms – signatories

• E-zine• Procedure Manual • New website

New Pensions Website

Contact Info

• Websites: www.devon.gov.uk/pensionswww.lge.gov.ukwww.lgps.org.uk

• Email addresses:pensions@devon.gov.uk Viv.ray@devon.gov.ukShirley.cuthbert@devon.gov.ukAnnette.wass@devon.gov.uk