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Pensions Update In this Edition:

LPFA Employer Survey z

Value of the Fund z

Pensions Increase 2011 z

Pensions Seminars z

FRS17 Reminder z

Valuation Update z

EOY Return Spec Reminder z

Final ABS Run z

Technical Update z

lpfa

February 2011

Results of Employer Survey

You will no doubt be aware of the debate around the future of the Local Government Pension Scheme and the commission headed by John Hutton.

Back in September 2010 we were asked to obtain the views of our employers in order to feed into the decision making process and requested that you respond to a short, web based survey.

A total of 84 out of 190 employers responded and below is an analysis of these responses:

The first questions asked if employers considered the LGPS to be an “excellent recruitment and retention tool”. The positive response of 68% is encouraging but not overwhelming – do 32% really think it isn’t?

Secondly employers were asked if they encourage new staff to join the scheme, the fact that 32% do not is perhaps an indication of how much the cost is a disincentive for employers.

Is the scheme fair across the work force as a whole? 63% of employers said yes, a majority if not a resounding one.

Affordability was the big concern with 97% of employers agreeing that the scheme needs to be affordable into the future.

58% of employers thought that members should pay more in order to reduce the burden on them, with 47% and 46% of employers seeing reduced benefits or increased retirement ages respectively as the way to reduce costs.

Perhaps the most interesting result was that when asked if they would offer a lower cost alternative pension if available 48% of employers said yes. This indicates a significant demand for an employer provided pension with a lower cost structure than the current LGPS.

February 2011

(continued...)

In terms of broadening the appeal of the LGPS 50% of employers agreed that innovative options such as early draw down or assignment would encourage younger employees to enter the scheme.

Actual questions and results shown below;

Jeff HoustonDirector of New BusinessTel: 020 7369 6041jeff.houston@lpfa.org.uk

Question % Agree

February 2011

The table below shows the value of the LPFA Pension Fund over the last few months.

Value of the Pension Fund at Month End

Month end Active Sub Fund Pensioner Sub Fund Total

October 2010 £2,587bn £1,323bn £3,910bn

November 2010 £2,584bn £1.299bn £3.883bn

December 2010 £2,687bn £1.319bn £4.006bn

Roona EllisInvestment Manager Tel: 020 7369 6026roona.ellis@lpfa.org.uk

We receive our reconciled fund valuations in the fourth week of the following month, so there is always likely to be a delay in the dissemination of the information.

Pensions Increase in April 2011We have recently received confirmation that the Pensions Increase to be applied on 11th April 2011 to all pensions that have been in payment or deferred for at least 12 months, will be 3.1%.

As previously reported, in his Budget of 22nd June 2010, the Chancellor announced the intention to move the revaluation of public service pensions from the Retail Price Index (RPI) to the Consumer Price Index (CPI). HM Treasury have confirmed that the figure of 3.1% is taken from the CPI as at September 2010.

A CLG note to this effect and the Treasury note both accompany this issue of Pensions Update. The Treasury website can be found at:

http://www.hm-treasury.gov.uk/tax_pensions_increases.htm

Jacqui LawrenceTechnical OfficerTel: 020 7369 2688jacqui.lawrence@lpfa.org.uk

Tailored Pensions Seminars Pensions are a big issue for your employees and we can help them understand the pitfalls they face when planning for the future. We can provide pensions seminars led by experts and tailored to the particular needs of your employees. These seminars can cover a full range of topics including:

Contributions - who pays and how much? zCan I transfer my pension? zWhat happens to my pension during employment breaks and changes (Maternity, leave zwithout pay, changes in hours etc.)?Can I pay more into my pension? zWhat happens if I leave the scheme before retirement age? zWhen can I retire? zHow much pension will I get? zWhat happens if I become too ill to work? zWhat about redundancy? zCan I come back to work after getting my pension? zIs life cover included? zHow will I know how much my pension is worth or if the scheme changes? z

PLUS, there is the opportunity to ask our experts any basic pension questions you may have at the Q&A session or during 1:1 discussions if necessary. Over the last 6 months we have visited several scheme employers to carry out pension seminars for scheme members, all of which have had very positive feedback.

Seminars can take place at LPFA offices or on site. Prices range from £60 an hour excluding travel time) or up to £420 for a full day (all prices are exclusive of VAT). If you would like to book a seminar for your scheme members or find out more please contact James Wilday (james.wilday@lpfa.org.uk or 020 7369 6028) or myself at the contact details below.

John CrowhurstPensions Services ManagerTel: 020 7369 6038john.crowhurst@lpfa.org.uk

February 2011

Valuation updateAll employers should now have sent back their agreement to the employer results payable from 1st April 2011 and many thanks to everyone who has responded to date.

For any employers in the pensioner sub fund, different arrangements will apply as these rates have only recently been received from our actuary and individual letters are being sent to the employers in question.

February 2011

FRS17 ReminderAll employers who received an FRS17 report last year have been contacted to confirm that they require a report at 31st March 2011.

In order to receive a report, we require the documentation issued, to be returned to LPFA by 15th March confirming acceptance of the costs and timescales involved in the project and notification of any special assumptions that are to be used or issues our actuaries are to be made aware of in compiling reports.

We have recently received a report from our actuaries outlining how FRS17 deficits are looking at this point in time. A copy of this report is attached with the newsletter or can be supplied by Sarah Vanson (sarah.vanson@lpfa.org.uk or 020 7369 6114) on my team.

Lastly a number of employers have raised questions about the move from Retail Price Index (RPI) to Consumer Price Index (CPI), and the likely impact of the is on FRS17 reporting, to which our actuaries have responded as follows:

“Following correspondence and discussions with numerous bodies our standard approach will be to account for the change in RPI to CPI as a change in benefits and as a result allowing for this in the Income and Expenditure Statement”.

The final listing of results payable is due to be submitted to our actuaries by 9th of March to allow for any final queries to be raised.

In the absence of a signed letter of acceptance of our proposed valuation rates these will be deemed to apply.

By 31st of March 2011 all employers will have received a certified valuation results sheet from our actuary, together with a copy of the valuation report for the whole fund.

Lastly can I remind everyone to ensure their payroll providers are reminded of the new rates payable from 1st April 2011.

February 2011

Final annual benefit statement runFirstly, I would like to thank employers for all the work on resolving end of year queries as a far larger number of issues have been resolved compared to previous years.

Dear Member,

This Annual Benefi t Statement (ABS) illustrates the estimated value of your benefi ts in the Local Government Pension Scheme (LGPS). Further information regarding scheme benefi ts, including options to increase your retirement benefi ts, is available on request.

Your statement shows the current value of your benefi ts at 31st March 2010 and the estimated benefi ts you would receive if you retire at age 65. You may elect to receive benefi ts from age 60, but they may be reduced to refl ect their early payment. Benefi ts may also be payable from an earlier date with the consent of your employer, but may be subject to reduction. Benefi ts may also be payable early without reduction if you retire on the grounds of ill-health or you are dismissed by reason of redundancy or on the grounds of business effi ciency at age 55 or over.

Mike AllenDirector of Pensions

Private and Confi dential

Notes to help explain your benefi ts statement Annual Benefi t Statement 2010

Civil Partnership or Co-habiting Partner

The 2008 Regulations introduced the facility for a pension to be paid to a surviving nominated co-habiting partner. If you would like to make a nomination, please contact us and you will be informed of the qualifying conditions. This pension will only be based on the deceased member’s post 5th April 1988 membership and is only available to members who have been contributing members after 31st March 2008. Members may elect to buy back pre 6th April 1988 membership to count towards a surviving nominated co-habiting partner’s pension. Such elections must be made on or before 31st March 2011.

Please note that if you have registered your co-habiting partner with us or if your benefi ts are subject to a Court Order relating to a divorce or dissolution of a Civil Partnership, your statement is not able to take account of this.

Flexible Retirement

This is an option in which you draw the pension benefits you have already built up while remaining in employment, but is dependant on your employer giving their consent. You may request fl exible retirement from age 55, if you reduce your hours or move to a position on a lower grade. Some or all of your benefi ts could be reduced due to being paid early, but you can continue paying into the LGPS to build up further benefi ts in the Scheme.

Pre 1972 Membership

Where a member is paying addit ional contributions to avoid reductions to pre 1st

April 1972 membership, “total membership” will include that proportion bought out as at the date of this statement.

Children’s Pensions

In the event of your death, pensions are payable to eligible children. Further information is available on request.

Sick Leave and Maternity, Paternity and Adoption Leave

Reduced pay as a result of maternity, paternity or adoption leave, or reduced or no pay as a result of sickness or injury is treated as having been paid in full. However, it is not possible to automatically refl ect this in your statement. Should you have had such a period of leave in the year to 31st March, please contact us for a revised statement.

Nominated Benefi ciary for Death Grant

The administrative authority has total discretion regarding which eligible benefi ciaries should be paid a death grant. By nominating one or more persons or organisations, you can make it clear who you wish to benefi t from your lump sum life cover and enable us to pay some or all of the grant to someone other than a dependant or relative. This will normally allow the release of monies more quickly and should ensure that it is not subject to inheritance tax. It must be paid to your personal representatives if it has not been paid within two years of the date of your death. If you have not made a nomination or wish to update or change your nomination, expression of wish forms are available from your employer, usually through their Human Resources Section or the contact details on this ABS.

Your Annual Benefi t Statement is an estimated guide to your benefi ts only and can not cover every personal circumstance. Nothing contained in it can override the legislation governing the LGPS. You should not make any decision regarding your pension benefi ts on the basis of the fi gures quoted. Indeed, if you are likely to retire within the near future, you should ask for a specifi c retirement quotation.

Please note:

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Your Life Cover Nominees

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End of year return specification reminderInformation on the data LPFA requires for annual end of year returns was issued to the payroll contact of your organisation in January.

If you have not received the documentation please contact a member of my team.The process has not changed since last year and we are asking all employers to submit their returns to us by 30th April and if possible before this deadline.

This is also an ideal time for employers to use the data matching system as this will help stop unnecessary queries being raised at a later date and prevent potential charges being levied under the Pensions Administration Strategy. From the fund members perspective it also means that they will be issued with an annual benefit statement on time by the 31st October deadline.

My team are aiming to improve the service to employers by issuing query letters resulting from the 2010/11 end of year processing by 31st August 2011. Initial queries relating to missing joiners and leavers will be updated on our website and employers notified the day after the return is uploaded into our systems.

We are aiming to produce our final annual benefit statement run in mid March for employees who did not get a statement in October due to there either being a data query with the employer or an incorrect address held on our systems.

My team will produce the final ABS run around mid March with final statements based on the 2009/10 end of year returns being issued to members by 31st March 2011.

If you still have outstanding queries this will be the ideal time for these to be received so members do receive an annual benefit statement.

Tony WilliamsEmployer Services ManagerTel: 020 7369 6237tony.williams@lpfa.org.uk

February 2011

Technical Update

Increase in employee contributions

In the public sector Spending Review statement in October 2010 the Government announced its intention to increase employee pension contributions in the public service pension schemes (other than the Armed Forces Pension Scheme). The increases would be introduced progressively over the period 2012/13 to 2014/15.

A discussion paper on possible contribution rates in the LGPS was issued for discussion at the LGPS Policy Review Group (PRG) on 25th

January 2011 and the members of the PRG expressed concerns about the potential level of increases.

The Local Government Association has written to the Chancellor expressing concerns that the implications for local authorities, their workforce and the wider economy may not have been fully considered. A copy the letter accompanies this issue of Pensions Update.

Restriction of Pension tax relief

HMRC have now published online guidance for scheme members on the reduced Annual Allowance (AA) and Lifetime Allowance (LTA), which take effect from April 2011 and April 2012 respectively.

The major changes are:

A reduction in the Annual Allowance (AA) from £255,000 to £ 50,000 from 1 z st April 2011 A reduction in the Lifetime Allowance (LTA) from £1.8m to £ 1.5m from 1 z st April 2012

The HMRC guidance includes features on ‘How does the reduced annual allowance affect me?’ and ‘The Impact of a reduced lifetime allowance on pension savings’ and it can be accessed at:

http://www.hmrc.gov.uk/pensionschemes/index.htm

It should be stressed that, even at their reduced levels, the Annual Allowance (the level of the year on year increase in the value of your pension rights) and Lifetime Allowance (the limit of the total value of all your pension rights at retirement before they attract tax penalties)

are likely to apply only to a relatively small number of higher earners. LPFA will be personally contacting those members who our calculations suggest may be affected.

As reported in the January Pensions Update, HMRC have consulted on the possible mechanism by which tax will be recovered where a member exceeds their Annual Allowance. Both of their proposed methods involved recovery of tax by the scheme administrator through a reduction to scheme benefits payable, a reduction that is equivalent to the tax due, calculated either year on year or at retirement, and LPFA’s response to the proposals accompanies this issue of Pensions Update.

February 2011

The LGE Compensation, Severance and Redundancy Payments: Guide for Practitioners

The LGE has published the latest version of its “Compensation, Severance and redundancy payments: a guide for practitioners” in England and Wales. A copy of the guide has been sent to all Pension Managers in England and Wales. Details of how to obtain further hard copies and how to access a pdf version on line are contained on the LGE website:

http://www.lge.gov.uk/lge/core/page.do?pageId=119685

Redundancy Payments

The Employment Rights (Increase of Limits) Order 2010 came into force on 1st February 2011. It increased the maximum “week’s pay” for calculating a statutory redundancy payment from £380 per week to £400 per week where the appropriate date falls on or after 1st February 2011.

LGPC Bulletin 78S - Summarising submissions to the Hutton Commission

A joint submission made by the Unite, GMB and Unison Union and a submission by the National Association of Pension Funds to the Hutton Commission are summarised in LGPC Bulletin 78S, which accompanies this issue of Pensions Update. The final report by the Commission is expected to be published on the 10th of March.

Reports on developments in respect of the Default Retirement Age and auto-enrolment are also available in LGPC Bulletin 78S, together with further information of other technical developments that are summarised in this Technical Update.

A number of recent developments covered by LGPC Bulletin 78 were covered in our January Pensions Update, including the HM Treasury discussion document ‘Options to meet high annual allowance charges from pension benefits’; draft legislation, ‘LGPS (Benefits, Membership and Contributions) Regulations 2011’ and ‘Local Government (Discretionary Payments) (Injury Allowances) Regulations 2011’; and HMRC guidance for members on the impact of the reduced Annual Allowance and Lifetime Allowance.

Since the last issue of Pension Update LGPC have published two Circulars, number 242 Concerns LGPC led residential training for pension administrators and also HR/Finance/Payroll staff for whom the pensions function plays a significant part in their day-to-day role.

Circular number 243 concerns the arrangements for Trustee Training Conference in June 2011. Trustee training is usually aimed at Pension Committee members, but this year’s conference may be of more general interest as it will cover anticipated scheme developments in light of the Hutton Commission.

Alan PiperPensions Specialist ManagerTel: 020 7369 6063alan.piper@lpfa.org.uk

LGPC Circulars 242 and 243 - Administrator and Trustee Training