| This
document concentrates on some Frequently Asked Questions about
the new Local Government Pension Scheme in Scotland. Further
information can be found in the Heads
of Agreement: New Local Government Pension Scheme (Scotland)(pdf).
|
| What
is a defined salary pension scheme? |
Like the current LGPS, the new scheme is based on your
final salary when you retire. The amount of pension you
earn is dependant upon your final salary, the number of
years you have been a member of the pension scheme and the
accrual rate of the scheme.
|
| What difference
does the new accrual rate make? |
The accrual rate determines how fast your
pension grows. In the new scheme the accrual rate is being
improved and will be 1/60th of pensionable pay.
This means that to earn a pension of half your final salary
you would need 30 years membership of the pension scheme.
In the current scheme, where the accrual rate is 1/80th,
you would need 40 years membership to achieve the same pension.
|
|
Will you still receive a lump sum? |
Although there is
no automatic lump sum in the new scheme, you will still be
able to take the 3/80ths lump sum built up in the current
scheme. This is explained in more detail in the section on
transitional procedures.
However, the new LGPS allow you to commute
(or transfer) some of your pension into a lump sum – up
to a maximum of 25% of your pension. The commutation (transfer)
rate is 1:12, meaning that for every £1 you transfer from
your pension, you will receive a lump sum of £12.
|
| What about
partner pensions? |
Partner pensions will be extended to include nominated
cohabiting partners. The Heads of Agreement paper highlights
the criteria to determine whether a nominated cohabiting
partner would receive a pension.
|
| What are
the changes to death in service arrangements? |
- The new scheme will increase death in service benefit
to three times final salary. Other changes include:
- a) in the case of death of deferred scheme members,
the lump sum will be increased to 5 times pension; and
- b) in the case of death of pensioner scheme members,
the lump sum will be increased to 10 times pension, less
any pension already paid, if a pensioner dies before age
75.
|
| What are
the new ill health arrangements? |
The new LGPS will provide enhanced ill-health early retirement
benefits to those who are permanently incapable of doing
their current jobs, and have a reduced likelihood of ‘gainful
employment’ before the normal retirement age.
Those who have no reasonable prospect of gainful employment
will have their benefits calculated on the basis of their
full potential service up to the normal retirement age (65);
a lower-level enhancement, taking account of 25 per cent
of prospective service, will apply to those with a reasonable
prospect of gainful employment. Gainful employment is described
as paid employment for not less than 30 hours a week, for
a period of at least a year.
There will also be a third tier of ill-health compensation,
outside the LGPS, under the Local Government (Discretionary
Payments and Injury Benefits) (Scotland) Regulations 1998.
This would come from a discretionary employer lump sum for
a person who would be capable of undertaking further gainful
employment. It will be calculated on one week’s pay for
each year of service up to a maximum of 30 weeks’ pay. This
payment will be made by the employer, at their discretion,
rather than by the pension fund. Up to a maximum of £30,000
the payment would be tax free. Permanent incapacity is not
required to be eligible for this payment.
|
| What
are the changes to flexible retirement arrangements in the
new scheme? |
Whilst keeping the current provisions for flexible retirement,
the new scheme will provide increased flexibility through
the ability to draw down part or all of your pension while
still working.
Another improvement is the updated Actuary Tables used
to determine any reduction in pension and lump sum if members
retire early. The table below highlights the reduction factors
that would be applied in cases of early retirement.
Percentage Reduction in Accrued Retirement Benefits
|
Years
Early
|
Pension Reduction (%)
|
Lump Sum Reduction All Members (%)
|
|
Males
|
Females
|
| 0 |
0 |
0 |
0 |
| 1 |
6 |
5 |
2 |
| 2 |
11 |
10 |
5 |
| 3 |
16 |
15 |
7 |
| 4 |
20 |
19 |
9 |
| 5 |
24 |
23 |
12 |
| 6 |
28 |
27 |
14 |
| 7 |
32 |
30 |
16 |
| 8 |
35 |
33 |
18 |
| 9 |
38 |
36 |
20 |
| 10 |
41 |
39 |
22 |
| 11 |
44 |
42 |
24 |
| 12 |
47 |
45 |
26 |
| 13 |
50 |
47 |
27 |
| 14 |
52 |
49 |
29 |
| 15 |
54 |
51 |
31 |
|
|
What is the Minimum Pension Age (MPA)?
|
The MPA refers to the age at which you can first draw your
pension.
The Finance Act 2004 introduced an MPA of 55 for occupational
pension schemes, including the LGPS.
Therefore, the Minimum Pension Age for early retirement
(other than on ill health) will be 55 years for new entrants
from 1 April 2009; those who are already members will retain
their age 50 NMPA until April 2010, when the tax rules change
(except for those who are retired on redundancy or efficiency
grounds and who have a protected pension age).
|
|
Contribution Rates – employees |
The new LGPS will have a fairer contribution scale with
most staff paying less and contributions more closely linked
to earnings.
This includes a tiered system of employee contributions
in which members pay one contribution rate on the first
part of their earnings, a higher rate on the next chunk,
and so on - similar to the income tax system.
This means that everyone will pay 5.5% on the first £18,000
they earn, and as a salary rises different contribution
rates are applied to each pay band. It also has to be remembered
that the tax bands (as highlighted in the Heads of Agreement)
do not include tax allowances. These reduce the real level
of contributions that members will make to the LGPS. Some
examples are shown in the table below.
Overall Equivalent Contribution Rates
(Illustrative)
| FTE Salary |
Avg. Rate |
| £6,753 |
5.50% |
| £15,194 |
5.50% |
| £18,008 |
5.50% |
| £20,822 |
5.74% |
| £23,636 |
6.00% |
| £26,449 |
6.27% |
| £29,263 |
6.48% |
| £32,077 |
6.73% |
| £34,891 |
6.95% |
| £37,705 |
7.14% |
| £40,518 |
7.34% |
| £43,332 |
7.64% |
| £46,146 |
7.90% |
Members contributions to the scheme will rise slightly
on average (from 6% to 6.3%) but they will now be on a tiered
rate so that pension contributions increase as salary increases.
Lower paid staff – up to 60% of local government who earn
less than £23,600 – will end up paying less than they do
at present.
For part-time staff allocation to tiers is according to
whole time equivalent pay. This is because the final pension
is calculated on the basis of whole time equivalent pay.
Pensionable service is of course still pro rata i.e. a member
working half time for 10 years would have 5 years service.
|
|
Contribution Rates – employers |
Contribution rates
for employers and scheme members will move towards a cost-sharing
balance ensuring the new scheme remains affordable.
Overall the average new scheme costs are estimated at 19.6%
with employee contributions averaging 6.3%, and employers
making up the difference.
|
| Transition
to new Scheme |
All members will transfer to the new scheme on 1st
April 2009, and start to accrue pension benefits at the
new rate.
Their existing pensions will be protected, and at retirement,
two pension calculations will be carried out – one for each
scheme.
Transitional protection will be in place for those members
who were eligible for the Rule of 85 and will reach age
60 before 31 March 2020.
|
Scotland's
public service union 
|
