New Scheme proposals issued

The Scottish Public Pensions Agency (SPPA), on behalf of the Scottish Executive, issued proposals on 30th July 2007 for a new Local Government Pension Scheme (LGPS) in Scotland.

The proposals have been developed over the last six months by a tripartite group consisting of representatives from COSLA, Unions and the Scottish Executive.

The proposals have been issued in the form of a consultation paper. Responses must be sent to SPPA no later than 31st October 2007. SPPA will then issue draft regulations towards the end of 2007. The New Scheme will be introduced from 1st April 2009.

The proposals are summarised in the following table.

Scheme Feature

Current LGPS(S)

pre December 2006

New LGPS(S) Proposals

by 1 April 2009

1. Type of scheme

Defined benefit final salary scheme, with a normal retirement age of 65

Rule of 85 allowed members to retire with unreduced benefits where age and years of service together exceeded 85.

Defined benefit final salary scheme, with a normal retirement age of 65.

2. Accrual rates

1/80^th plus lump sum (3/80^ths)

1/60^th with option to commute part of pension into lump sum.

3. Death in service arrangements

A lump sum death grant of 2 times final pay.

A lump sum death grant of 3 times final pay.

4. Ill health benefits

If member permanently incapable of discharging efficiently the duties of employment, benefits paid immediately. If member has 5 or more years’ service they are also entitled to enhancement of the benefits.

Two or three entry point ill health provision proposed where members –

(i) have no reasonable prospect of working before normal retirement age of 65; or

(ii) are likely to undertake gainful employment before age 65.

Possible third tier consisting of employer grant covering those who are likely to be capable of undertaking gainful employment within a reasonable period.

Implementation of certificate of protection to cover circumstances where member takes lower salary due to ill health.

5. Partner pensions

Dependants benefits payable in respect of widows, widowers and civil partners at a rate of 1/160^th

Dependants benefits payable in respect of widows, widowers, civil partners, plus unmarried partners who cohabit, at rate of 1/160^th

6. Flexible arrangements in the run- up to retirement

From age 50 with consent, member can reduce hours or move to a lower grade and, with consent, elect to draw the pension benefits already built up whilst still drawing salary for reduced hours/grade.

Members can continue paying into the scheme to build up further benefits in the scheme. No limit on the amount of contributions, however tax relief only given on contributions up to 100% of taxable earnings.

Current provisions for flexible retirement to be retained as feature of the new Scottish LGPS.

Increased flexibility through being able to draw all or part of occupational pension benefits without having to retire completely.

In case of flexible retirement employer consent required to reduce hours or lower grade, but employer consent to access benefits only required in respect of those under age 60.

A provision to buy additional pension benefit.

Cost-neutral uplift factors for benefits accrued beyond age 65, at no cost to the employer.

7. Minimum Pension Age

In line with Finance Act 2004, the MPA will change from 50 to 55 years on 6/4/2010.

All new members to have MPA of 55 years.

All current members will have MPA of 55 from 6/4/2010.

8. Contribution rates for scheme members

General contribution rate of 6% except some existing manual employees (5%).

Working assumption is an increase in the employee contribution rate to an average of 6.3%.

Employee contribution rate set at tiered variable rates, linked pensionable pay. Potential options outlined including a range of bands and contribution rates.

9. Contribution rates for employers

Employer rate varies as determined by 3-year actuarial valuations

Contribution rates for employers and scheme members to move towards a 2:1 ratio to ensure new scheme affordable.

Overall average new scheme costs estimated at 19.6%, with employee contributions at average of 6.3%. Employer contributions to make up the difference.

Commitment to principle of cost sharing to ensure sustainability over the long term.

Scheme Feature	Current LGPS(S) pre December 2006	New LGPS(S) Proposals by 1 April 2009
1. Type of scheme	Defined benefit final salary scheme, with a normal retirement age of 65 Rule of 85 allowed members to retire with unreduced benefits where age and years of service together exceeded 85.	Defined benefit final salary scheme, with a normal retirement age of 65.
2. Accrual rates	1/80^th plus lump sum (3/80^ths)	1/60^th with option to commute part of pension into lump sum.
3. Death in service arrangements	A lump sum death grant of 2 times final pay.	A lump sum death grant of 3 times final pay.
4. Ill health benefits	If member permanently incapable of discharging efficiently the duties of employment, benefits paid immediately. If member has 5 or more years’ service they are also entitled to enhancement of the benefits.	Two or three entry point ill health provision proposed where members – (i) have no reasonable prospect of working before normal retirement age of 65; or (ii) are likely to undertake gainful employment before age 65. Possible third tier consisting of employer grant covering those who are likely to be capable of undertaking gainful employment within a reasonable period. Implementation of certificate of protection to cover circumstances where member takes lower salary due to ill health.
5. Partner pensions	Dependants benefits payable in respect of widows, widowers and civil partners at a rate of 1/160^th	Dependants benefits payable in respect of widows, widowers, civil partners, plus unmarried partners who cohabit, at rate of 1/160^th
6. Flexible arrangements in the run- up to retirement	From age 50 with consent, member can reduce hours or move to a lower grade and, with consent, elect to draw the pension benefits already built up whilst still drawing salary for reduced hours/grade. Members can continue paying into the scheme to build up further benefits in the scheme. No limit on the amount of contributions, however tax relief only given on contributions up to 100% of taxable earnings.	Current provisions for flexible retirement to be retained as feature of the new Scottish LGPS. Increased flexibility through being able to draw all or part of occupational pension benefits without having to retire completely. In case of flexible retirement employer consent required to reduce hours or lower grade, but employer consent to access benefits only required in respect of those under age 60. A provision to buy additional pension benefit. Cost-neutral uplift factors for benefits accrued beyond age 65, at no cost to the employer.
7. Minimum Pension Age	In line with Finance Act 2004, the MPA will change from 50 to 55 years on 6/4/2010.	All new members to have MPA of 55 years. All current members will have MPA of 55 from 6/4/2010.
8. Contribution rates for scheme members	General contribution rate of 6% except some existing manual employees (5%).	Working assumption is an increase in the employee contribution rate to an average of 6.3%. Employee contribution rate set at tiered variable rates, linked pensionable pay. Potential options outlined including a range of bands and contribution rates.
9. Contribution rates for employers	Employer rate varies as determined by 3-year actuarial valuations	Contribution rates for employers and scheme members to move towards a 2:1 ratio to ensure new scheme affordable. Overall average new scheme costs estimated at 19.6%, with employee contributions at average of 6.3%. Employer contributions to make up the difference. Commitment to principle of cost sharing to ensure sustainability over the long term.

The proposals can be:

- viewed in full on the SPPA website at:

www.sppa.gov.uk/pension_reform/PRLGPSConsultations.htm

or downloaded here:

- New Scheme proposals covering letter

- New Scheme proposals consultation document and questionnaire