Local Government Pension Scheme - Increase in ARC's from April 2013

darren72

I have just received a letter from 'Your Pension Service' - Lancashire Local Government pensions.

It advises that the purchase of additional pension is being significantly increased from 1st April 2013, and my additional monthly payment is increasing from £299.80 per month to £581.60 per month.

Can this be correct ? - I will need to wait until Monday when they are open to confirm.

I signed up for making additional payments in August 2009, for an additional £5,000 pension per year. This meant a monthly payment of £299.80 over the 10 year period.

Even though I'm 3.5 years through, does it seem correct that the payment is increasing by so much ??

Has anyone else received a similar letter today ?

Thanks in advance

beansy

Thanks for posting.

My oh and a couple of others in work were thinking of taking one of these out to top up their pension. He said this was not his understanding of the scheme, as you said it was meant to be a fixed monthly payment for the full term of the ARC.

If they have now changed the goal posts, who in their right mind will sign up for them in the future!

Will be interested to hear the outcome following your phone call on Monday.

darren72

The letter does say:

"When you originally made your election to purchase additional pension I mentioned in my letter to you at that time that the additional contributions you pay can be reviewed by the Government Actuary's Department (GAD) at any time, and any changes they make would apply from the following April.

I am writing to you now, to make you aware that we have just received notification that GAD have reviewed the contributions payable to purchase additional pension and a significant increase has been made to these contributions (the increases are in the main as a result of projected future investment returns). The new rates apply automatically from 1 April 2013 to all existing continuing contracts that were entered into before 1 April 2012. Consequently, the amount you pay each month will increase from this date."

Hope this helps. If you have taken one out since 1 April 2012, this doesn't appear to apply to you.

Thanks

beansy

This shouldn't be allowed as 10 yrs is a long time and when you entered into the contract who would imagine it going up by this amount in one year!

I hope there are other options available to you and things work out ok for you.

Keep us posted and good luck.

Stochasticity

beansy wrote: »

This shouldn't be allowed as 10 yrs is a long time and when you entered into the contract who would imagine it going up by this amount in one year!

It would have been part of the contract you entered into.

You're under no obligation to continue to make the monthly payments at the higher amount, and the portion of the entitlement already built up is secured and unaffected.

The additional pension is still likely to be good value for money even at the significantly increased premiums, relative to alternative options.

darren72

I was just shocked that the price has almost doubled, for what is in effect the same result at the end of it (a fixed £5,000 additional pension).

They do say that "The increases are in the main as a result of projected future investment returns", but the pension amount is fixed (apart from inflation), so that doesn't really make much sense either.

Stochasticity

darren72 wrote: »

They do say that "The increases are in the main as a result of projected future investment returns", but the pension amount is fixed (apart from inflation), so that doesn't really make much sense either.

The LGPS has to find the money from somewhere to pay you the £5,000 per year (and inflationary increases) they have promised. They invest money in order to try and meet their liability to you (and to all of their members), and these monies are affected by investment returns.

Pixieboy

Based on the amount of pension being purchased and the period over which you are paying for it, yes the contribution increase is correct based on what is in the revised GAD guidance.
These pre 1/4/2012 additional pensions are indexed relative to RPI from commencement of the contract and thereafter; so even whilst deferred if you leave and don't take payment of your benefits, and once in payment. This is different to the main scheme benefits, for which increases are applied as a result of Pension Increase Review Orders, effectively linking them to CPI at present.
ARCs taken out since 1st April 2012 have their additional pensions indexed from commencement of the contract by Pension Increase Review Orders, effectively linking them to CPI at present.
The contributions for both are reviewable from time to time, and it is only the pre 1st April 2012 ones that are changing from 1st April 2013.
As Stochasticity has said, you are under no obligation to continue the contract at the increased cost, and could take out a new one under the post 31st March 2012 factors/provisions if you wish.

darren72

Thank you for your replies.

Would there be a difference in taking out a new one rather than continuing the existing one at the increased costs ?

That was another point I was going to query with them, as the figures don't seem to match up.

Taking out a new one for 10 years is shown as costing £367 per month, where-as continuing my existing one for the remainder of the 10 years is going to cost £581...

Stochasticity

darren72 wrote: »

Thank you for your replies.

Would there be a difference in taking out a new one rather than continuing the existing one at the increased costs ?

Taking out a new one for 10 years is shown as costing £367 per month, where-as continuing my existing one for the remainder of the 10 years is going to cost £581...

Your monthly contributions to date will have already secured about £1,750 per annum of additional pension (plus inflationary increases). If I'm not mistaken, therefore the maximum you will be able to buy under a new contract is £3,250 per annum (not £5,000). Is this factored into the figures above? If so:

10 years x 12 months x £367 = £44,040
6.5 years x 12 months x £581 = £45,318

Not a big difference in cost, but the new contract would be indexed to CPI, not RPI as were you to continue under the existing contract. The longer term of the new contract would also increase the likelihood of further monthly contribution increases later down the line.

darren72

Stochasticity wrote: »

Your monthly contributions to date will have already secured about £1,750 per annum of additional pension (plus inflationary increases). If I'm not mistaken, therefore the maximum you will be able to buy under a new contract is £3,250 per annum (not £5,000). Is this factored into the figures above? If so:

10 years x 12 months x £367 = £44,040
6.5 years x 12 months x £581 = £45,318

Not a big difference in cost, but the new contract would be indexed to CPI, not RPI as were you to continue under the existing contract. The longer term of the new contract would also increase the likelihood of further monthly contribution increases later down the line.

I'm not sure if it is factored into the figures they provide - Probably not, as it shown as "Annual Amount of Additional Pension £5,000) and then £367.20 next to 10 year period - so presumably the new contract would be a lot cheaper than renewing the existing one - If this makes sense.

I presume both are just as likely to increase due to changes in the RPI and/or CPI ?

Thanks