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

jem16

darren72 wrote: »

Am I correct in saying that there is no easy way of working this out ??

Thanks

Without knowing what CPI/RPI is for the next 25 years, then no I don't think there is an easy way of working it out. I would imagine that whoever deals with the figures for the LGPS has already worked it out so that either choice would be cost neutral. In other words pay more now but get more in the future or vice versa.

darren72

Thanks for your reply - That is helpful.

This has certainly got my mind spinning - Talk about exercising the mind !

woolly_wombat

I have decided to stump up the extra money for RPI-linkage.

The pre 1 April 2012 ARCs are unique in that RPI was 'hard coded' in the rules:
http://timeline.lge.gov.uk/GAD/Additional%20Pension%20Guidance%2021%20Feb%2008.FINAL.pdf

"2.5.10
The rate of additional pension is increased with reference to the RPI from the date of the first contribution/ lump sum payment to the date of award of benefits. Once in payment, the additional pension is increased with reference to the RPI."

The post 1 April 2012 rules make no reference to CPI or any other inflation index:
http://timeline.lge.gov.uk/GAD/EW_ARCfactors_v1_010412.pdf

Towers Watson have speculated that a different inflation index could be used in future:
http://www.towerswatson.com/en/Press/2013/03/Two-new-inflation-measures-will-either-be-used-for-pensions

"The Government has previously said that it would consider whether to base some pension increases on CPIH inflation rather than on CPI inflation once CPIH became available."

WW

darren72

Hi WW, Thanks for your reply, that makes very interesting reading. I'm now thinking that I may not be in Local Government for too much longer, so the additional question for me is to whether continue on the RPI contract at approx £600 per month for the remaining 6 years of my additional £5000 contract, or stop it and start a new one over a 1 year period, paying about £1400 per month to build it up quicker. There are just far too many variables to work out the best way, and they need to know by tomorrow

woolly_wombat

jem16 wrote: »

Without knowing what CPI/RPI is for the next 25 years, then no I don't think there is an easy way of working it out. I would imagine that whoever deals with the figures for the LGPS has already worked it out so that either choice would be cost neutral. In other words pay more now but get more in the future or vice versa.

What I find interesting is that those of us who are paying pre 1 April 2012 (RPI linked) ARCs were already paying slightly more than those with post April 2012 (currently CPI linked) ARCs, even before this increase.

WW

woolly_wombat

darren72 wrote: »

Hi WW, Thanks for your reply, that makes very interesting reading. I'm now thinking that I may not be in Local Government for too much longer, so the additional question for me is to whether continue on the RPI contract at approx £600 per month for the remaining 6 years of my additional £5000 contract, or stop it and start a new one over a 1 year period, paying about £1400 per month to build it up quicker.

I have had similar thoughts.

There are just far too many variables to work out the best way, and they need to know by tomorrow

I do not seem to have been hit with such a large increase as you, having sadly elected to purchase less over a shorter timescale, so that made the decision easier for me!

WW

woolly_wombat

Pixieboy wrote: »

As CAE said, the revised factors are not available online yet as far as I am aware.
These things take time and I'm sure all administering authorities will be writing soon....

Now available online:
http://timeline.lge.gov.uk/GAD/Additional_Pension_Guidance_contracts_commencing_before%201April2012_Final.pdf

Stand alone spreadsheet of factors plus cover letter can be accessed here:
http://timeline.lge.gov.uk/GAD/gadidx2008.htm

LGPS administrators have been given very little time to effect these changes.

spearce96

There is some more information on the rpi or cpi link for arc's in lgps bulletin 100. Looks like they are trying to squirm out of paying rpi for any deferred or in payment pensions. The contract is clear but doubt it would override an act of parliament!

woolly_wombat

spearce96 wrote: »

There is some more information on the rpi or cpi link for arc's in lgps bulletin 100. Looks like they are trying to squirm out of paying rpi for any deferred or in payment pensions. The contract is clear but doubt it would override an act of parliament!

Crikey! Thanks for posting spearce96. This is definitely one to keep an eye on for those of us who have elected to cough up the substantial increased cost of pre April 2012 LGPS additional pension (ARC) payments (in the belief that we were paying extra for RPI indexation, including in deferement and retirement).:eek:

Link to LGPC Bulletin 100 - March 2013:
http://www.lge.gov.uk/lge/aio/21164278

Extract:
"On 6 March the Department of Communities and Local Government (DCLG) issued Government Actuary’s Department (GAD) guidance for England and Wales relating to Additional Regular Contribution (ARC) contracts which were taken out prior to 1 April 2012 (this replaces previous guidance issued on 14 December 2009). The guidance is available on the GAD guidance post 2008 page of the Timeline Regulations website. The guidance outlines that due in the main to a change in the discount rate used, the rate of contributions for contracts taken out prior to 1 April 2012 will increase by between 15% and 115% compared to the contribution rate scheme members are currently paying for their ARC contracts. Administering authorities are required to contact those members currently paying ARC contracts taken out prior to 1 April 2012 to confirm that GAD and DCLG have issued new guidance which requires that their monthly contribution rate is updated from 1 April 2013 (as permitted under regulation 23(8) of the LGPS Administration Regulations) to reflect a change in the discount rate.
Following the release of this guidance the LGPS has been contacted by a number of funds regarding the indexation of these contracts. Our understanding (as outlined in paragraph 10.2.10 of Annex A of the Guidance) was that the additional pension bought under a pre 1 April 2012 ARC contract is increased by the Retail Prices Index (RPI) between the date of the first payment and the date of leaving, and thereafter (both during any period of deferment and when in payment) the additional pension is increased by the RPI (not the Consumer Prices Index (CPI)). However, the point has been made that once a member has ceased membership of the LGPS the Pensions (Increase) Act 1971 applies to deferred pensions and pensions in payment from the LGPS (and the ARC pension is a pension payable from the LGPS). The LGPC secretariat has raised this point with DCLG as to whether there is anything in the LGPS Regulations that, in respect of additional pension bought by payment of ARCs, overrides the provisions of the Pension (Increase) Act 1971 or, in the absence of anything in the LGPS Regulations, whether there is anything in general contract law that legally commits the administering authority to increase the additional pension after leaving by RPI (rather than CPI). At present we are aware that DCLG are seeking further advice on this issue and we await an official response to our enquiry. Once we receive a response we will include an update in a forthcoming Bulletin and also issue an email to Pension Managers (internal and outsourced) and Client Managers in England and Wales."


WW

woolly_wombat

I have been looking again at the GAD lgps rules.

Purchase of Additional Pension - Applications on or after 1 April 2008 (original version dated 21 February 2008):
http://timeline.lge.gov.uk/GAD/Additional%20Pension%20Guidance%2021%20Feb%2008.FINAL.pdf
"2.5.10 The rate of additional pension is increased with reference to the RPI from the date of the first contribution/ lump sum payment to the date of award of benefits. Once in
payment, the additional pension is increased with reference to the RPI."

Purchase of Additional Pension - Applications on or after 1 April 2008 (version 1.2 dated 14 December 2009):
http://timeline.lge.gov.uk/GAD/E_W_Addl_Pension_Guidance091214v1_2.pdf
"2.5.10 The rate of additional pension is increased with reference to the RPI from the date of the first contribution/ lump sum payment to the date of award of benefits. Once in
payment, the additional pension is increased with reference to the RPI."

That's pretty explicit is it not?

WW