LGPS - new rules for added years?

m_c_s

Hi,

My wife is in the LGPS scheme with Wiltshire County Council. She has heard that the added years option is being altered soon:mad: , the administrator was very ambiguious about this. Can someone please clarify the situation and what will be the new rules? Also are there any other changes planned?

thanks MCS

blackeberg

Not sure if it's been finalised yet but there was a review in progress similar to the Teachers scheme that I'm in. Our contributions went from 6% to 6.4% and the Added Years were replaced by an option to buy an additional annual pension.

Quick example of the new TP scheme - £4760 buys an annual pension of £500 at todays prices (and increases in line with RPI). Under this option my partner would receive £250 per annum if I died first. The maximum additional pension that can be bought is £5000 per annum.

m_c_s

blackeberg thanks,

I have just been reading a leaflet on the net about the new LGPS, I for one did not realise there is a big change happening on 1 April 2008 - perhaps wifey forgot to mention:rolleyes: . Only stumbled on this issue because I have been reviewing our pensions and there is anoption to add extra years for my wife. From reading about the new scheme it looks like they are removing the facility to add extra years. I am not sure how the new scheme of buying more pension equates to added years - any help from somebody would be greatfully received .
Also it looks like the LGPS will be a 60ths scheme and there will be salary banding for contributions.

Sobraon

Hi I'm sure there are sorts of projections and technical analyses that could be done on the changes e.g put the extra money in a SIPP, assume growth is RPI+2% and take a guess on inflation linked annuity rates at 60 and compare with benefits from the main pensions scheme.

But another way to look at it is to understand that the changes are being brought in to improve affordability - for the employers. Despite the spin the aim of the changes is to reduce the overall cost to employers. Reduced cost to employers means reduced overall benefits to members.

A similar system was introduced for the teachers pension scheme (TPS) a year or so ago which meant you could purchase an index linked money increase in pension as described by blackeberg above rather than past added years . I might add that at the time local pension administrators were also in the dark about details of the changes.

As I see it the main obvious difference is that if you get a promotion, or your job is regraded to a higher grade (and therefore scale) or your wages rise faster than RPI then you don't see the benefit in an increase in the 'extra' purchased part of the pension - but you would on past added years.

The purchase of past added years in the TPS required a payment of the full economic cost of extra pension as determined by the government actuary at about 21% of one years salary salary for an extra one year of added pension years. The real cost to the employers may be even higher (30%?) according to a recent report on university pensions (TPS is available to nearly 50% of university teachers).

A lot of teachers rushed to take up the option of the purchase of past added years before it closed with TPS because I guess most people hope to get some promotion/regrading/ increase above RPI before they retire (based on conversations with with my own HR dept).

But back to my first point - the LGPS are not closing the past added years method because it is cheaper (for the employer) than the new system!

CAE

Hi M_C_S

When is your wifes birthday? This could affect whether she can still make an election to buy added years.

Carol

m_c_s

CAE ..her birthday is early March.

MCS

CAE

If your wifes birthday is in March she can still make an election to buy added years in the LGPS under the current regulations. I suggest you go back to the administrators and ask for a quote for the purchase of added years from her next birthday. She can purchase a maximum of 6 years 243 days, and would pay to age 65. If she left before age 65 she would be credited with the period of membership she had purchased pro rata. If she works part time the purchased period will also be pro rata. The percentage contribution she would have to make will depend upon her age at her next birthday.

She needs to ensure the election is made before her birthday, and there is normally a medical form to complete as well.

Hope this information is helpful.

Reg99

She should consider AVCs which can be taken to boost the lump sum.