News & Events

Avon Pension News

Issue 3    
Summer 2002

This is a text version of the newsletter. A full colour version can be viewed Avon Pension News  - Summer 2002 issue  If the pdf version takes too long to download, the text version contains identical information.

Welcome to Avon Pension News. Lots of useful and interesting information is contained in this issue:

Jean Hinks, Resources Director

CONTACT US:

Avon Pension Fund, Floor 3 South, Riverside, Temple Street,  Keynsham BS31 1LA

Telephone: 01225 477000
Facsimile: 01225 395258
Email: avon_pension@bathnes.gov.uk

Please quote your National Insurance number and the name of your employer when ringing us or writing.

Audio tape, Large print and Braille in English can be provided and also translated into other languages. For further information please contact Avon Pension News on 01225 395280

Changes to the Local Government Pension Scheme (LGPS)

Additional Voluntary Contributions

As from 13 November 2001 the Scheme has been changed to prevent a member using the accumulated value of their Additional Voluntary Contributions (AVCs) to purchase additional membership in the LGPS.

The new rules mean that members retiring with an immediate pension will have the option of using their AVC 'pot' to purchase an additional pension from the LGPS instead of an annuity from their AVC provider.

However, some members (protected cases) will retain the option of purchasing a period of membership in the LGPS will, apart from the protected cases, not be available.

The protected cases are:

• members who retire on the grounds of permanent ill health, and

• current members aged 50 or over who opt (or who had previously opted) to stop paying AVCs

who had elected to pay AVCs before 13 November 2001.

Independence of registered medical practitioners

As from 1 April 2002 your employer has to ensure that the medical practitioner that they use to advise to obtain a certificate, as to whether a member is permanently incapable of discharging efficiently the duties of his / her local government employment because of ill health or infirmity of mind or body also includes in the certificate confirmation that:

• he/she has not previously advised, or given an opinion on, or otherwise been involved in the particular case for which the certificate has been requested, and

• is not acting, and has not at any time acted, as the representative of the member, the Scheme employer or any other party in relation to the same case.

Admission Agreements

As from 6 March 2002 the Secretary of State for the Department of Transport, Local Government and the Regions can approve an admission agreement which will allow members of the LGPS to remain in the Scheme following the outsourcing of work where they were employed by an admitted body providing their new employer wishes them to remain in the LGPS.

School Achievement Award Scheme

Pension contributions cannot be deducted from payments made to members of the LGPS. This brings the LGPS into line with the Teachers’ Pension Scheme.

Transfers In

As from 6 March 2002 the LGPS can no longer accept transfers of accumulated funds of Free Standing Additional Voluntary Contributions (FSAVCs) or Additional Voluntary Schemes (AVCs) to purchase additional membership. The exception is the transfer of AVCs from an in-house AVC arrangement in certain circumstances.

Housing Management Companies

As from 6 March 2002 Housing Management Companies set up by local authorities are included in the list of Scheme employers. This means that employees of these Companies can join the LGPS without being nominated by the Company.

Care Trusts

As from 1 April 2002 members of the LGPS whose employment is transferred to a Care Trust can remain in the LGPS subject to an admission agreement between the Care Trust and the relevant Local Government Pension Fund.

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Which team supports you?

The Pensions Department includes three Benefits Teams (Teams A, B and C) and deals with 60 employers who belong to the Local Government Pension Scheme. The information below will make it easier for you to contact the right person with your pension enquiry:

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Nothing to Fear from Stock Market Crisis

Following the recent downturn in global stock market conditions and fears that we are heading towards a recession, there have been articles in the press that the pensions of people who have not yet retired will suffer because of this.

So, should you be worried?

As a member of the Local Government Pension Scheme you'll be pleased to hear that the answer is NO. The level of your benefits is guaranteed as they are calculated using your length of membership in the Pension Scheme and your pay at retirement. They are not linked in any way to the Pension Fund's investment performance or to the amount of money in the Fund.

So, whatever happens to the stock market and share prices you can rest assured that your pension should be safe.

Are you losing out?

Are you reading this but haven't yet joined Avon Pension Fund?

By not joining your occupational pension scheme, you are effectively taking a voluntary pay cut.  Did you know that as a member of the Local Government Pension Scheme, your employer will contribute towards your pension and also guarantee benefits for your family? You will get tax relief on your contributions and, in most cases, you will pay less National Insurance Contributions. Other benefits you could enjoy are:-

• Inflation proofed benefits

• Tax free lump sum of up to 150% of final pay

• Spouse's and Children's pensions

• Ill health provision

• Opportunities to 'top up' your benefits

• No administration charges

If you want to find out more about the benefits of joining - contact us! 

New employing body

The National Care Standards Commission (NCSC) is an organisation set up by the Government on 1 April 2002 to inspect and regulate a wide range of bodies which have social care responsibilities (including elderly person's homes, children's homes and day centres). A total of 25 staff were transferred to the NCSC from the four unitary councils in the Avon area. In order that these staff could remain in the Avon Pension Fund, the Pensions Committee approved an application by the NCSC for admitted body status. However, immediately following the Chancellor's budget the Government announced that the NCSC will be incorporated in a new Commission for Social Care Inspection within the next eighteen months. The pensions implications for the staff involved are unclear at this stage.

Part-timers' Pension Rights - update

In the last issue we reported that the two test tribunal cases were being heard involving the Local Government Pension Scheme. The Avon Pension Fund cannot deal with claims by part-timers at present. A number of issues still need to be resolved. The story so far....

• A Directions Hearing covering the two Local Government Pension Scheme (LGPS) part-timer test cases was held on 21 November 2001 at the London Central Office of Employment Tribunals. The Hearing concentrated on running through the various issues raised by the test cases, deciding what should be heard, and planning the future timetable.
  
• The Unions submitted two additional test cases. All other LGPS cases (i.e. other than the test cases) will not be dealt with until the outcome of the test cases are known.
  
• There was a further Directions Hearing in the week beginning 4 March 2002 and the main hearings for the test cases will take place at the London Central Office over a period of 4 weeks commencing on 17 June 2002.
  
• The Avon Pension Fund will not know the outcome of these test cases until the end of July 2002 and even then will have to await for advice to be issued by the Department for Transport, Local Government and the Regions.

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Clinics update

As reported in the last issue of Avon Pension News, we were poised to hold pension clinics in Weston-super-Mare, Kingswood and Thornbury. These have now all taken place, together with one held in Chipping Sodbury at the end of March.

All four events were extremely popular, with over 800 people attending in total. Questionnaires were handed out to visitors to the clinics and your feedback has been very positive; thanks to those of you who took the time to complete a form. As with anything new,  there are things that can be learned and we will take your suggestions, where possible, into account when arranging future events.

In view of the popularity of these pension events, we intend to hold clinics on a regular basis at a variety of locations. Look out for publicity for forthcoming clinics - there should be one coming to a venue near you soon!

 Did you know?

• Total membership of Avon Pension Fund is 60,675 made up of:-

• Current contributions 32,412

• Pensions in payment 15,778

• Preserved (deferred) Benefits 12,485

• The value of the Fund is £1.56 billion. This is equal to winning the National Lottery jackpot every week for the next 3 years!

• Pensions paid per year - £58 million

• Lump Sum grants paid per year - £7 million

• Membership has increased by 50% over the last 5 years

(figures as at 31 March 2001)

Transfers of pension rights into the Local Government Pension Scheme (LGPS) from a previous pension arrangement

You may be able to transfer pension rights from:

Transfers that are derived from a Pension Credit cannot be accepted (A Pension Credit refers to benefits granted to a spouse by a Court under a Pension Sharing Order or by a qualifying agreement in Scotland following a divorce or annulment of marriage).

An option to transfer must be made within 12 months of joining the LGPS. However, your employer can extend the 12 month period. This is at the discretion of your employer and you can ask your employer what their policy is on this matter.

If you opt to transfer pension rights from another pension arrangement then a sum of money, usually known as a transfer value, is offered to buy service in the LGPS. If you opt to transfer within the 12 month period the amount of service which the transfer value will purchase is usually higher than that which will be purchased if your employer agrees to extend the time limit.

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Missold Pensions Payments - £10m received for reinstatements in the Fund

You will probably have read about the so-called "Review of Missold Pensions". Set up by the Government in 1997, insurance companies had to review sales of any personal pensions between 1988 and 1994 to establish whether their policyholders would have been better off either staying in their employers pension scheme or joining it if they were eligible to do so. Where members were worse off – and in nearly all cases former Local Government Pension Scheme members were - reinstatement in their employer’s scheme had to be made, with the insurance company paying the total costs including any shortfall between the value of the policy and the re-instatement cost. A large number of members of the Avon Pension Fund were badly advised by insurance companies and had to be reinstated in the Avon Pension Fund if they were still contributing members.

In view of the importance of this Review and its long term nature, the Fund recruited two additional staff for the Review period to specifically deal with providing information to insurance companies to enable them to carry out the Review which by its nature is complex and time consuming. The cost of employing these extra temporary staff has been covered largely by fees from the insurance companies for the work done.

This initiative proved to be very effective and to date 813 members’ pension benefits have been successfully reinstated in the Local Government Scheme and the Avon Pension Fund has received nearly £10 million to cover the reinstatement costs. In addition, top up payments for some members of £1.3 million have been received. The Review is due to end on 30 June 2002, although some cases have been extended to 31 December 2002.

…………and the moral of the tale? Think hard before you decide to opt out of the Local Government Pension Scheme, perhaps in favour of a personal pension. For most staff, the Scheme’s valuable benefits will be hard to match if you have to finance it all yourself. You are strongly recommended to take independent financial advice before making any such decision.

If I change from Full-time to Part-Time employment what will happen?

• to my contributions

Your pension contributions are based on your contractual pay, so if you reduce your hours your contributions will be lower.

• to my service

As your pay and pension contributions have reduced then your future service will also be reduced.

For example if you have worked for 10 years as a part-time employee (working half-time), you will have your service recorded as follows:

10 years x ½ = 5 years full-time service

• to my pension benefits at retirement

If you decide to retire following a change to part-time employment then your benefits will be based on your service in the Pension Scheme and your final years pay which will be calculated as if you were a full-time employee. The following example shows how your pension benefits would be calculated if you had been full-time for 10 years followed by 10 years at half-time and your half-time pay was £6,000 per year.

10 years at whole-time ..................= 10 years
10 years at half-time ......................= 5 years
(10 years x ½ = 5 years)
Total service ..…...........................= 15 years

Final years pay based on half-time pay of £6,000 would be £12,000 as you worked half-time.
Your benefits would be:
a pension of £2,250 a year (15 x £12,000 ÷ 80)
plus a non taxable Lump Sum of £7,750 (3 x £2,250)

If you subsequently have to retire because of permanent ill health any enhancement you may be entitled to will be reduced on account of your part-time hours unless you have at least 13 years and 122 days whole-time membership.

• to my death-in- service cover

If you die in employment there is a death grant due to your estate - this is two years final pay. Any reduction in hours will therefore reduce the amount of this death grant proportionately and affect any dependants benefits.

If you change pay grade or your hourly- rate when you reduce your hours it is important that you contact the Pensions Department immediately for advice, as this article assumes that in reducing your hours your equivalent whole-time pay has not changed.

This article is a general guide for members who are changing their hours from whole-time to part-time. Nothing contained in this article can override the Local Government Pension Scheme Regulations.

If, after reading this article there are questions you would like to ask, please contact the Pensions Department who will be happy to answer any queries you may have.

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CONTRACTING BACK INTO THE STATE EARNINGS RELATED PENSION SCHEME?

There was a lot of publicity in the media in March this year about letters sent by some of the major insurance companies to their "older" policy holders, advising them that it would be better financially for men reaching age 53 and women age 49, to opt back in to the State Earnings Pension Scheme (SERPS). Although this general advice applied only to personal pension policy holders this was not made at all clear by many of the media reports and a lot of concerned members of the Avon Pension Fund contacted us as administrators as they thought this advice might apply to them as well.

We would like to reassure all members of the Avon Pension Fund that the Local Government Pension Scheme provides a pension for them which includes a SERP equivalent (called the Guaranteed Minimum Pension). This must be at least as much as members would have got as their SERP pension.

Simply put, this means that every Fund members’ pension will always be at least as much as the SERP they would have got in the government scheme and in many members’ cases this will be more.

Change of investment managers

It is generally accepted that, unless their performance is exceptionally poor, investment managers should be given a period of at least three years to achieve their performance targets. Gartmore and Merrill Lynch were appointed by the Avon Pension Fund in June 1997 and, because they had failed to achieve their performance targets over a three-year period, the Pensions Committee took the decision to institute a review of the Fund's investment strategy and management arrangements. Acting on advice from Hymans Robertson, a firm of investment consultants, the Committee approved a new investment management structure at its meeting in December 2000. There then followed a lengthy advertising and selection process which culminated in the new managers taking up their appointments in March 2002. The managers  are:

The purpose of restructuring is to improve the Fund's investment performance. The Committee believes that the Fund now has the managers in place to achieve this. A revised Statement of Investment Principles was approved by the Pensions Committee at its meeting on 22 March 2002. Copies are available on request. For more information about the change of investment managers or for a copy of the Statement of Investment Principles, please contact Tony Worth (01225 395281) or email him on Tony_Worth@bathnes.gov.uk

Retiring and the Rule of 85

The "Rule of 85" is not a reason for retirement. However, when you retire, whether it is early or at your normal retirement age, your benefits will be reduced if you do not meet the "Rule of 85". Normally you qualify for benefits providing you have 2 or more years’ membership in the Pension Scheme.

The "Rule of 85" does not apply if you are retiring at age 65 or your employer is retiring you for any of the following reasons, when your benefits are paid immediately:

• permanent ill-health

• redundancy and you are 50 years of age or over

• efficiency reasons and you are 50 years of age or over

• you are between the ages of 50 and 60, your employer has agreed to you retiring early and you satisfy the "Rule of 85"

To find out if your benefits will be reduced if you are retiring because you are:

• between the ages of 50 and 60 and your employer has agreed to you retiring early

• between the ages of 60 and 65

Simply add together:

Your age (whole years) + your years of membership in the Pension Scheme (in whole years)

If this is 85 or more than 85, then your benefits will not be reduced. For example, if you want to retire at 55 (after 31 years’ membership in the Pension Scheme):

55 = 31 = 86

and so you can retire without any loss of benefits (if your employer agrees).

If you decide to retire at the age of 60 or over and your benefits are subject to a reduction you can decide to delay the payment of your benefits to a date when the reduction does not apply. You will be given details of this by the Pensions Department.

To sum up:

• there are many circumstances that allow you to retire with immediate benefits
• in some cases, early retirement is possible without any loss of benefits
• in other cases, taking early retirement may reduce your benefits

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