Firefighters Pension Board Training

Firefighters’ Pension Board Training Ian Pollitt CBE Pensions Consultant KPMG www.kpmg.co.uk Pensions overview • Background to reforms • Hutton • ...
Author: Pauline Fleming
7 downloads 0 Views 1MB Size
Firefighters’ Pension Board Training Ian Pollitt CBE Pensions Consultant KPMG

www.kpmg.co.uk

Pensions overview

• Background to reforms • Hutton • Public Service Pension Act 2013 • Governance – what does it mean?

© 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

16

.(“

Pensions in the news Summer Budget: Annual allowance reduced to £10k

Budget 2015: Lifetime Allowance reduced to £1m

Government green paper: reforming pensions tax relief UK pensions deficits hit all time high

LGPS reform – consolidation, superfunds, shared services

Steve Webb: Government's pensions reforms are "unfinished business" © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

17

© 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

18

© 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

19

‘Big 7’ Public Pension Schemes

© 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

20

Membership in Big 7 public schemes

© 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

21

Gold plated pensions?

© 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

22

Longevity

© 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

23

Aged 100+ Number of Centenarians in the UK 300000

250000 102000 200000

150000 54200

100000

50000

20500 300

500

2000

800

6500

0 1981

1991

2001

2011 Male

2021

2031

2041

2051

Female

The data labels indicate the number of male centenarians Source: Office for National Statistics, National Population Projections (UK) © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

24

Case for reform • 13 million active, deferred and retired members of public service pensions = 1 in 5 of population • £32bn pa paid out (2009-10) • Between 1999 and 2009 costs increased by 32% • Longer life expectancy • Increase in number of public servants • Widening of entitlement – auto enrolment • Contributions too low • Legal challenges to ‘unmodernised’ rules • Divergence with private sector • 1997 reforms resulted in increase in retirement ages, reduced accrual rates, ‘cap & share’ • New schemes slowly introduced from mid 2000s

© 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

25

IPSPC Recommendations

• • • • • • • • • • •

27 recommendations Final salary replaced with CARE Standard design Accrued Rights NPA to be SPA Fixed cost ceiling Tiered contribution rates Publish standard data Pension Boards The Pensions Regulator oversight Good standards of administration

© 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

26

Latest reforms Regulations (benefits and governance)

Lord Hutton’s recommendations

Public Service Pensions Act 2013

Pensions Regulator (governance) Guidance (governance)

Wider reforms (tax, autoenrolment, contracting-out etc) © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

27

2013 Act – Governance • Each locally administered scheme to have a properly appointed, trained and competent Pension Board in place by 1 April 2015 • Equal number of employer and scheme

members • Scheme Advisory Board • Adequate internal controls

• Robust record keeping • Timely reporting to HM Treasury etc • Good administration • Sound internal dispute procedures • Information for members on benefits © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

28

The Pensions Regulator Code of Practice No 14 1. 2. 3. 4. 5. 6. 7. 8. 9.

Knowledge and understanding required by Pension Board members Conflicts of interest Publishing information Internal controls Record keeping Maintaining contributions Providing information to members IDRP Reporting breaches of the law

© 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

29

UK Public Pension arrangements Main types of pension schemes

DB – Final Salary

Current Schemes to be closed

Regular income at retirement

Tax free cash sum

Types of benefits

Early/ Flexible Retirement

DB – CARE

New joiners to be offered a CARE scheme

Ill health benefits

© 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Death benefits

30

How does a DB scheme work?

The costs

The benefits

Employee regular contributions

Tax Free Cash

Employer regular contributions

Retirement pension

Deficit contributions from Employer/HMT

Costs

Benefits

?

Unknown!

Known!

Defined Benefit Pension Scheme

Costs depend on: ■ How long people live i.e. mortality ■ How long members serve ■ Salary growth

Other benefits

In reality public Pension Schemes are a consequence of many factors of which the majority are outside the control of the Board or members

■ Number of members and distribution ■ Inflation

© 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

31

How is a DB pension calculated?

Pension build-up rate (Accrual Rate)

x

Final pensionable salary

x

Service in pension scheme

=

Annual pension

Example Scheme

£

1/

60

1/

20 years service

x

£25,000

60

accrual rate

x

20 years

£25,000 final pensionable salary

=

© 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

£8,333 per annum

32

How a CARE scheme works CARE pension in first year:

1/49 x £30,000 = £612.24 pa

Total pension £612.24 per annum

Year 1 Pay £30,000 In the first year you receive 1/49 of pensionable pay as a pension © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

33

Your CARE benefits CARE pension after 2 years: CPI = 2.8%

CPI +1.25% = Increase of 4.05% x £612.24 = £24.80

1/49 x £30,000 = £612.24 pa

Year 1 Pay £30,000

+

1/49 x £31,000 = £632.65 pa

Total pension £1,269.69 per annum

Year 2 Pay £31,000

In year two you receive 1/49 of pensionable pay as a pension plus your first years’ pension is re-valued by CPI +1.25% © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

34

Your CARE benefits CARE pension after 3 years: CPI = 2.6%

CPI + 1.25% = Increase of 3.85% x £632.65 = £24.36 CPI +1.25% = Increase of 3.85% x £637.04 = £24.53

CPI +1.25% = Increase of 4.05% x £612.24 = £24.80

1/49 x £30,000 = £612.24 pa

Year 1 Pay £30,000

+

1/49 x £31,000 = £632.65 pa

Year 2 Pay £31,000

+

1/49 x £32,000 = £653.06 pa

Year 3 Pay £32,000

In year three you receive 1/49 of pensionable pay as a pension plus your first two years’ pension are both re-valued by CPI +1.25% After three years you have built up a pension of £1,971.64 per annum © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

35

Your CARE benefits CARE pension after 10 years:

You continue to earn pension for every year worked, adding all the previous years AND revaluing all previous years as well.

1

2

3

4

5

6

7

8

9

10

© 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

and so on until you leave or retire...

36

Bringing it all together... scheme membership before 1 April 2015

Pensionable service

x

Final pensionable pay

x

Accrual rate (1/60 or 1/80)

=

scheme membership from 1 April 2015

Etc for each year of membership

Annual pension

1

2

3

total pension

© 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

37

More reform to come?

• Government 25 year promise & political appetite; but……. • Cost pressures e.g. longevity increases • Social changes • Valuation and cost cap • 1/3rds contributions model? • More tax changes? • Different savings vehicles? • Work longer and pay more • ????

© 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

38

Suggest Documents