Local Government Pension Scheme

JULY 2016

Inside this issue:

Welcome to the latest edition of our annual pensions newsletter for active members of the Local Government Pension Scheme. By now you will have received your 2016 Annual Benefit Statement (ABS). A projection of benefits have been included in the statement again this year, but please remember this is based on your pay for the year to 31 March 2016 and assumes this will remain the same until your Normal Pension Age (NPA).

Annual Benefit Statement 2016 Contribution Pay Bands National Fraud Initiative Proposed Limit on Public Sector Exit Payments New LGPS NI Database Tell us Once service Death Grant Savings in Retirement Pensions and Tax changes Previous Pension Rights Annual Pension Fund Report 2014/15 Performance Monitoring 15/16 Contact Us

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As the new State Pension scheme started on 6 April 2016, we are no longer issuing a combined pension statement showing state pension details, DWP have ended the production of statements as they now provide a digital service. Should you wish to apply for a state pension statement you can apply online at www.gov.uk/check-state-pension or you can telephone on 0345 3000 168 for statements and enquiries. As always, I hope you find this edition interesting. If you would like to comment on the content or have any suggestions for improvement, please feel free to contact the pensions team. Contact details can be found on page 14.

Annual Benefit Statement 2016 Comprehensive Definitions CARE Scheme (from 1 April 2014) From 1 April 2014 pensionable pay is the amount of pay on which you pay contributions. It includes non-contractual (as well as contractual) overtime and any additional hours worked in excess of your contractual hours. For each scheme year that you are a member, a pension equal to a 49th of your pensionable pay will be added to your pension account.

Example: Pensionable pay for year from 01/04/2015 to 31/03/2016 = £20,000.00 £20,000 divided by 49 = £480.16 - this amount is added to the pension account at the end of the scheme year. 50/50 section – if an employee is in the 50/50 section during the scheme year the amount in their pension account would be half the amount shown in the example.

Inflation Increases The inflation figures used to increase the CARE benefits is the annual increase in the Consumer Prices Index (CPI) for the previous September. The increase added to the CARE Scheme pension account on 1 April 2015 was 1.2% (CPI figure at September 2014). Please note that the inflation figure can go down as well as up.

Final Salary Scheme (for all pre 01/04/2014 service) For all service prior to 1 April 2014 this remains as a final salary scheme. Therefore your pre 1 April 2014 service will be based on your final salary pensionable pay at leaving. The benefits quoted in your annual benefit statement are directly related to the elements of pay on which you have paid pension contributions over the period of 1st April 2015 – 31st March 2016. For the most part: Full time employees - Pay has been based on the aggregate pay plus whole-time additional pensionable payments (i.e. contractual overtime, standby, first aid allowance etc.).  Part time employees - The whole-time equivalent pay plus additional pensionable payments. Note: Given that a number of colleagues have additional elements that significantly increase overall pay; we have attempted to reflect this in the calculation. It must be accepted that in applying this methodology, it is possible, as a result of fluctuating elements, for final pay to vary significantly from one year to the next. 2

Total membership This is the total membership used for the calculation of your final salary benefits and will include any membership purchased by a transfer value from another pension scheme. Periods of part-time membership are reduced in proportion to the actual hours worked.

Example: Assume Mr Joe Bloggs’ service is as follows:10 years whole time at 36 hours per week 5 years part time at 18 hours per week (18/36) 6 years part time at 12 hours per week (12/36)

10 years 2 years 183 days 2 years

Total membership for Mr Joe Bloggs is:

14 years 183 days

Benefit Structure up to 31 March 2014 All membership up to 31st March 2008 will be calculated with a 1/80th pension and a 3/80ths lump sum for each year of membership. All membership from 1 April 2008 up to 31 March 2014 will be calculated with a 1/60th pension and no automatic lump sum.

Example: 12 years 183 days membership prior to 01/04/2008 - Final salary pay of £20,000 12/183 x £20,000 / 80ths = £3,125.34 pension 12/183 x £20,000 x 3/80ths = £9,376.03 Lump sum 2 years membership from 01/04/2008 to 31/03/2014 – Final salary pay of £20,000 2 x £20,000 / 60ths = £666.67 pension

Membership in pre 08, post 08 and post 14 schemes For those employees that have membership in the pre 2008, post 2008 and post 2014 schemes an example is shown below of how your pension is accumulated.

Example: Pre 08 12/183 years/days x £20,000 / 80ths Post 08 2 years x £20,000 / 60ths Post 14 20,000/49 Total Pension Automatic Lump Sum

£9,376.03 3

= = = =

£3,125.34 £666.67 £480.16 £4,272.17

LGPS Contributions from 1 April 2016 The contribution pay bands table is increased in line with the Consumer Price Index each year, as there was no increase this year the bands remain the same as last year, below is a reminder of the current bands. The contribution rate you pay depends on your actual pensionable pay. If you have more than one job, each job will be treated separately. This could mean that you have different contribution rates applying to each of the jobs that you have. If you elect for the 50/50 section you will pay half your normal contribution rate for the period you are in this section of the scheme. Pay Bands Contribution Rates Up to £13,600

5.5%

£13,601 - £21,200

5.8%

£21,201 - £34,400

6.5%

£34,401 - £43,500

6.8%

£43,501 - £60,700

8.5%

£60,701 - £86,600

9.9%

£86,601 - £101,200

10.5%

£101,201 - £151,800

11.4%

More than £151,801

12.5%

How data is shared To pick up any overpayments - whether accidental or otherwise - we take part in the National Fraud Initiative, which cross checks the records from key payroll data for pension schemes like ours with the Department for Work & Pensions’ database. This is used for the purpose of preventing and detecting fraud, which are then investigated further. For more details, please see www.harrow.gov.uk/fraud

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Proposed Limit on Public Sector Exit Payments The Government intends to place a cap on the payments made to public service employees when they leave employment, as it wants to stop six-figure exit payments. This cap will cover all of the major public services, including Local Government, Teachers, Civil Service and NHS employees. The government is proposing to apply a £95,000 limit (or ”exit cap”) on the total value of all payments made to people leaving employment in the public sector. Payments to be included in the calculation of the exit payment subject to the cap include:  Redundancy payments 

Compensation or exit payments



Employer costs of offering early access to unreduced pension benefits (pension strain).

What does this mean for members of the LGPS? If you leave on redundancy or reasons of efficiency after the age of 55, you are entitled to receive unreduced pension benefits immediately. Whilst this is good for you, it does generate a cost to your employer, as you will be receiving your benefits before your normal retirement age. This is known as the “pension strain” cost. This pension strain cost, along with any other payment e.g. redundancy payment, that you receive will be added together and measured against the £95,000 cap. Benefits relating to ill health retirement are not affected by the cap.

How will the exit cap affect me? Not everyone will be affected by the introduction of the exit cap. You will be able to receive the full value of any termination payments, as well as your LGPS pension, if the value of your redundancy payment, the pension strain figure and any other payments add up to less than £95,000. In some cases though, the value of all exit payments will be greater than the £95,000 limit. If this applies to you, then your pension benefits will be recalculated with a reduction applied. Reducing the pension means that the pension strain figure is also reduced. Your pension will be reduced to the point where the total value of your exit payment is equal to £95,000. In some cases, even if benefits are reduced to the point where the pension strain is zero, the value of the exit payment may still be greater than £95,000. In these cases your other exit payments, e.g. redundancy payment, will also be reduced, until you reach the £95,000 limit. If your LGPS benefits are reduced in this way, then you will have to make a choice: 1. Receive payment of the reduced pension and lump sum. 2. Give up some of your redundancy or other exit payments to remove the reduction to your pension and lump sum. You receive a lower redundancy pension but unreduced retirement benefits. 3. Choose a mixture of 1 and 2, above. This means you give up some of your redundancy pay to remove some (but not all) of the reduction on your pension and lump sum. 5

When will the exit cap come into force? The introduction of the exit cap is anticipated to be effective from October 2016, however, this has yet to be confirmed.

New LGPS National Insurance Database London Borough of Harrow participates in a new National Insurance database with other Local Government funds in England, Wales and Scotland. This has been introduced in order to comply with legal requirements contained in the LGPS regulations. Provisions contained in the LGPS Regulations 2013 mean that, if a member of the LGPS dies, it is necessary for the scheme’s administrators to know if the individual also had other periods of LGPS membership elsewhere in the country so that the right death benefits can be calculated and paid to the deceased member’s dependants. As the LGPS is locally administered, each pension fund has its own membership records and it can be difficult to tell if an individual has other LGPS records and where these are held. To comply with the requirements set out above, a national Database has been developed that will enable funds to check if their members have LGPS pensions records in other pension funds.

Tell us Once London Borough of Harrow along with other LGPS funds also participates in the Department for Work and Pensions (DWP) Tell us Once service. An extract of the membership information contained in the NI Database will periodically be shared with the Department for Work and Pensions (DWP) in order for us to participate in the service. Tell Us Once is a service offered in most parts of the country when an individual registers a death. When the death of an LGPS member is registered, the DWP systems will ensure that the LGPS pension fund is informed of the death, meaning that the member’s records can be processed more quickly and simply than would otherwise be the case.

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Nominating Someone for Your Death Grant If you die, while you are paying into the Local Government Pension Scheme, a death grant of three times your yearly pay is payable to those you leave behind.

Who receives your money? As a member of the Local Government Pension Scheme any death grant that may become payable from the scheme can be made to, or for the benefit of, your nominee. The Scheme rules allow you to nominate the person or people that you wish to receive that death grant should you die before you reach retirement or very soon after retirement.

Is there any advantage in nominating somebody? The advantages of nominating any of your relatives or dependants to receive the death grant is that the payments can be made quickly without waiting for your estate to be settled. Also, a payment to a nominee usually means that no inheritance tax needs to be paid.

Are there any disadvantages? No, although in order to avoid inheritance tax the administering authority has discretion over who receives the payment. This means that, in theory, we do not have to pay it to the named nominee. However, this only happens in very unusual circumstances. For example, a person may have nominated their parents many years ago when they were single but at the time of death was married with children. In these circumstances the administering authority might think it reasonable that the person had forgotten to update their nomination and might make the payments to the person’s estate. If you have already nominated someone this will be shown on your Benefit Statement, if not you can tell us who you would like to nominate now by filling in a simple form. To make your nomination or update one you have already made, download a form from www.harrowpensionfund.org or telephone 0208 901 2655 and ask us to send you one.

Will your pension savings be enough in retirement? To find out more about how you can boost your tax free cash sum or pension at retirement click on the link below:http://www.pru.co.uk./pdf/AVCS74804.pdf Our appointed AVC provider, Prudential, has an online joining facility and this can be accessed via their dedicated LGPS AVC website:http://www.pru.co.uk/rz/localgov/england-wales/ Existing AVC payers can also increase their contributions online and also access their AVC account online via the same link.

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Pensions and Tax Changes Further changes have been introduced to the rules governing taxation and pension savings, the key changes are summarised below.

Lifetime Allowance The lifetime allowance (LTA) is the total value of all the pension benefits you can have without having to pay a tax charge when you draw them. This allowance reduced on 6 April 2016 from £1.25 million to £1 million. The LTA covers any pension benefits you may have in all tax-registered pension arrangements – not just the Local Government Pension Scheme. The Government have introduced two new protections for those people who are close to or exceed the revised limits, Individual Protection 2016 (IP2016) and Fixed Protection 2016 (FP2016). There will be no application deadline for these protections. However individuals will need to apply for protection before they take their benefits Most people will not be affected by the LTA charge as they will not have pension savings of more than £1 million.

Annual Allowance This is the annual amount by which the value of your pension benefits may increase in any one year without you having to pay a tax charge The pension savings year runs from 6 April to 5 April and is called the pension input period. The annual allowance for 16/17 is £40,000 you would only be subject to the Annual Allowance tax charge if the value of your pensions savings for a tax year increase by more than the Annual Allowance limit for that tax year. Most people will not be affected by the Annual Allowance tax charge because the value of their pension savings will not increase in a tax year by more than £40000. If, however the pension benefits grows by more than this allowance then the excess may become subject to a tax charge. There are a number of changes to the Annual Allowance specifically aimed at “higher earners”, by reducing the limit on the amount of pension benefit that can be built up before tax is payable. These changes came into effect on 6 April 2016 and will reduce the annual allowance for those individuals who have income over certain levels. You will be affected if: 1. your “threshold income” is above £110,000, and 2. your “adjusted income” is above £150,000. “Threshold income” is defined as your total earnings, less what you pay in pension contributions. 8

“Adjusted income” is your threshold income plus the value that your pension grows over the year. Where someone satisfies both points 1 and 2 above, the annual allowance will be reduced by £1 for every £2 that the adjusted income exceeds £150,000. However, the maximum reduction that can apply to the annual allowance is £30,000, which leaves a reduced annual allowance of £10,000 available. More information can be found on the HMRC website, at the following link: https://www.gov.uk/government/publications/pensionstapered-annual-allowance If you exceed the Annual Allowance in any one year you are responsible for reporting this to HMRC on your self-assessment tax form. The Harrow Pension Fund will be able to inform you if you have exceeded the limits on your Harrow LGPS pension. Information on the calculation of the Annual Allowance and the Annual Allowance charge are available on the HMRC website, at the links below: http://www.hmrc.gov.uk/tools/pension-allowance/index.htm https://www.gov.uk/tax-on-your-private-pension/overview

Do You Have Previous Pension Rights If you think you may have an old pension, but are not sure of the details, a new DWP website has been launched by the Pension Tracing Service to help people more easily and quickly locate their lost pension savings. Anyone who thinks they may be missing out on any pension savings can use the free online service at www.gov.uk/find-pension-contact-details. The new service is simple to use and provides trace results immediately. Individuals enter their former employers’ details into the online database and are provided with contact details for pension schemes they may have paid into. You can also request contact details from the Pension Tracing Service by phone or by post. Telephone: 0345 6002 537 Monday to Friday, 8am to 6pm Or write to:

The Pension Service 9, Mail Handling Site A, Wolverhampton, WV98 1LU

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Summary of the Annual Report 2014-15 Introduction This report gives a summary of the London Borough of Harrow Pension Fund’s activities during the financial year 2014-15. The Harrow Pension Fund is administered in accordance with the Local Government Pension Scheme Regulations. The London Borough of Harrow is the administering employer. There are a further 28 admitted and scheduled employers who participate in the Fund. Both staff and the Council contribute to the Fund, from which pensions and other benefits are paid. Staff contributions and the level of pension entitlements are set out in Government regulations. The scheme is a “defined benefits” scheme where, no matter what happens to the economy and financial markets, your pension benefits are protected and do not depend on the performance of the Fund’s investments.

Membership of the Fund Members

March 2015

March 2014

Employees

5,526

5,582

Pensioners

5,294

5,087

Deferred Pensioners

6,323

6,023

Total membership increased to 17,143 (2014: 16,692) A deferred pensioner is an ex-employee who has chosen to preserve his/her entitlements until he/she reaches pensionable age

Statement of Investment Principles Pension Funds are required by the Local Government Pension Scheme Regulations to prepare a Statement of Investment Principles (“SIP”) that outlines the principles and policies followed in the management of the Fund’s assets. The Council, as administering authority, decides on the investment policies most suitable to meet the liabilities of the Pension Fund and has ultimate responsibility for the investment strategy. During 201415, these powers were exercised on its behalf by the Pension Fund Committee. Part of the SIP covers social, environmental and ethical issues. The Council expects that when exercising their delegated duties the fund managers (see below) will take into account any financial impact on the portfolio these issues may have. The fund managers are asked positively to engage and seek to influence companies in which the Fund invests to take account of key social, environmental and ethical considerations. Details on how to access copies of the SIP are given below.

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Funding Strategy Statement The ‘Funding Strategy Statement’ (FSS) is a summary of the Fund’s approach to meeting the pension liabilities. It is not an exhaustive statement of policy on all issues. The Department for Communities and Local Government has stated that the purpose of the FSS is:  “to establish a clear and transparent fund-specific strategy which will identify how employers’ pension liabilities are best met going forward;  to support the regulatory framework to maintain as nearly constant employer contribution rates as possible; and  to take a prudent longer-term view of funding those liabilities.” The FSS is updated at least every three years in conjunction with the triennial valuations and copies of the Statement updated in March 2014 are available (see below).

Investment Management The day-to-day management of the Fund’s investments as at 31 March 2015 was carried out by the following 10 external managers: Manager

Mandate

Aviva Investors Global Services BlackRock Investment Management(UK) GMO LLC Insight Investment Longview Partners Investments Oldfield Partners Pantheon Ventures Record Currency Management State Street Global Advisors Standard Life Investments

UK Property Corporate and Index-linked Bonds Emerging Markets Equities Alternatives Global Equities Developed World Equities Private Equity Passive Currency Hedge Alternatives Global Equities Passive

GMO. Insight and Oldfields were appointed during the year and contracts with Barings, Fidelity and Wellington terminated. All the managers have full discretion in making investment decisions whilst working within Council guidelines. The relative performance of the managers is closely monitored by Council officers and is also subject to review by Councillors at the Pension Fund Committee.

Performance At the end of March 2015 the value of the Pension Fund totalled £674.8m, £84.0m more than the value at the end of March 2014. Increases in the market value of investments of £79.3m accounted for most of the change reflecting a good year for the Fund in which all the main assets provided positive returns. The remainder of the Fund value increase is due to an excess of income over expenditure of £4.7m. 11

The Council uses the investment performance services of The WM Company. Their report for the year ending 31 March 2015 showed that the Fund achieved an overall return of 15.2% from its investments, which was 1.8% above the benchmark. For comparison purposes WM have estimated that the average return achieved among other local authority pension fund portfolios in 2014-15 was 13.2%. Harrow’s asset allocation led to an underperformance of 0.2% whilst the successful stock selection by most of the managers realised a relative outperformance of 2.0%. Long term performance is more important than single years and over the five years to March 2015, the Fund earned an average of 9.5% p.a., 0.2% above the benchmark.

Pension Fund Accounts The audit of the accounts has been completed and the external auditor has confirmed that the accounts as presented in the Statement of Accounts give a true and fair view of the financial position of the Pension Fund at 31 March 2015, along with the income and expenditure for that year.

Investment Distribution The Fund is invested in a range of investment classes and individual securities, which reflects a policy of diversification aimed at reducing risks. The following table shows how the Fund was invested at 31 March 2015. The total value of the investments was £673.7m.

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Income and Expenditure Income

£m

Employees’ contributions Employers’ contributions Transfers from other Schemes Investment income

Total

Expenditure

6.56 21.45 1.27 10.86

40.14

£m

Pensions paid Retirement Grants Death Benefits Transfers to other Schemes Administration & Fund Management expenses

25.19 6.07 0.75 2.27

Total

35.45

1.17

The value of pensions in payment continues to grow with the increase in the number of pensioners. Most of the investments are now held within pooled funds in which income and expenses are reflected in the change in market value of the Fund and in which the Harrow Pension Fund owns a share of the fund rather than a direct holding in individual equities, bonds and properties.

Actuarial Review The Council’s actuary, Hymans Robertson, undertakes an independent valuation of the Pension Fund every 3 years to determine the funding level and the future rate of employers’ contributions. The last valuation was undertaken as at 31 March 2013 at which point the Actuary determined that the level of assets represented 70.3% of the liabilities. The Actuary also determined that to meet the funding shortfall the level of Council contributions would be the equivalent of 19.9% from 1 April 2014. The levels of contributions for other employers are determined separately and vary considerably from that of the Council. The next valuation is due as at 31 March 2016 and will be implemented from 1 April 2017.

Further Information The Funding Strategy Statement, the Statement of Investment Principles and the full Statement of Accounts are available on request, or can be viewed on the Council’s web site, www.harrow.gov.uk/pensions. Should you have any queries relating to the Pension Fund’s investments please contact Ian Talbot on 020 8424 1450 or e-mail [email protected]

The Harrow Pension Fund is registered with the Occupational Pensions Regulatory Authority, reference 10051244

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Performance Monitoring 2015/16 Harrow Performance Target %

Harrow Actual Performance %

National Benchmarking Target

National Actual Performance %

95

41.67

5 days

100

95

100

10 days

100

95

81.73

10 days

100

97

100

10 days

100

97

92.71

10 days

100

Calculation and notification of retirement benefits in 3 days

95

71.60

5 days

97.53

Process refund and issue payment within 5 days

98

93.24

5 days

100

Contact next of kin on notification of 100 death in 3 days

100

5 days

100

Issue statutory notification on receipt 95 of transfer funds in 5 days

63.16

10 days

100

SERVICE PENSION Issue letter notifying of dependent’s benefit in 3 days Provide transfer details to member in 5 days Calculation and notification of retirement benefits estimate in 7 days Issue letter to new pension provider detailing transfer-out quote in 9 days Calculation and notification of deferred benefits in 8 days

Contact Us HR Operations - Pensions 3rd Floor South Wing Civic Centre Station Road Harrow Middlesex HA1 2XF Tel: 020 8901 2655 or Ext 5955 Fax: 020 8424 7520 Email: [email protected] Website: www.harrowpensionfund.org

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