Inflation Proofing Your Public Service Pension

Transcription

1 Inflation Proofing Your Public Service Pension July 2015 SHROPSHIRE COUNTY PENSION FUND

2 This booklet explains in broad terms the arrangements for increasing public service pensions and the relationship between your Public Service Pension Scheme and Guaranteed Minimum Pension (GMP). It gives general information only and should not be regarded as a complete statement of the provisions of pensions increase. What is public service pensions increase? Public service pensions in payment are increased to take account of increases in prices. The increased pension is paid from April. What are these public service pensions? Your pension is an Occupational Pension Scheme which is a pension earned through employment in public services which has allowed you access to the Local Goverment Pension Scheme or Firefighters Pension Scheme. Your Pensions, as well as widow s and widower s pensions, accrued in public service pension schemes are covered by these increases. Who qualifies for payment of increases? Pensions increases are normally paid to pensioners when they reach the age of 55. This age limit does not apply where the individual has qualified for an ill-health retirement pension, for widow s or widower s pensions, civil partner s pensions, nominated co-habiting partner s pensions and children s pensions. Are increases applied to the entire Public Service Pension? Yes. This will usually mean the pension actually in payment is increased taking into account, where appropriate, of any reductions during re-employment or because of a National Insurance modification or because the pensioner has decided to give up part of their pension under a scheme s allocation arrangements. 2

3 Where your pension includes a GMP, part of the increase may be paid with your state pension. Please see page 6 for further information. It is important to note that GMP s only become payable at age 60 for women or age 65 for men. Until this age is reached all your pension increases will be implemented by Shropshire County Pension Fund. How does this affect preserved pensions and lump sums? Preserved pensions and lump sums are those earned by people who are no longer active members of a public service pension scheme. These preseved pensions are increased to reflect the successive pension increases between the date the benefits were preserved and the date they come into payment. How will the increases be paid? At the time Shropshire County Pension Fund calculates an increase on your pension, it may not have been notified of the amount of GMP to which you are entitled, or whether the increase on your GMP will be paid with your state pension. In these cases, some over payment may result. The Fund will make an intial calculation and when it receives the notification it will adjust your payments accordingly. In some cases where an individual has been on Incapacity Benefit and begins to receive a State Pension instead, the reduction in your pension from Shropshire County Pension Fund will not be matched by an equivalent increase in the payments from the State Pension Office. This is because individuals will have already been receiving some inflation proofing of their GMP from the state as part of their Incapacity Benefit. The increase to your pension is based on the rise in the Consumer Prices Index (CPI). Since 1988, increases have taken effect from the first Monday in the new tax year beginning in April, based on the increase in the index in the twelve months up to the end of September in the preceding year. 3

4 If you began to receive your pension on or before the date of the last increase, you will receive the full amount of the next increase. If you began to receive your pension after the date of the last increase, you will receive a proportion of the next increase based on the number of months between the date when your pension began and the date of the next increase. Under what circumstances will increases be paid before the age of 55? Increases are paid to people who are below the age of 55 only if the person concerned: Receives a widow s, widowers or children s pension, payable where an individual was or continues to remain a dependant of a former public servant. Receives certain injury pensions, or has qualified for an illhealth retirement pension on retiring from service because of ill-health. Has qualified for early payment of preserved benefits and is permanently incapacitated for regular full time work. Is receiving a pension (for example as compensation for early severance) and has a certain type of dependant. When will the increase be paid? For pensions already in payment the increase takes effect from the same date in April to coincide with the increase in State benefits. In most cases the first pension payment to include the increase will be constructed partly at the old rate and partly at the new rate. Later payments will be wholly at the new rate. For example, if a pensions increase takes effect from 6 April an existing pension would be paid at the old rate from 1 to 5 April and from 6 April onwards would take account of the new rate. What about pensions that have not been increased previously? There may be a considerable period between the date your pension begins and the date you receive an increase for the first time. Where this happens the increase will take account of all the 4

5 increases since your pension began. However, this higher rate of pension applies only from the date you qualified for pensions increase. There are no arrears due from before that date. When does a pension or lump sum begin? A pension or lump sum usually begins for pension increase purposes on the day after the the last day of the service in respect of which it is payable. This is not necessarily the same day as the date when the pension becomes payable. However, there is no entitlement to the increased rate of lump sum or pension until they are brought into payment. Where the member s pension and lump sum are based on pay received in the period ending before the last day of service, they are deemed to begin on the day following the end of that period for the purposes of Pensions Increase. What is National Insurance Modification? When the National Insurance system was introduced in the 1940 s it was decided that public service employees should have their pensions reduced ( or modified ) to take into account the new flat-rate State Retirement Pension. This generally affected employees who joined after 1948, but only if they retired after There were matching reductions in pension contributions to public service employees. Such adjustments to public service pensions are known as National Insurance modifications. The details of National Insurance modification vary between public service pension schemes. In some schemes new pension awards are no longer modified. Where modification still applies it does so only in respect of service (if you have any) before 1 April The rate of any modification is relatively small and details will be provided if you are affected. Where National Insurance modification applies it takes effect from State Pension Age whether or not you decide to defer your State Retirement Pension. However, where a Public Service Pension begins at State Pension 5

6 Age, National Insurance modification will be applied before the Public Service Pension is brought into payment. Pensions Increases will subsequently apply to that modified pension. Although, in situations where the Public Service Pension begins to be paid before State Pension Age the pension increases are calculated at first on the basis of the modified pension from the date the public service pension began. Pension payments already received before State Pension Age are unaffected. The connection between Guaranteed Minimum Pensions (GMP) and the pension you receive from the Pension Scheme The background to GMPs The Social Security Pension Act 1975 introduced the State Earnings Related Pension Scheme (SERPS). This legislation was replaced by the introduction of a State Second Pension (S2P) which became law through The Child Support, Pensions & Social Security Act Your public service pension scheme is a contracted out scheme, this means that by being a scheme member at this time you were contracted out of SERPS/S2P. Under these regulations your scheme must guarantee to pay you a pension at least as great as the pension you would have accrued under SERPS in respect of the service you accrued prior to the 6 April This is known as Guaranteed Minimum Pension (GMP). The GMP is paid from State Retirement Age as part of your pension, not as an additional extra. However, if your GMP is greater than your occupational pension, we will increase your pension to match it. From April 1997 members of all contracted out pension schemes ceased to accrue a GMP. Instead contracted out schemes had to conform to the requirements of a model scheme. The model 6

7 stated that the benefits from the contracted out scheme should normally be equal to or exceed those that would have been accumulated through membership of SERPS. Notification of your GMP When you reach state pension age the Department for Works and Pensions (DWP) will send you a statement containing a section entitled when you can claim your basic State Pension. The statement also contains a section entitled Additional Pension. This Additional Pension is your total SERPS entitlement including any GMP earned while you were a member of your Public Service Pension Scheme or elsewhere. Your GMP together with any post 1997 SERPS rights you would otherwise have accrued are shown on the DWP statement as a Contracted Out deduction. The DWP describe these as Contracted Out Deductions because they represent the earnings related pension that you did not accrue because you were a member of a public service pension scheme and therefore contracted out of SERPS. Although your GMP is included in the pension paid by us, from State Retirement Age the DWP may pay some or all of the Pensions Increase on your GMP in combination with your State Retirement Pension. We therefore deduct the Pensions Increase due from the DWP before paying your occupational scheme pension benefits. Please Note: All increases to a GMP in respect of service accrued between 6 April 1978 and 5 April 1988 are paid by the DWP as part of your State Retirement Pension. This is known as Pre 88 GMP. In situations where there are increases to a GMP in respect of service accrued between 6 April 1988 and 5 April 1997 (known as post 88 GMP), the Shropshire County Pension Fund is responsible for increasing the GMP amount by up to 3% per annum. If the year s annual increase is greater than 3%, the remainder is paid with your State Retirement Pension. 7

8 Example of Increasing an LGPS pension Pension in Payment Of which Pre 88 GMP Post 88 GMP The increase for this example is 5% Pension Less total amount of GMP Pension to be increased Pensions Increase at 5% Total Pensions Increase on Post 88 GMP (limited to 3%) Add back Total amount GMP Revised New Pension payable 0.45 Total Total Increase of GMP paid with the State Retirement Pension Pre 88 GMP Pensions Increase at 5% Remainder of increase on Post 88 GMP (2%) Total Increase paid with State Retirement Pension Total Contact details Administered by Shropshire County Pension Fund The Shirehall Abbey Foregate Shrewsbury SY2 6ND Pensions helpline (01743) Web