Actuarial Reductions - LGPS Advice
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The reduction is base on how many years before normal retirement age, which could be 5, 6, 7 years early. At 6 years early it is -28%
As the government extends retirement age the % could be very large indeed.
As the government extends retirement age the % could be very large indeed.
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Apologies for any typos; I'll blame the i-Pad.
The danger is, if you're in your late 30s, the state retirement age is going to be further down the line than it is now, and the reduction is going to be even bigger. Thinking laterally for the minute, what happens if Pilot A takes 'early' (employers term) retirement at what was previously the normal retirement age of 60, and then dies the next day? His widow is then served with a 50% survivors pension. So, instead of retiring on a previously anticipated annual pension of (say) £30,000 (with a survivors pension of £15,000), the actuarial reduction in the first instance lowers that to somewhere in the region of £22,000 and in the event of death, the survivors pension is then (50%?).. £11,000. That's the unseen fairness that immediately strikes me, a lifetime of expecting a £30,000 lifestyle reduced to one of potentially £11,000.
The CC of Greater Manchester spoke out about police widows a few weeks back - Manchester's police chief adds to calls for change to widows' pensions | UK news | The Guardian - it'll give you an idea how the uniformed police chain of command views, not just pensions, but the unfairness surrounding survivors pension benefits. Certainly use that angle, ie; the impact on surviving partners.
It wouldn't be beyond the realms of possibility for the scheme trustees to make an amendment to reflect this specific issue, you wonder if they'd have the spine to do so though, in the modern climate. Has anyone approached them? "Devon and Cornwall Police have removed the default/compulsory retirement age from all police staff posts with the exception of our helicopter pilots" - Entry requirements | Devon & Cornwall Police - seems clear cut. I take the point you could be retained and employed in the map store for £60k or so, has that been tested yet?
In terms of precedent, other parallels once included ballet dancers, north sea divers etc, people who were allowed to draw occupational benefits early without penalty because their careers are deemed to have a short shelf life. However, when the rules changed in 2006, the £1.5 million they were able shelter from tax in their pension was determined to be clawed back by 2.5 % for each year they retired before the statutory minimum age (50 until 2010 when it went up to 55 thereafter). So footballers retiring at 35 would have seen their lifetime allowance fall by 37.5% to £937,500.
Why is that relevant to you all? Because if you retired 'early', there would be a benefit crystallisation event which would trigger a lifetime allowance test if you took benefits (re previous post referring to doing nothing which most people won't do). My concern right now is that you might have a senior pilot flying for the police who spent a long time in the Army Air Corps on AFPS 75 and 05 and then chucked loads in to a civvy scheme who, if he/she hadn't declared any form of pension protection.. could be in a pickle with their pension lifetime allowance and the subsequent tax charge.
Also LGPS is a swine. It now wants to invest in passive funds, which, if you're 25 or so, is ok.. but if you're in your mid late 50s do you really want to in an investment strategy primarily designed to save the trustees, other members and the state money rather than maximising your benefits and fitting in around you? Probably not. I don't agree with everything in thisarticle and I like a fusion of active AND passive funds these days for most clients, but the jury is still out. I certainly wouldn't want to be approaching retirement and automatically and solely in passive funds without (seemingly) any possibility of changing that.
Why the LGPS should not move to a passive investment strategy - Financial News
Al
(ex mil now specialist IFA)
The danger is, if you're in your late 30s, the state retirement age is going to be further down the line than it is now, and the reduction is going to be even bigger. Thinking laterally for the minute, what happens if Pilot A takes 'early' (employers term) retirement at what was previously the normal retirement age of 60, and then dies the next day? His widow is then served with a 50% survivors pension. So, instead of retiring on a previously anticipated annual pension of (say) £30,000 (with a survivors pension of £15,000), the actuarial reduction in the first instance lowers that to somewhere in the region of £22,000 and in the event of death, the survivors pension is then (50%?).. £11,000. That's the unseen fairness that immediately strikes me, a lifetime of expecting a £30,000 lifestyle reduced to one of potentially £11,000.
The CC of Greater Manchester spoke out about police widows a few weeks back - Manchester's police chief adds to calls for change to widows' pensions | UK news | The Guardian - it'll give you an idea how the uniformed police chain of command views, not just pensions, but the unfairness surrounding survivors pension benefits. Certainly use that angle, ie; the impact on surviving partners.
It wouldn't be beyond the realms of possibility for the scheme trustees to make an amendment to reflect this specific issue, you wonder if they'd have the spine to do so though, in the modern climate. Has anyone approached them? "Devon and Cornwall Police have removed the default/compulsory retirement age from all police staff posts with the exception of our helicopter pilots" - Entry requirements | Devon & Cornwall Police - seems clear cut. I take the point you could be retained and employed in the map store for £60k or so, has that been tested yet?
In terms of precedent, other parallels once included ballet dancers, north sea divers etc, people who were allowed to draw occupational benefits early without penalty because their careers are deemed to have a short shelf life. However, when the rules changed in 2006, the £1.5 million they were able shelter from tax in their pension was determined to be clawed back by 2.5 % for each year they retired before the statutory minimum age (50 until 2010 when it went up to 55 thereafter). So footballers retiring at 35 would have seen their lifetime allowance fall by 37.5% to £937,500.
Why is that relevant to you all? Because if you retired 'early', there would be a benefit crystallisation event which would trigger a lifetime allowance test if you took benefits (re previous post referring to doing nothing which most people won't do). My concern right now is that you might have a senior pilot flying for the police who spent a long time in the Army Air Corps on AFPS 75 and 05 and then chucked loads in to a civvy scheme who, if he/she hadn't declared any form of pension protection.. could be in a pickle with their pension lifetime allowance and the subsequent tax charge.
Also LGPS is a swine. It now wants to invest in passive funds, which, if you're 25 or so, is ok.. but if you're in your mid late 50s do you really want to in an investment strategy primarily designed to save the trustees, other members and the state money rather than maximising your benefits and fitting in around you? Probably not. I don't agree with everything in thisarticle and I like a fusion of active AND passive funds these days for most clients, but the jury is still out. I certainly wouldn't want to be approaching retirement and automatically and solely in passive funds without (seemingly) any possibility of changing that.
Why the LGPS should not move to a passive investment strategy - Financial News
Al
(ex mil now specialist IFA)
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Come to the trustees of the Suffolk Pension Fund and recommend a purely passive strategy, and see what response you get...(I cannot confirm whether I am a trustee and LGPS administrator, of course). And depending on enrolment dates etc, in the situation you describe there could be a death grant payable about ten times the annual pension.
There's worse pension schemes out there.
There's worse pension schemes out there.
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Fair point well made. You'd assume the ten times payout would happen anyway though, in which case that too would be pro rata cut quite substantially?
Out of interest, what might (hypothetically) the Suffolk response to a 100% passive scheme be? Bearing in mind too, that something like the Royal London AllShare passive is a different beast to most passive (and some active) dross out there. I like passives but I'm not sure I'd hang a helicopter sized pension fund onto it in my final years of employment.
Out of interest, what might (hypothetically) the Suffolk response to a 100% passive scheme be? Bearing in mind too, that something like the Royal London AllShare passive is a different beast to most passive (and some active) dross out there. I like passives but I'm not sure I'd hang a helicopter sized pension fund onto it in my final years of employment.
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I stress that this is depending on when you joined the scheme, but the idea is that a member (or dependants) will always get ten years' benefits out of their membership. So, retire and die at the end of year 1, the death grant is nine years' worth. End of year 2, eight years' worth, etc. After ten years it's down to zero. Changing those rules is a Parliament job.
Finding the money to pay the benefits is the employer's risk, not the members. The Fund has to invest to meet the benefits promised. A purely passive strategy would get the bum's rush on the grounds that we need to outperform the market, not simply follow it. Bear in mind the LGPS is not one scheme, it's about one hundred, broadly one for each county.
I should say that the atmosphere when we listen to investment professionals' predictions is distinctly cool. We don't even place much faith in the reported funding level, which comes from the actuaries; within the last year it's gone from 78% funded to 92%, apparently, but none of us would have been remotely surprised if it had gone the other way, and quite a few think it actually did. It'll take so long for the effects of a particular funding level to come out (assuming it never changed again) that we would have died of old age before we could see whether the predictions were true. The approach that has evolved is a significant proportion of active management to get the growth, passive as insurance, and try to identify systematic poor performers as early as possible and get rid of them. You will appreciate I'm probably missing a lot of detail!
Finding the money to pay the benefits is the employer's risk, not the members. The Fund has to invest to meet the benefits promised. A purely passive strategy would get the bum's rush on the grounds that we need to outperform the market, not simply follow it. Bear in mind the LGPS is not one scheme, it's about one hundred, broadly one for each county.
I should say that the atmosphere when we listen to investment professionals' predictions is distinctly cool. We don't even place much faith in the reported funding level, which comes from the actuaries; within the last year it's gone from 78% funded to 92%, apparently, but none of us would have been remotely surprised if it had gone the other way, and quite a few think it actually did. It'll take so long for the effects of a particular funding level to come out (assuming it never changed again) that we would have died of old age before we could see whether the predictions were true. The approach that has evolved is a significant proportion of active management to get the growth, passive as insurance, and try to identify systematic poor performers as early as possible and get rid of them. You will appreciate I'm probably missing a lot of detail!
