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The 2008 Scheme changes – what are the changes?
The rules of the ‘new look’ Pension Scheme come into effect on 1 April 2008. The
following is a summary of how the new Scheme differs from the old but it is
worth emphasising that it continues to be a ‘final salary’ scheme.
Who can join?

Existing employees who are members of the Scheme on 31 March 2008
will move to the new Scheme automatically.

New employees who join the Scheme from 1 April 2008 onwards must
have a contract of employment of at least three months duration.

Casual employees cannot join the new Scheme unless their contract
obliges their employer to offer them work and for them to accept whatever
work is offered. Any casual employees who do not meet this requirement,
and who are already members of the Scheme, must leave it on the first
day after 31 March 2008 that they are not offered work or do not accept it.
Members can remain in the scheme after age 65 though all benefits must
be paid before the member’s 75th birthday.

Pension Contributions

Employees are required to pay contributions on their pensionable pay.
The definition of pensionable pay remains unchanged.
Meaning of “pensionable pay”
1. (1) An employee’s pensionable pay is the total of—
(a)
all the salary, wages, fees and other payments paid to him for his own
use in respect of his employment; and
(b)
any other payment or benefit specified in his contract of employment as
being a pensionable emolument.
(2) But an employee’s pensionable pay does not include—
(a)
payments for non-contractual overtime;
(b)
any travelling, subsistence or other allowance paid in respect of
expenses incurred in relation to the employment;
(c)
any payment in consideration of loss of holidays;
(d)
any payment in lieu of notice to terminate his contract of employment;
or
(e)
any payment as an inducement not to terminate his employment before
the payment is made.
(3) No sum may be taken into account in calculating pensionable pay unless
income tax liability has been determined on it.
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
From 1 April 2008 the pension contributions that an employee pays will
be calculated by reference to the following table based on their whole-time
equivalent pay (the pay ranges will be revised every year on 1 April):
Pay range (2008/09)
Contribution rate
£12,000 or less
5.5%
£12,001 - £14,000
5.8%
£14,001 - £18,000
5.9%
£18,001 - £30,000
6.5%
£30,001 - £40,000
6.8%
£40,001 - £75,000
7.2%
£75,001 or more
7.5%

The employer must assess the contribution rate at the date of joining.

Employers will have to decide how to include variable payments in their
assessment.

Employers will also need to decide a policy on when to change an
employee’s contribution rate when the employee’s pay moves into a new
‘pay range’ during the financial year.

Employers must notify employees of their contribution rate.

The contribution rate for part-time employees is assessed by reference to
their whole-time equivalent pay.
For example, an employee who works half-time and earns £10,000 per
year will pay contributions at the rate of 6.5% of pay, because their wholetime equivalent pay is £20,000 per year.

The rate for term-time-only employees is assessed by reference to what
they would earn if they worked for 37 hours a week during term-time.
For example, an employee who works half time for 46 weeks and earns
£8,846 will pay 5.9% (ie based on £17,692) even though their whole-time
equivalent rate is £20,000 (£8,846 x 2 x 52/46).

If an employee has more than one post, each one will be assessed
separately, as different contribution rates may apply to different posts.

For a fees only post, contribution bands will be assessed against the value
of the fees paid.

Any manual workers who presently contribute at the rate of 5% of pay will
have a stepped increase in their contributions from 1 April 2008 in order
to bring them in line with other Scheme members by 1 April 2011,
according to the following table:
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Date
Contribution rate
1 April 2008
5.25%
1 April 2009
5.5%
1 April 2010
6.5%*
1 April 2011
Standard rate as
for other Scheme
members
* if the standard 2007 table contribution would be less than 6.5%, then the
2007 table is used instead.
Scheme benefits

From 1 April 2008 members will earn a pension of 1/60th of final year’s pay
for each year of Scheme membership. The pension benefits earned before
that date will still be based on 80ths of final year’s pay.

No automatic lump sum will accrue from 1st April 2008. Retirement lump
sum benefits earned before 31st March 2008 will remain.

At retirement, employees can give up part of the pension in exchange for a
tax-free lump sum. This is in addition to the statutory lump sum earned
before 1 April 2008, of 3 times the pension. For each £1 of annual pension
given up, a lump sum of £12 is payable. However the total lump sum cannot
exceed 25% of the capital value of the employee’s benefits.
Final Pensionable Salary

The definition of final pensionable salary remains unchanged. Benefits will be
calculated on the best one of the last three years whole time equivalent pay.

Prior to 1st April 2008, if a member suffered a drop or restriction in pay, their
employer would issue a certificate of protection which protected the
member’s salary for pension purposes for 10 years. Existing certificates of
protection will remain valid until their expiry date but no new certificates can
be issued for restrictions/drops after 31st March 2008.

If a members pensionable pay has been reduced because he has chosen to
continue in local government employment at a lower grade, on restricted pay
or with less responsibility less than 10 years before leaving (other than for
reasons of flexible retirement) their pension can be based on the average of
pay during any 3 consecutive financial years during the final 10 years of
Scheme membership.
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Minimum Retirement Ages
 The normal retirement age for the scheme remains unchanged at 65
 The right for members to retire from age 60 without their employers consent
remain though benefits will be reduced for early payment on retirement
before age 65 (unless rule of 85 has been meet)
 Redundancy retirements, existing members as at 31st March 2008 can take
immediate retirement from age 50. For members joining on or after 1st April
2008, they would not be able to take their benefits until 55. The minimum
retirement age for existing members will be rising to 55 from April 2010.
Ill-health benefits


Two new terms have been introduced under the new regulations, ‘gainful
employment’ and ‘reasonable period’:

‘Gainful employment’ is defined as ‘paid employment for not less than 30
hours per week for a period of not less than 12 months’.

The Scheme rules contain no definition of a ‘reasonable period’.
An employee who retires on health grounds is entitled to an immediate
pension if

they have at least 2 years* of Scheme membership and

they are certified as permanently incapable of doing the duties for which
they were employed.
*There is a proposal to reduce this period to 3 months but this is still at the
consultation stage.

Scheme membership is increased to what the employee would have achieved
by age 65 if there is no ‘reasonable prospect’ of them obtaining gainful
employment before that date.

If there is a likelihood of obtaining ‘gainful employment’, but not within a
‘reasonable period’, Scheme membership is increased by 25% of the time
remaining until age 65.

If there is a likelihood of obtaining ‘gainful employment’ within a reasonable
period, there is no increase in Scheme membership and the pension is
suspended when ‘gainful employment’ is obtained (this proposal is still at the
consultation stage).

Permanent incapability can only be certified by an independent registered
medical practitioner who is qualified in occupational health medicine and
who has had no previous involvement in the employee’s case. The likelihood
of obtaining ‘gainful employment’ can only be certified by someone similarly
qualified.
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Death benefits

The lump sum death in service grant is increased to three times final pay (for
part-time employees, actual pay is used and not the whole-time equivalent
value).

Nominated co-habiting partners’ pensions are being introduced, based on a
1/160th accrual rate, as for spouses and civil partners, but restricted to post
5 April 1988 membership only.
Additional contributions


The facility to buy added years of service will be replaced by a new option to
pay ‘additional regular contributions’ (ARCs) to buy extra pension in
multiples of £250.

Existing added years contracts will be unaffected. The deadline for members
to opt to purchase added years under the current arrangements is 31 March
2008.
The 2008 Scheme changes – what do you need to do?
As you can see, there are several Scheme changes which will in turn require you
to change your procedures. Here is a list of the main employer ‘action points’ for
you to consider:


Casual employees – decide which existing casual members cease to
qualify for Scheme membership.

New contribution rates:

arrange for your payroll system to be amended to accommodate the
new ‘pay range’ system including the new rates for manual workers
who currently pay the 5% rate.

agree a policy on when to change an employee’s contribution rate when
the employee’s pay moves into a new ‘pay range’ during the financial
year (ie change immediately or from the next 1 April?).

Check to see if your current scheme policies need revising.

Communicate scheme changes to members.
Outsourcing of services by an employer
If you are thinking of outsourcing to another organisation, it is important that
you involve us in your initial discussions as such a move will have pension
scheme implications for you and those pension scheme members likely to be
affected.
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