PENSIONS
in 2008, a protection, known as the rule of 85, was introduced. This is for members with service between 1 April 1998 and 30 September 2006 who, when they come to retire, if their age and service add up to 85 or more, will have some protection from the early retirement reductions. If an LGPS member takes flexible retirement under the scheme rules and qualifies for rule of 85 protection, the employer can be liable for an additional cost as some of these benefits cannot be reduced. As the LGPS is a banded scheme, there’s a requirement for the employer to assess all scheme members in April of each year and decide which band they fall
into. The employer also has the option to change the band at other times if there’s a material change to pay, but the employer should record their policy on this decision. The member must be informed if their band changes, so it’s a good idea to discuss this with your payroll software provider, as they may have automatic processes to do this. Life cover is included in the scheme at three times the annual salary. The LGPS has a 50/50 section, which allows members to switch to paying half of their normal contributions, for half of the normal pension accrual. This can be a great alternative for members who need to increase their take home pay, but they need to be put back into the main
section of the scheme at the employer’s re-enrolment anniversary. Scheme members can make up lost pension in circumstances of authorised unpaid leave. If they elect to do so within 30 days of the leave, the employer is required to pay two thirds of the cost. There are also some ways members can increase their pension benefits, by transferring in previous pensions, buying additional pension and making additional voluntary contributions (AVCs). As the employee contributions are set in the Regulations, they cannot be made by salary sacrifice. However, the scheme regulations allow AVCs to be made by the employer and so they can be managed through salary sacrifice.
Reporting requirements and data
Key takeaways
For many payroll professionals, the data requirements of the LGPS are one of the key tasks of the payroll cycle. There are annual, monthly and ad hoc returns to be completed and each administering authority will have their own data requirements. Often the timescales can be challenging at already busy times of the year. It’s crucial that starters, leavers and changes are notified promptly so the pension records can be updated in a timely fashion. Many authorities are now moving to self-service online portals so members can quickly see if their record is correct. Scheme employers listed in Schedule 2 of the Regulations or who have an agreement to enrol all their eligible staff operate contractual enrolment, where employees are put into the pension scheme from the start of their employment. The LGPS is a qualifying scheme under automatic enrolment, so any employees who opt out may need to be re-enrolled if they meet the criteria. Opt out rates are generally low in the sector. Senior stakeholders are often interested in any change in the opt out rate as this can show financial stress in the workforce. For the LGPS, each pension record is linked to an individual job, so it’s essential that your software can link the pension fund membership record to the individual, particularly if your employer operates multiple roles, as these will need to be distinguished on the data returns. Employers dealing with more than one administering authority should also be aware that the data may be required in different formats. Finally, remember that, as a payroll professional, you cannot give scheme members financial advice about what to do with their pensions. If they’re unsure how to proceed, they may wish to speak to an independent financial advisor. Similarly, if your employer is unsure of their obligations under the scheme regulations, they may wish to take independent legal advice.
l ensure you know who your contact is at your administering authority l make sure senior stakeholders in your organisation are aware of their responsibilities under the LGPS regulations l watch out for situations which may incur a large cost to your employer, such as redundancies l discuss your software configuration with your provider to ensure it’s compliant, efficient and that the data output matches the format required by your administering authority l promote the LGPS to your employees as a great opportunity to plan for retirement l remember there are opportunities for both employees and employers to save using salary sacrifice AVCs. Here are some key LGPS highlights for 2022*: l total membership of the LGPS increased slightly, growing by 161,871 (2.6%) to 6.39 million members in 2022, from 6.23 million in 2021 l the total assets of the LGPS increased to £369 billion (a change of 7.8%) l over 1.95 million pensioners were paid over the year.
*Source: LGPS Scheme Advisory Board Annual Report 2022: https://ow.ly/kq6C50PMu8k.
Useful resources LGPS Regulations site: https://ow.ly/g8pb50PME7R LGPS member site: https://ow.ly/OGiu50PMEkR LGPS payroll guide: https://ow.ly/OEaj50PMElx LGPS human resources guide: https://ow.ly/UaiV50PMEnv Pensions and Lifetime Savings Association (PLSA) guide to employers participating in the LGPS: https://ow.ly/lexo50PMEpW
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| Professional in Payroll, Pensions and Reward |
Issue 94 | October 2023
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