Summary of The Local Government Pension Scheme (LGPS (NI)) in Northern Ireland 

 

The Department of Environment (DOE) issued three sets of regulations for a ‘new look’ Local Government Pension Scheme which will come into effect from the 1st April 2009. The Department consulted with employers, unions, other representative groups and interested parties until 31st October 2008. Click here to view these documents.

 

These regulations will NOT have any effect on members who are in receipt of their pensions before 1st April 2009, nor will they affect those members who have deferred their pensions, on leaving the scheme, before 1st April 2009.

 

The ‘new look’ scheme is intended to ensure that the Local Government Pension Scheme (Northern Ireland) is sustainable and viable over the long term.

 

Similarities

 

The main similarities between the proposed new scheme and the current scheme are as follows:

 

·        Both are statutory funded contracted out final salary schemes;

·        Both provide a guaranteed pension based on length of membership and final pay;

·        Normal pension age is 65;

·        Both permit voluntary retirement from age 60;

·        Both permit early retirement with employer consent on or after age 55 (or from age 50 for existing members retiring before 31st March 2010);

·        Both provide benefits on redundancy/efficiency grounds on or after age 55 (or from age 50 for existing members leaving before 31st March 2010);

·        Ill-health benefits are payable at any age providing ill-health is permanent;

·        Death grants are payable;

·        Members can give up pension on a factor of £1 pension for £12 tax-free lump sum subject to HMRC limits;

·        Widow/widower/civil partner benefits are payable; and

·        Benefits are index-linked

·        Flexible retirement arrangements are amended to enable members, with their employers permission, to draw down some or all of their accrued pension rights from the scheme while continuing to work;

 

Improvements

 

The main improvements under the new scheme are as follows:

 

·        An improved accrual rate (the rate at which pension builds up) of 1/60th (previously 1/80th) for all new and existing members from 1 April 2009 with the option to convert up to 25% of the value of the pension to lump sum;

·        Nominated co-habiting partners pensions are introduced;

·        A 2-tier ill-health pension system;

·        Members can buy extra scheme pension in multiples of £250 up to a maximum of £5,000 (either for themselves or themselves and any survivor);

·        Employers may also grant extra scheme pension up to a maximum of £5,000;

·        The death in service lump sum is increased to 3 times pensionable salary;

·        If a deferred member dies the death grant is increased from 3 to 5 times pension; and

·        If a pensioner dies the death grant is increased from 5 to 10 times pension, less pension already paid if paid before age 75.

 

 

Other changes

 

Other changes within the proposed new scheme are banded member contribution rates and changes to contribution rates for existing manual employees.  New employees must also have a contract of employment of more than 3 months duration in order to be entitled to join the scheme. 

 

In common with the Local Government Pension Scheme in Great Britain it is intended to introduce a cost sharing mechanism.  There will be a separate consultation on cost sharing and it is proposed that this will be in place by April 2010.

 

Contribution Rates

 

Banded contribution rates are proposed for members and the contribution rate payable depends on the whole-time equivalent pay range as detailed in the table below:

 

Band

Whole-time pay range

Contribution Rate

1

£0-£12,600

5.5%

2

£12,601-£14,700

5.8%

3

£14,701-£18,900

5.9%

4

£18,901 - £31,500

6.5%

5

£31,501 - £42,000

6.8%

6

£42,001 - £78,700

7.2%

7

More than £78,700

7.5%

 

The band for members who are employed part-time is that for the whole-time equivalent employment but contributions are only paid on the actual pay received.

 

The pay ranges will be increased annually in line with the Pensions (Increase) Act (Northern Ireland) 1971.

 

Members with right to pay 5% contributions (manual workers employed before 1 February 2003)

 

Members who had the right to pay 5% contributions will be transferred to new contribution rates from 1 April 2009 as below:

 

Year starting

Contribution Rate

1 April 2009

5.25%

1 April 2010

5.50%

1 April 2011

6.5% or the rate applicable to the member’s pay range, whichever is the lower

1 April 2012

Contribution rate applicable to the member’s pay range

 

 

Early leavers – ill-health benefits

 

The Regulations have two tiers of ill-health benefits in the event of permanent ill-health.  The tiers are as follows:

 

Tier 1 - If the member has no reasonable prospect of gaining any employment before age 65 the pension is based on accrued membership plus 100% of prospective membership between leaving and age 65.

 

Tier 2 – If the member has a reasonable prospect of obtaining gainful employment before age 65, then the pension is based on accrued membership plus 25% of prospective membership between leaving and age 65.

 

  

 

Existing members at 31 March 2009

 

Benefits for membership built up before 1 April 2009 continue to be calculated on the same basis as at present.  Therefore any membership built up to 31 March 2009 will provide an annual pension based on 1/80th of the final year’s pensionable pay and an automatic tax-free lump sum of three times the pension.  Any membership built up after 31 March 2009 will provide an annual pension based on 1/60th of the final year’s pay.  There is still the option to convert annual pension to lump sum subject to HMRC limits.

 

 Our 'Short Guide' to the Scheme is now available and explains the changes in more detail. Click here to view the document.

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