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F.A.Q.'s
Pension Increase 2010 Q & A
Re-employment in the NHS after Retirement
Guaranteed Minimum Pension
Pensions Increase (PI) 2010 Q+A
Q Who decides on the pensions increase each year and when is it done?
A The Secretary of State for Social Security makes the Announcement in a draft Pensions Increase (Review) Order which is approved by Parliament usually during March each year. The new rate of increase takes effect from the first Monday after 5 April.
Q Why is my pension not increasing in 2010/2011?
A HM Treasury has confirmed additional pensions would not be uprated from April 2010, as the increase in the Retail Prices Index in the 12 months to September 2009 was negative (-1.4). Therefore public service pensions will also not be uprated from April 2010, i.e. benefits will remain at current cash levels. No decision has been made on future annual pension increases. Please see attached link for further information http://www.hm-treasury.gov.uk/tax_pensions_increases.htm.
Q Why has my tax code changed?
A We are instructed by HMRC to apply the relevant tax code. If your tax code has changed and you require further information or have any questions about your Tax affairs, please contact:
Scottish Teachers
HM Inspector of Taxes, Centre 1, Queensway House, Stewartfield Way, East Kilbride, G79 1AA
Telephone 0845 070 3703
NHS members
HM Revenue and Customs, Ty Glas, Cardiff, CF14 5YA.
Telephone 0845 300 3949
You should have your National Insurance number to hand when you make your call.
Other Tax related information:
Q. How is my pension affected by the new Lifetime Allowance from 6 April 2010?
A. The Lifetime Allowance came into effect on 6 April 2006 and is set at £1.8 million for the tax year 2010/2011. The Lifetime Allowance is the cumulative value of benefits that can be taken from all registered pension schemes before an additional tax charge is payable. This tax charge is called the Lifetime Allowance charge.
The important point to note is that existing pensions will not be affected by the Lifetime Allowance charge. Neither will state pensions or dependant's pensions which, themselves are not assessed against the Lifetime Allowance.
The only way in which the Lifetime Allowance charge could affect you is if you become entitled to a new pension after 5 April 2006. Existing pensions will be taken into account in assessing any new pension that may put your cumulative value above the Lifetime Allowance. Please note that all existing pensions (excluding state and dependant's pensions) and any new pension coming into payment would need to exceed at least £60,000 per annum to be affected.
If all your existing pensions and any other pensions you may have which have not yet come into payment exceed £60,000 per annum, you may qualify for protection from the Lifetime Allowance charge from HM Revenue and Customs. Details of the protections available are available on the HMRC website www.hmrc.gov.uk/pensionschemes.
If you require to know your revised Lifetime Allowance (LTA) figure for the period 2010/2011 you should apply the following calculation:
Annual Rate of Pension X 25 X 100 = New LTA %
£1.8 million
If after calculation your LTA is nearing 100% and you still have benefits to take from other sources, we strongly recommend that you should seek advice from an Independent Financial Adviser
Guaranteed Minimum Pension or GMP’s more fully explained
A Guaranteed Minimum Pension or GMP is best explained as follows. The Social Security
Pensions Act 1975, which came into effect on 6 April 1978 provided for the State retirement pension to be related to the earnings on which National Insurance contributions were paid. It consisted of two parts:
1. A basic pension, and
2. An additional earnings related pension known as SERPS, now known as S2P.
Pension schemes that provided an approved alternative to SERPS could ‘contract out’ of this part of the State pension scheme. By contracting out of SERPS members who were under State Pension age paid lower National Insurance contributions. This means that most members who were in employment between 6 April 1978 and 5 April 1997, the date from which the scheme was abandoned, were paying superannuation contributions towards an Occupational Pension instead of paying the full rate National Insurance contributions towards an additional pension from the state. This is what is meant by the term ‘contracted out’.
As a result the SPPA guarantees that at State pension age the benefits from the scheme will be at least as much as the additional pension they would have received from the State had they remained within SERPS and not been contracted out. This is known as the Guaranteed Minimum Pension or GMP.
PRE AND POST APRIL 1988 GMP’S
From 6 April 1988 changes in legislation have the effect of splitting the GMP. Therefore service from 6 April 1975 to 5 April 88 becomes the Pre 88 GMP and service from 6 April 1988 until 5 April 1997 becomes the Post 88 GMP. It is important to recognise that the GMP is paid as a component of your pension and not as an addition.
Therefore the percentage increases that the SPPA will pay on your total pension are as follows;
SPPA will not pay any increase on Pre 88 GMP, the increase due on any GMP relating to service prior to 6 April 1988 will be paid with your State Pension by the Department of Work and Pensions (DWP).
SPPA will pay an increase on Post 88 GMP, up to a maximum of 3%, as part of your annual pension. Any increase over 3% will be paid along with your State Pension by the Department of Work and Pensions (DWP).
There are always a few exceptions to the above, for instance some overseas members may be affected slightly differently, if you think that your increase is incorrect then please write to us and we will check that you are receiving the correct pension.
Q: Will public service pensions decrease/increase as a result of negative RPI in September 2009?
A: Public service pension upratings are linked by primary legislation to those for additional state pensions – the State Earnings Related Pension Scheme (SERPS) and State Second Pensions (S2P) – and the uprating in April 2010 takes account of the rate of inflation over the year to September 2009.
As announced in the PBR in November 2008, legislation governing uprating for additional state pensions means that in the event of negative RPI, benefit rates will be protected at least in nominal terms (i.e. not reduced on account of deflation), thereby providing an increase in support in real terms. The annual RPI for September 2009 was minus 1.4% and benefits in April 2010 will remain at current levels.
Updated PI Multiplier Tables and covering note are available on the HMT website:
http://www.hm-treasury.gov.uk/tax_pensions_increases.htm
A detailed general background note on uprating is also available at the end of the archive section of the HMT webpage.
Q: How is the uprating for my pension decided?
A: Public service pensions are increased under the provisions of the Pensions (Increase) Act 1971 and Section 59 of the Social Security Pensions Act 1975. The latter provides for public service pensions to be up-rated at the same time and by the same percentage as the increase in the additional pension provided under the State Earnings Related Pension Scheme (SERPs), which is based on the September-to-September increase in the Retail Price Index. For example, September 2008 RPI was used for uprating in April 2009. The underlying purpose of this legislation is to maintain the purchasing power of additional state pensions and public service pensions.
As the Minister of State (Pensions and the Ageing Society) has confirmed, benefits such as the additional pensions would be not be uprated from April 2010, as the increase in the Retail Prices Index in the 12 months to September 2009 was negative (-1.4%). Therefore public service pensions will also not be uprated from April 2010, i.e. benefits will remain at current cash levels.
September RPI has been used for additional state uprating, and therefore public service pension uprating, since 1987.
Q: Will my public service pension get a 2.5% increase like my State pension?
A: No.
The Basic State pension will increase in April by 2.5%. State additional pensions and public service pensions will not be increased. Those receiving basic state pensions will be receiving a 2.5% increase on that pension because it is Government policy to provide a minimum level of increase for those pensions.
Q: Will my Guaranteed Minimum Pension (GMP) receive the 2.5% increase to State pension?
A: No. Neither GMPs nor additional State pensions will be increased in April 2010.
A GMP is the minimum pension which an occupational scheme must provide if it was contracted out of the State Earnings Related Pension Scheme (SERPS) between 6 April 1978 and 5 April 1997. The main Public service pension schemes are contracted out of the Second State pension, previously known as SERPS. If you or your deceased spouse were members of the [x] scheme between 6 April 1978 and 5 April 1997 you will have earned a GMP. Your GMP broadly replaces the additional State pension you would have earned had you not been in the [x] scheme. For service up to 5 April 1988 the pensions increase on your GMP will be paid along with any basic State pension. For service between 6 April 1988 and 5 April 1997 any increase on your GMP up to 3% each year will be paid by the [x] scheme, but in years when the increase is more than 3% the Government will pay the balance above 3% with any basic State pension.
Q: Why are additional state pensions and public service pensions the only upratings not being increased?
A: Maintaining additional state pensions and public service pensions in cash terms at April 2010 represents a 1.4% real terms increase compared with the annual September RPI figure which has been used for such upratings since 1987. The increase in April 2009 was 5%, which compares favourably with RPI during 2009-10. Those receiving basic State pensions will be receiving a 2.5% increase on that pension because it is Government policy to provide a minimum level of increase for those pensions.
Further detail:
Public service pension upratings are linked by primary legislation to those for additional state pensions. There are also links between the additional state pension and private sector defined benefit schemes. Not changing the cash value of the additional state pension helps to minimise the impact of negative inflation on public and private sector occupational pension schemes in 2010 while protecting people’s pensions in cash terms.
Q: Why are public service pensions not being reduced when inflation is negative?
A: Increases in public service pensions are determined by the increase on additional state pensions. The Government has made clear that the cash value of pensions already being paid will not be reduced.
Re-employment in the NHS after retirement
Q. Do I have to inform the agency if I commence re-employment in the NHS after retirement?
A. Any re-employment in the NHS after retirement must be notified to the agency, as your pension may be affected.
Q. How would my pension be affected?
A. If you return to work in the NHS and you are over NRA 60 for 1995 section and 65 for 2008 section you pension will be unaffected provided the criteria detailed below is meet.
If you retire and return to NHS re-employment before age 60 and are receiving a voluntary early retirement pension which has been reduced because of being paid before NRA or an early but unenhanced retirement pension following redundancy you pension will be unaffected.
In all other circumstances your pension maybe affected, please contact SPPA Payroll Section for further information.
Q. If I retire after 1 April 2008 do I still have to take a 24 hour break before returning back to employment and work less than 16 hours per week in the first calendar month to avoid my pension being suspended?
A. Yes the same rules will apply as the current NHS Pension Scheme. If you opt to transfer to the New NHS Pension Scheme at the time of the choice exercise from 2009, the 24-hour break will still apply but your pension will not be suspended if you work more than 16 hours per week in the first calendar month.
Q. I am considering returning to NHS employment after retirement. Can I rejoin the scheme?
A. If you retire before the 1 April 2008 and return back to work in the NHS any further employments will not be pensionable unless you retired on ill health grounds and return back to work before age 50.
If you leave NHS pensionable employment after 1 April 2008 and retire before the ‘choice’ exercise you will be eligible for pensionable re-employment but you must wait two years after retirement before you can re-join the New NHS Pension Scheme.
If you retire after 1 July 2009 then your position is determined by which scheme you retired from. If you had taken the option to transfer to the New NHS Pension Scheme then any future employments will be pensionable.
Guaranteed Minimum Pension - F.A.Q.s
Q: What is the Issue?
A: A small minority of pensioners who worked in the public sector have been receiving a larger than expected increase to their pensions each year.
Q: Why?
A: Some pensioners are entitled to a Guaranteed Minimum Pension (GMP) as part of their occupational pensions. They receive an annual pensions increase in line with the Retail Price Index (RPI). In the affected cases, part of the GMP increase has been paid by both the scheme pension administrator and the Department for Work and Pensions (DWP), resulting in an overpayment of pension to some pensioners.
Q: What is a GMP?
A: A GMP is the minimum pension which an occupational pension scheme must provide. It applies to schemes which contracted out of the State Earnings Related Pension Scheme from 1978. All public service schemes, for example NHS, Teacher and Local Government, are contracted out.
People who were members of a contracted out pension scheme between 1978 and 1997 may be eligible for a GMP element within their occupational pension. It is a notional benefit which is only paid if the occupational pension is less than the guarantee element and is not a separate benefit to be paid in addition to their occupational pension.
Q: Does every pensioner have a GMP?
A: No. Only those who were employed between 1978 and 1997 and who paid the full employed persons national insurance contribution have an entitlement. Various groups of pensioners will not have a GMP entitlement, for example those who were paying the married women’s rate of National Insurance.
Q: Who is affected?
A: A small proportion of pensioners (about 5%) who were members of a public service pension scheme between 1978 and 1997 and who have a GMP entitlement are affected. Some 6,700 people in Scottish NHS, and teachers pensions schemes are affected out of a total of 129,000 pensioners. A similar proportion of pensioners in UK schemes covering the civil service, MOD and judiciary may also be affected along with some members of Scottish Local Government, Police and Fire Schemes.
Q: How did the overpayments occur?
A: Public service pensions are increased each year in line with the Retail Prices Index (RPI). The occupational scheme pays the increase on the whole pension, including the GMP element, until pensioners begin to receive their state pension. Thereafter the GMP element is shared between the scheme and the State.
A proportion of public service pensioners did not have a GMP shown on their pension record which has meant that they have received the increase twice: once with their occupational scheme and again with their State pension. The result of this is that they have been overpaid.
Q: Why was the GMP not recorded on the pension record?
A: The agreed procedure whereby the National Insurance Contributions Office (NICO) provides information to occupational pension scheme administrators has failed in a small proportion of cases. An investigation into the errors has been completed by the National Audit Office (NAO) who have reported that the principal causes of the problem were:
HM Revenue and Customs (NICO section) failed to issue a GMP notification to the pension scheme; and
the GMP was sent to the wrong pension scheme or was not matched to a record on the pension scheme’s payment system.
Administrative processes have been reinforced and further changes resulting from the NAO recommendations will be implemented.
Q: How will pensioners of Local Government, Police and Fire pension schemes know if they are affected?
A: The individual pension scheme administrators for the Local Government, Police and Fire schemes are examining their systems and processes to assess the extent of the problem. They will contact affected pensioners once they have completed that work, which may take some time.
Q: Who can those affected talk to if they need further information or advice?
A: NHS and Teachers’ pensioners can contact the SPPA on 01896 893 000. Pensioners in other schemes should contact their pension scheme administrators.
Q: What help is available in the event of any hardship this may cause?
A: Once the figures are known in April 2009 individuals may be eligible for other financial assistance. They may be eligible for Pension Credits from the Pension Service, who can be contacted on 0800 99 1234. They are open from 8am to 8pm Monday to Friday. People can also contact their local Council Offices and inform them of the change in their income, in case they are eligible for assistance with Housing Benefit or with their Council Tax.
Q: Can those affected take the matter further?
A: The SPPA has an internal dispute resolution procedure (IDRP) for pensioners who are unhappy with a decision affecting their pension and full details are contained in the SPPA web site at http://www.sppa.gov.uk/complaints.htm. They can also write to the Director of Operations at SPPA and ask for the IDRP guide which explains what their rights are if they remain dissatisfied with the decision.
Other schemes have similar arrangements.