PENSION CASE STUDIES
Whilst the fight to defend our pensions is about much more than just the impact upon each of us as individuals, many members are asking what the individual impact will be.
Here are some worked examples of the impact of the Government's two proposed options for the immediate future of the Local Government Pension Scheme. These come with no particular warranty and are just our best attempt to illustrate what all the percentages and "accrual rates" mean in practice. These examples take no account of the detrimental impact on all our pensions of the change in uprating pensions in payment from the Retail Price Index (RPI) to the Consumer Price Index (CPI), which is estimated to have reduced the lifetime value of pensions for those who have not yet retired by between 15% and 20%. These calculations also do not take account of any of the possible changes that may be proposed in the negotiations which have not yet begun about implementing the recommendations of Lord Hutton (except that they do anticipate that the pension age in the LGPS will rise in line with the state pension age as the Government clearly intend). Otherwise, what follows is based simply upon a comparison of the Government's options one and two with the current (2008) Local Government Pension Scheme.
Because these examples are for Lambeth they are based upon the Inner London Pay Spine.
CASE STUDY ONE – THE FORTYSOMETHING SPECIALIST
Ed is 47 years old with 28 years service and is at the top of PO2. Under the current scheme he could expect to retire on an unreduced pension in eighteen years at the age of 65. Based on today’s salary for that grade his pension at the age of 65 would be around £23,200 on the basis of the current scheme. He currently pays 6.8% of salary in employee pension contributions (£198.65 a month before tax).
In Option One, his pension contributions will rise to £219.09 in 2012/13; £242.46 in 2013/14 and £254.15 from 2014/15 onwards, leaving him more than £55 a month worse off before tax.
His retirement age will move to 66, and after working for one additional year to get an unreduced pension that pension would be around £23,050. If he chose to leave at 65 his pension of £22,510 would be actuarially reduced to an estimated £21,160 – a cut in pension of over £2,000 a year for life.
In Option Two, his pension contributions will rise to £207.41 in 2012/13; £227.86 in 2013/14 and £239.54 from 2014/15 onwards, leaving him more than £40 a month worse off before tax.
His retirement age will move to 66, and after working for one additional year to get an unreduced pension that pension would be around £22,750. If he chose to leave at 65 his pension of £22,230 would be actuarially reduced to an estimated £20,900 – a cut in pension of more than £2,300 a year for life.
CASE STUDY TWO – THE TWENTYSOMETHING ADMINISTRATOR
Rachel is 26 years old with 2 years service and is at the top of Scale 5. Under the current scheme she could expect to retire on an unreduced pension in 39 years at the age of 65. Based on today’s salary for that grade her pension at the age of 65 would be around £17,000. She currently pays 6.5% of salary in employee pension contributions (£134.44 a month before tax).
In Option One, her pension contributions will rise to £148.91 in 2012/13; £165.46 in 2013/14 and £171.66 from 2014/15 onwards, leaving her £37 a month worse off before tax.
Her retirement age will move to 68, and after working three additional years to get an unreduced pension that pension would be around £15,790. If she chose to leave at 65 her pension of £14,640 would be actuarially reduced to an estimated £12,450 – a cut in pension of more than £4,500 a year for life.
In Option Two, her pension contributions will rise to £140.64 in 2012/13; £148.91 in 2013/14 and £155.12 from 2014/15 onwards, leaving her more than £20 a month worse off before tax.
Her retirement age will move to 68, and after working three additional years to get an unreduced pension that pension would be around £15,400. If she chose to leave at 65 her pension of £14,290 would be actuarially reduced to an estimated £12,150 – a cut in pension of more than £4,800 a year for life.
CASE STUDY THREE – THE FIFTYSOMETHING PROFESSIONAL
Jane is 55 years old with 33 years service and is at the top of PO1. Under the current scheme she could expect to retire on an unreduced pension in ten years time at the age of 65. Based on today’s salary for that grade her pension at the age of 65 would be £19,700. She currently pays 6.8% of salary in employee pension contributions (£188.73 a month before tax).
In Option One, her pension contributions will rise to £208.16 in 2012/13; £230.37 in 2013/14 and £241.47 from 2014/15 onwards, leaving her £52 a month worse off before tax.
Her pension age will remain at 65. Her pension will be around £19,330 – a pension cut of £370 a year for life.
In Option Two, her pension contributions will rise to £197.06 in 2012/13; £216.49 in 2013/14 and £227.59 from 2014/15 onwards, leaving her £39 a month worse off before tax.
Her pension age will remain at 65. Her pension will be around £19,250 – a pension cut of £450 a year for life.
CASE STUDY FOUR – THE THIRTYSOMETHING MANAGER
Dave is 35 years old with ten years service and is at the top of PO3. Under the current scheme he could expect to retire on an unreduced pension in thirty years time at the age of 65. Based on today’s salary for that grade his pension at the age of 65 would be around £24,130. He currently pays 6.8% of salary in employee pension contributions (£214.49 a month before tax).
In Option One, his pension contributions will rise to £236.57 in 2012/13; £261.80 in 2013/14 and £274.42 from 2014/15 onwards, leaving him almost £60 a month worse off before tax.
His retirement age will move to 67, and after working two additional years to get an unreduced pension that pension would be around £22,730. If he chose to leave at 65 his pension of £21,570 would be actuarially reduced to an estimated £19,190 – a cut in pension of more than £4,900 a year for life.
In Option Two, his pension contributions will rise to £223.95 in 2012/13; £246.03 in 2013/14 and £258.65 from 2014/15 onwards, leaving him £44 a month worse off before tax.
His retirement age will move to 67, and after working two additional years to get an unreduced pension that pension would be around £22,280. If he chose to leave at 65 his pension of £21,150 would be actuarially reduced to an estimated £18,830 – a cut in pension of more than £5,300 a year for life.
CASE STUDY FIVE – THE FIFTY YEAR OLD CUSTOMER SERVICES ASSISTANT
Sarah is 50 years old with thirty years service and is on the top of Scale 3. Under the current scheme she could expect to retire on an unreduced pension in fifteen years time at the age of 65. Based on today’s salary for that grade her pension at the age of 65 would be around £12,830. She currently pays 6.5% of salary in employee pension contributions (£109.02 a month before tax).
In Option One, her pension contributions will rise to £112.38 in 2012/13; £120.76 in 2013/14 and £129.15 from 2014/15 onwards, leaving her £20 a month worse off before tax.
Her retirement age will move to 66, and after working one additional year to get an unreduced pension that pension would be around £12,780. If she chose to leave at 65 her pension of £12,470 would be actuarially reduced to an estimated £11,850 – a cut in pension of £980 a year for life.
In Option Two her pension contributions will rise to £114.05 from 2013/14 onwards, leaving her £5 a month worse off before tax.
Her retirement age will move to 66, and after working one additional year to get an unreduced pension that pension would be around £12,680. If she chose to leave at 65 her pension of £12,370 would be actuarially reduced to an estimated £11,750 – a cut in pension of £1,080 a year for life.
If you have suggestions for further case studies please comment - or contact the pensions penguin at askthelambethpenguin@yahoo.co.uk.
And don't forget to vote "YES"!
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Posted By Blogger to Lambeth UNISON News on 10/13/2011
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