Following the recent budget announcements, the Chancellor confirmed a reduction of the SCAPE discount rate from 2.8% above the Consumer Prices Index (CPI) to 2.4% above CPI. The SCAPE discount rate is used to determine the actuarial factors used across all of the public service pension schemes.
The reduced rate was effective from 29 October 2018 for the calculation of actuarial factors in the LGPS and this means that:
- from 29 October 2018
- some calculations relating to transfers both in and out of the LGPS, and
- all transfer value calculations for divorce settlement purposes,
will need to be placed on hold until new actuarial factors are issued. We understand that the Secretary of State is aiming to issue new factors for these purposes within approximately 6 weeks, so in early December 2018.
- actuarial factors for other purposes will change from February/March 2019. The Ministry of Housing, Communities and Local Government (MHCLG) has indicated that they will introduce new factors in “February/March 2019”. Although not confirmed, from the point of their introduction these factors may impact on:
- the benefits of those members retiring early with reductions or late with additions;
- the strain cost for employers in relation to those members retiring, for instance, on redundancy grounds;
- the cost of purchasing additional pension / replacing lost pension;
- the amount of annual pension offset, or reduction, when a member chooses that the scheme pays an Annual Allowance Charge or a Lifetime Allowance Charge for them; and
- any trivial commutation lump sum payable.
We therefore ask that you inform your scheme members about these changes. In particular:
- there may be delays to any transfer or divorce settlement calculation processes, and
- if they are planning to retire after 31 January 2019 when making any financial decisions involving their LGPS pension benefits they should take into account that their benefits may be affected by the new factors being in place at their retirement date. If they have already received quotations from us, these will not have reflected the new factors.
As and when new factors are issued, we will communicate this directly to you.