In his latest budget, 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.
The Ministry of Housing, Communities and Local Government (MHCLG) has also indicated that they will introduce new factors for other purposes in “February/March 2019”. Although not confirmed, from the point of their introduction these factors may impact on:
- the benefits of those members retiring before their normal pension age with reductions or after their normal pension age, with increases;
- 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 the scheme pays option for an Annual Allowance or a Lifetime Allowance tax charge; and
- any trivial commutation lump sum payable.
We therefore ask that you inform your scheme members that:
- there may be delays to any transfer or divorce settlement calculation processes, and
- if they are planning to retire after 31 January 2019 they should take into account that their benefits may be affected by the new factors being introduced before their retirement date.
- if they have already received quotations from us, these will not have used the new factors when calculating their benefits.
We will write to all employers shortly to provide some wording to help explain this to your members.