Public Employees Contributory Retirement Scheme (PECRS) and Teachers' Superannuation Fund (JTSF): Commutation of Deferred Benefits: Amendments of Various Legislation

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A decision made 27 February 2015:

Ministerial decision reference MD-C-2015-0028
Decision summary title Commutation of Deferred Benefits Amendment
Decision summary author	Project Director - Pensions		Is the decision summary public or exempt?	Public
Report title Public Employees Contributory Retirement Scheme (PECRS) and Jersey Teachers’ Superannuation Fund (JTSF) - Commutation of Deferred Benefits Amendment
Report author or name of person giving report	Project Director - Pensions		Is the report public or exempt?	Public
Decision and reason for the decision The Chief Minister decided to amend the relevant PECRS and JTSF legislation in line with that of the Income Tax legislation and allow deferred pensioners the choice to commute their benefits into a lump sum not exceeding £18,000. The Committee of Management of the PECRS has requested an amendment to Regulation 16A of the Public Employees (Contributory Retirement Scheme) (New Members) Regulations 1989 and the Public Employees (Contributory Retirement Scheme) (Existing Members) Regulations 1989. This amendment should also be applied to Article 34A of the Teachers’ Superannuation (New Members) (Jersey) Order 2007 and Article 59B of the Teachers’ Superannuation (Existing Members) (Jersey) Order 2007. The amendment will allow members who have deferred benefits to choose to commute those benefits into a lump sum not exceeding £18,000. This is an increase from the current limit of £5,000. The amendments are requested in order that the PECRS Regulations and JTSF Orders match the changes that have been made through the Income Tax (Amendment No. 44) (Jersey) Law 2014 under Article 131 (13), which came into force on 1st January 2015.
Resource implications There are no financial or staffing implications.
Action required The Project Director – Pensions is requested to instruct the Law Draftsman accordingly.
Signature		Position Senator I J Gorst Chief Minister

Date signed		Effective date of the decision

Public Employees Contributory Retirement Scheme (PECRS) and Teachers' Superannuation Fund (JTSF): Commutation of Deferred Benefits: Amendments of Various Legislation

STATES EMPLOYMENT BOARD

TREASURY AND RESOURCES DEPARTMENT

PUBLIC EMPLOYEES CONTRIBUTORY RETIREMENT SCHEME (PECRS) & JERSEY TEACHERS SUPERANNUATION FUN (JTSF)

COMMUTATION OF DEFERRED BENEFITS AMENDMENT

INTRODUCTION

The Committee of Management has requested an amendment to Regulation 16A of the Public Employees (Contributory Retirement Scheme) (New Members) Regulations 1989 and the Public Employees (Contributory Retirement Scheme) (Existing Members) Regulations 1989. This amendment should may also be applied to Article 34A of the Teachers’ Superannuation (New Members) (Jersey) Order 2007 and Article 59B of the Teachers’ Superannuation (Existing Members) (Jersey) Order 2007

The amendment will allow members who have deferred benefits to choose to commute those benefits into a lump sum not exceeding £18,000. This is an increase from the current limit of £5,000.

The amendments are requested in order that the PECRS Regulations and JTSF Orders match the changes that have been made through the Income Tax (Amendment No. 44) (Jersey) Law 2014 under Article 131(13), which came into force on 1st January 2015.

BACKGROUND

In 2011, the PECRS Regulations and JTSF Orders were amended to allow a person, who had deferred benefits in PECRS or JTSF to be able to commute those benefits into a lump sum as long as the transfer value was no greater than £5,000.

An advantage of allowing commutation of deferred benefits is that it allows for the removal of relatively small pensions from the Schemes and alleviates the burden on the Pension Unit of having to administer those small pensions.

From 2011 the tax legislation relating to commutation of trivial pension was dealt with under the Income Tax (superannuation Funds) Order 2008. The Order allowed schemes to implement the commutation of small deferred benefits, if the member elected to do so. This provision is now dealt with entirely under the Income Tax Law 1961, under article 131(13).

AMENDMENT TO SCHEME LEGISLATION

In considering the proposed amendment to the legislation, it is important to note that the tax rules contain maximum limits but it is not an automatic requirement that schemes have limits that equal those in the tax legislation. Individual scheme limits can be less than the tax legislation allows for or may not allow the commutation at all.

Currently, a transfer value of £18,000, taking into consideration such factors as gender, age and the Scheme legislation applicable to the member, equates to an annual pension of circa £1,800 per annum, i.e. some £150 a month
In addition, members at their deferred pension age would be eligible to commute up to 25% of their pension for a lump sum. 25% of £1,800 is £450 which, when using the current conversion figures of £13.50 for every £1 given up, creates a lump sum of £6,075. This would leave a remaining annual pension of £1,350, or £112.50 a month.

The above pension will also increase annually in line with the Jersey Retail Prices index (subject to the Scheme’s ability to pay) and would supplement other income the member may have in retirement.

Allowing this amendment to the legislation could mean less of an administrative burden on both Schemes. Nonetheless, allowing individuals more choice regarding deferred pension benefits may result in additional strain on the income support system during retirement. However, the Board may find it difficult to justify a refusal on these grounds.

SEB are asked to consider agreeing the Committee of Management’s request to increase the maximum value of benefits that can be commuted to a lump sum to bring it into line with tax legislation. The revised maximum lump sum of £18,000 would be applied to both PECRS and JTSF for consistency.

FURTHER ACTION

The Board is asked to agree to the CoM’s request to bring PECRS and JTSF legislation in line with that of the Income Tax legislation and so allow deferred pensioners the choice to commute their benefits into a lump sum not exceeding £18,000.

MB/TRY/PENS

13.01.15