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ASEO Pensions Glossary NOV 2014

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Pensions Glossary
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  1 Pensions Glossary This document helps to explain some of the terms used in the documentation and presentations you will receive about your pension and the proposed changes 1.   Final Salary Scheme This is the scheme that members are currently on, it is based on your final salary when you retire and amounts to half of your final salary if you have worked 4 yrs or more in public service. !.   efined #enefit scheme This is any scheme based on the salary you earn and includes final salary and $%&' schemes. (n such schemes the benefit you receive is )defined* and is generally a factor of your pensionable pay and years of pensionable service. The advantage is you should know what your pension will be well in advance of retirement. +.   efined contribution scheme These are schemes were you and your employer, although many are non contributory as far as the employee is concerned-, pay a fixed percentage into a fund that relies on investment returns to provide you with a pension or financial assets later in life. ou have no way of knowing in advance how much pension you will get as it depends on how well or badly the returns on the investments do, both before and after you retire. (n /uernsey it is proposed that any earnings in excess of 023 will be moved to a scheme like this. nder this type of scheme all risk falls on the employee. 4.   $%&' Scheme C areer A verage R e5evaluated E arnings schemes are based on an average of your salary over your career. $%&' is a defined benefit scheme. (n schemes like this each year of pensionable service is relevant for the calculation of your pension and not 6ust those in your final years- of  ! service. 'ach year you are provided with an annual pension statement that shows you the value of your pension at that time. This is the proposed basis of the /uernsey scheme moving forward. sually accrual rates under $%&' schemes are more favourable than under final salary schemes. 2.   %ccrual rates This is the rate at which you build up your pension and is usually expressed as a fraction e.g. 17 th . sually in public service schemes you will work half of the number of years expressed in the fraction to gain a full pension. For example in a 17 th  scheme you need to work 4 years i.e. 47ths- to gain a full pension, or in a 178 th  scheme + years. (n /uernsey those 6oining before ! will have a 17 th  pension with a lump sum of + times the pension, those after ! will have a 178 th  accrual rate with no automatic lump sum. 8.   &9(, &9(: and $9( These are all measures of inflation and are used to assess the annual inflationary increase that is made to your pension account for inflation. &9( &etail 9rice (ndex-. This is based on the price change of items within a ;shopping basket; measured over time <uarterly measurement in /uernsey-. The &9( includes mortgage interest payments and, hence, changes in the interest rates affect the &9(. &9(: is the same as the &9( minus mortgage interest payments but does include council tax7T&9. &9(: measures underlying ;core; inflation and is the headline measure for inflation in /uernsey. $9( $onsumer 9rice (ndex- excludes mortgage interest payments so it is similar to the &9(: but not the same. $9( uses a slightly different ;shopping basket; of items from which prices are measured over time= it also includes some financial services not included in the &9(:. >owever  + it does not include council tax7T&9 and some other housing costs which are included in the &9(:. Furthermore $9( and &9(7&9(: are not calculated in the same manner. &9(7&9(: is calculated using an arithmetic mean whereas the $9( uses a geometric mean, with the effect that the $9( is usually lower than the &9(:. $urrently, $9( is not measured in /uernsey. &9( and &9(: are measures used in /uernsey and the proposals move the measure used from &9( to &9(: but with a 8? maximum increase. Traditionally in /uernsey there has not been a great difference between the two measures. @.   (mplementation ate This is currently the 1st Auly !12. .   %ctuarial assumptions These are figures used by actuaries in funded pension schemes, like /uernsey. They are used to assess any shortfalls or overfunding of schemes. They are used to anticipate issues that might affect a pension fund and cause it to fall into deficit such as members living longer or investment returns underperforming. B.   Funded and unfunded scheme. (n public service schemes funded schemes are those were there is an identifiable )pot* of money from which contributions are made and from which pensions are paid, e.g. The /uernsey Scheme. nfunded schemes are where there is no )pot* of money and the government pays the pension to pensioners from its annual revenue. Sometimes these are referred to as *pay as you go schemes*. The main $ivil Service scheme in the 3 and the C>S scheme are )unfunded* as is the Aersey scheme. (n unfunded schemes actuarial assumptions are made to ensure that there is sufficient money to ensure that pensions will be paid when due.  4 1.   C9 and S9% N ormal P ension D ate and S tate P ensions A ge. C9 is the earliest date at which you can retire and have your work pensions paid to you in full, i.e. if you 6oined before ! it is 8yrs and after ! 82yrs. S9% is the date you get your state pension i.e. your old age pension- and is moving to 8@yrs. The /uernsey proposals, in effect, make these dates the same as S9% i.e. 8@yrs. This will not apply to those who on 1717!14 are within 1 yrs of their current C9 . (t also means that whenever the S9% increases so will your C9 . 11.   Special groups These are groups such as fire fighters, police, Audges etc who have different pension terms and for police and fire in particular an earlier C9 currently 22yrs. 1!.   Fixed cost ceiling This is a total overall cost to the employer of what it puts into the pensions scheme. /uernsey is proposing a maximum of 14.2? employer contributions to the scheme.
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