- Pension basics
- Scheme benefits
Pensionable Pay Cap
Arrangements from 2 April 2014
From 2 April 2014, the Group has introduced a 0% cap to increases in Pensionable Pay to apply to all increases in base pay taking effect on or after that date for all colleagues who are members of its Defined Benefit pension schemes, in the United Kingdom, Channel Islands and the Isle of Man. In effect, no increases in base pay after this date will be pensionable. This Pensionable Pay Cap will be kept under review although it is expected to apply for the foreseeable future.
Arrangements from 2 April 2010 to 1 April 2014
On 2 April 2010, Lloyds Banking Group (the Group) introduced a cap on increases to Pensionable Pay for members of its Defined Benefit pension schemes in the United Kingdom, Channel Islands and Isle of Man. Pensionable Pay is the pay used to calculate pension benefits (you may see it referred to in individual scheme rules as pensionable salary or an equivalent expression).
From 2 April 2010 to 1 April 2014, any increases in base pay offered to colleagues who were members of the Group’s Defined Benefit pension schemes were offered subject to acceptance by the colleague of the application of a cap on increases to Pensionable Pay. The annual increase in Pensionable Pay on 1 April 2011, 2012, 2013 and 2014 was subject to a cap of the lowest of:
- a colleague's aggregate actual percentage increase in base pay over the 12 months to 1 April;
- the increase in the retail prices index (RPI) over the 12 months ending on the previous 31 December; and
This cap applies to all offers of increases to base pay, including annual and all out-of-cycle pay awards as well as promotional pay increases.
If a colleague accepted the pay award by continuing to work and receiving the increased pay, then they are treated as having accepted the pay award on the terms described to them (i.e. with the Pensionable Pay cap). A colleague could explicitly reject any pay award offer on these terms, but if they did so then the pay increase did not take effect. If the pay award was accepted, the trustees of the Group schemes could rely on the acceptance as contractually limiting the Pensionable Pay under the scheme and the trustees would then administer the scheme on that basis and pay benefits as described above.
This means that Pensionable Pay for all members of the Group’s Defined Benefit pension schemes will not increase on or after 2 April 2014 even if base pay increases.
The 0% cap applies to all offers of increases to base pay, including annual and all out-of-cycle pay awards as well as promotional pay increases. The practical impact of this change depends on an individual's salary progression. As mentioned, the cap will be reviewed from time to time.
Any awards of increases in base pay offered to take effect on or after 2 April 2014 are not pensionable while the current 0% cap policy applies
Going forward, pension benefits in the Defined Benefit schemes will continue to increase in accordance with increase in length of service. This means that further pension benefits will be built up in our Defined Benefit schemes with more Pensionable Service. But Pensionable Pay will not increase if base pay increases.
Employee and employer contributions will be based on the capped Pensionable Pay rather than actual pay.
Yes. At retirement, or leaving the scheme, a single calculation will be carried out to establish the pension payable. So there will be generally no distinction drawn between the pension built up before or after 1 April 2014. The total pension for all past and future service will be calculated by reference to capped Pensionable Pay at the relevant date.
In the case of a few of the Group’s schemes, the trustee of the Scheme has been advised that the rules prevent amendments which adversely affect past service benefits. As a result, for those particular schemes, based on current case law, it would not have been possible for the Group to implement a cap simply by amending the scheme rules. Instead the Group has chosen to introduce a cap through the salary award process which allows the Group, by imposing terms and conditions on any offer of a pay award, to implement the cap other than by changing the rules.
All pension benefits will be subject to the cap including added years additional voluntary contribution benefits and transferred-in benefits and survivors’ pensions. However the death-in-service lump sum benefit will continue to be based on actual base pay as will any Group Performance Share award or flex cash sum.
The trustees of the Group schemes have been kept fully informed of this change. However, as the Bank implements the change contractually with colleagues, no change to the pension scheme rules has been required and therefore the consent of the trustees has not been sought.
Any awards of base pay taking effect on or after 2 April 2014 will be offered to colleagues on the basis that the increases are not pensionable. If a colleague accepts the pay award by continuing to work and receive the increased pay, then it will be deemed that they have accepted the pay award under the terms described (i.e. with the Pensionable Pay cap). A colleague can explicitly reject any pay award offer on these terms, but if they do so then the pay increase will not take effect. If the pay award was accepted, the trustees of the relevant Group scheme could rely on the acceptance as contractually limiting the Pensionable Pay under the scheme and the trustees would then administer the scheme on that basis and pay benefits as described above.
The 2014 change to the pensionable pay cap will be kept under review although it is expected to apply for the foreseeable future. The Bank may make changes to contracts or amend or terminate any pension scheme in the future in line with its provisions and with appropriate consultation and, where applicable, consents.
All Defined Benefit (DB) scheme members have three choices:
- Do nothing – remain in your DB scheme and make no changes – you’ll continue to earn additional pension in the future, although your Pensionable Pay won’t increase on or after 2 April 2014 with increases in base pay. The lump sum payable if you die in service will, however, increase as your base pay increases.
- Top-up – remain in the DB scheme but pay or increase additional voluntary contributions to boost existing pension.
- Leave the DB scheme and join Your Tomorrow – leave the DB scheme and choose whether to join the Group’s defined contribution scheme, Your Tomorrow. Remember that if you leave your DB scheme you won’t be able to rejoin it in the future. The pension you have accrued to the date you leave your DB scheme will be kept in it and increased as required by law until it’s paid, unless you choose to transfer it to another pension arrangement. For more information please see Your Tomorrow.
More details on each of these choices can be found in the booklet which was sent to all members of the DB schemes in March 2014 (the pages relating to choice can be found on the internal colleague Interchange site).
Pensions form an important part of your savings for retirement so colleagues are encouraged to take independent financial advice if they’re not sure about the choices above. A list of independent financial advisers can be found at www.unbiased.co.uk