The Local Government Pension Scheme (LGPS) is a career average pension scheme. Career average schemes are also referred to as ‘CARE’ or ‘pension build up’.
As soon as you begin paying in, you’ll start to build up a pension that we will pay to you when you retire. You also get other benefits if you leave or die before you retire, or if you die within ten years of retirement.
Each year you are contributing member of the Scheme, we work your pension out and add it to your pension account. We do this using your actual pay for the year and dividing it by either 49, if you are in the main section or 98 if you are in the 50/50 section. This is then increased each year in line with price rises.
Here's an example:
Abby joined the main section of the LGPS two years ago. Her pay in the first year was £24,000. So, after her first year she built up a pension of £489.80 (£24,000 / 49). In her second year, her pay increased slightly to £26,000 and so she built a pension of £530.61 (£26,000 / 49). In her second year of membership, the pension from her first year was also increased in line with price rises by £16.76, giving her a total pension pot after two years worth £1,037.17.
|Year 1||£489.80 + £16.76 = £506.56|
Before April 2014, the LGPS was a final salary pension scheme. If you were a member before April 2014, the benefits you built up before this are protected and will be calculated differently. We use your full time equivalent final salary when you leave to work out the pension built up before 1 April 2014. We add this amount to the pension you have built up since then.
To work out your final salary benefits we use the membership you have built up in the Scheme before April 2014 along with a portion of your final salary when you leave.
Changes were made to the final salary scheme in April 2008. Before April 2008 we use 1/80 of your final salary to work out your annual pension, and an automatic lump sum is also payable. After April 2008 you no longer receive an automatic lump sum. You do receive a bigger pension though, as 1/60 of your final salary is used to work out your yearly pension.
Before April 2008
|Years’ membership * final salary / 80||Yearly pension|
|Years’ membership * final salary / 80 * 3||Automatic tax free lump sum|
After April 2008
|Years’ membership * final salary / 60||Yearly pension|
You can find out what all your benefits are worth by registering or logging into your My Pension account.
If you joined after 1 April 2008, then you won’t have an automatic tax free lump sum. However, you can take up to 25 per cent of the overall value of your pension pot as a tax free lump sum. You must normally take all your benefits at the same time.
You can choose to take your standard pension benefits, the maximum 25 per cent lump sum, or any amount in between.
For every £1 of pension you give up you get an extra £12 back as a lump sum which is tax free. The amounts may change if you have tax free cash from other pension schemes. It does not take account of any AVCs you have with us, and you may be able to take some or all of your AVCs as tax free cash.
As a contributing member, you can use the calculator within your My Pension online account to check how much lump sum you can take when you retire.
Brenda is about to retire. She was a member before 2008, and her standard package of benefits is as follows:
If Brenda decides to give up £1,000 of her yearly pension, this is how her benefits will change:
(original lump sum of £21,000 plus £12,000 (£1,000 x 12))
If Brenda wants the maximum lump sum under HMRC limits her benefits will be:
(reduced by £2,089)
|Maximum lump sum||£46,068
(original lump sum of £21,000 plus £25,068 (£2,089 x 12))