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How do pensions and the LGPS work?

Greater Manchester Pension Fund (GMPF) is one of 88 regional Local Government Pension Scheme (LGPS) funds across England and Wales.

The LGPS is what’s called a ‘defined benefit’ pension. The benefits you receive from a defined benefit pension are set out in the rules of the scheme. The amount you need to pay to be a member in is also set out in these rules.

Find out how your benefits are calculated in the LGPS in our ‘Calculating benefits' section.

How does a defined benefit scheme work?

The benefits you receive from a defined benefit scheme, like the LGPS, are determined by a set calculation. You pay to be a member of the scheme. Employers normally pay into these schemes too. 

What you and your employer pay into the scheme doesn’t change the amount you receive when you come to take your benefits.

Your benefits will be based on the calculations outlined in the scheme rules. Your pension is normally guaranteed for life and is reviewed each year in line with price rises.

How does a defined contribution scheme work? 

You may have also heard of defined contribution pension schemes. Defined contribution pension schemes are more common than defined benefit ones. They are also known as money purchase schemes. Additional voluntary contributions (AVCs) are a defined contribution arrangement.

These work in a different way to the LGPS. 

In a defined contribution scheme, your pension provider will invest the money you pay in. Your contributions and investment income give you a pension pot. Your employer may pay in too.

When you join or set up the pension, you will need to decide how and where you want to invest your money. Your pension pot can go up or down because investments can go up or down.

When you want to draw your benefits, you can choose from a number of options. If you have a defined contribution pension, your pension scheme will provide you with details. You can also find out more by contacting the government’s free service called Pension Wise.

What is a ‘funded’ scheme?

This is the term used for schemes that invest the contributions they receive. Investment income helps to pay for the pension benefits due. 

The LGPS is a funded pension scheme. GMPF invests locally and around the globe to generate investment income. The value of our investments can change regularly, but the amounts of pensions we pay are not affected because the LGPS is a defined benefit pension scheme. If more money is needed to pay all our members pensions then we may ask employers to pay more into the scheme.

What are the LGPS main scheme and the 50/50 scheme?

You have the option to be in the main section or the 50/50 section of the LGPS once you have joined. The main scheme is the default option and is the section you will be enrolled in when you join. You will pay the main scheme contribution rate and build up your pension at the full rate.

In the 50/50 section, you pay contributions at half the rate of the main scheme and your pension also builds up at half the rate. However, you keep the same life and ill health cover as if you were in the main scheme.

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