What benefits you build up
What benefits you build up
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 a 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 |
|---|---|
| + | |
| Year 2 | £530.61 |
| = | |
| Total | £1,037.17 |
If Abby continues paying contributions into the scheme for a total of five years, her pension will continue to build up each year.
The following example shows Abby’s annual salary paid over five years. The figures for her pension earnt and her total pension carried forward each year are also included.
The yearly amount paid by the member is the total contributions Abby has paid in over the year. Abby’s salary places her in the band for a 6.5 per cent contribution rate. You can check your contribution band on the Joining, contributions, and transferring in your benefits page.
To simplify the example, we have not included the increase in line with price rises Abby received after her first year, or for any additional years. Abby remains in the main section of the pension scheme and on the same salary from year two onwards.
|
Year |
Annual salary |
Pension earnt (Worked out using 1/49 of pensionable salary) |
Carried forward to next year |
Increase in line with price rises |
Yearly amount paid by the member inc 20% tax relief |
|---|---|---|---|---|---|
|
1 |
£24,000 |
£489.80 |
£489.80 |
0% |
£1,248 |
|
2 |
£26,000 |
£530.61 |
£1,020.41 |
0% |
£1,352 |
|
3 |
£26,000 |
£530.61 |
£1,551.02 |
0% |
£1,352 |
|
4 |
£26,000 |
£530.61 |
£2,081.63 |
0% |
£1,352 |
|
5 |
£26,000 |
£530.61 |
£2,612.24 |
0% |
£1,352 |
|
Total |
- |
- |
£2,612.24 |
- |
£6,656 |
If Abby takes her pension at her normal pension age (NPA) she will receive an annual pension of £2,612.24, plus inflation. If she takes her pension before her normal pension age, it’s then reduced.
If Abby receives her pension for 15 years after retiring at NPA, she would receive a total of £39,183.60 over the 15 years, plus inflation.
One of the most important benefits of the LGPS is that this amount is guaranteed, index-linked and paid every year for life.
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.
Example
Brenda is about to retire. She was a member before 2008, and her standard package of benefits is as follows:
| Yearly pension | £9,000 |
| Lump sum | £21,000 |
If Brenda decides to give up £1,000 of her yearly pension, this is how her benefits will change:
| Yearly pension | £8,000 |
| Lump sum | £33,000 (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:
| Yearly pension | £6,911 (reduced by £2,089) |
| Maximum lump sum | £46,068 (original lump sum of £21,000 plus £25,068 (£2,089 x 12)) |
You don't only get a yearly pension being a member of the LGPS. You are entitled to a range of other benefits from the date you join. These benefits include:
- Life cover
- Ill health and redundancy protection
- Early or flexible retirement
- 50/50 section
- My Pension
The life cover benefit starts as soon as you are a member of the LGPS. The cover differs whether you are a contributing member, your benefits are on hold, or you are retired, but you can read more about this on our what death benefits we pay page.
There’s additional financial protection for your family with dependent pensions potentially payable. This means you can nominate who you would like your life cover to be paid to. GMPF also provides ill health protection and redundancy protection that you don’t get with many other types of pension schemes.
Additionally, you have the option of retiring early, or possibly taking flexible retirement, as well as the option to swap some of your pension for a tax free lump sum when you retire.
There’s also our 50/50 section, if you need to reduce your contributions for a while. You’ll only build up half the pension while you’re in the 50/50 section, but you keep your full life cover and ill health protection.
Plus your online My Pension account allows you to update your contact details, amend your life cover expression of wish, check out your annual benefit statements and upload documents to us securely.
One of the benefits of receiving a Local Government pension is that your pension is adjusted so it keeps pace with inflation.
When you pay into the career average scheme, we calculate the amount of pension you have earnt so far on 31 March each year and adjust it in April in line with price rises. This adjustment is called revaluation. HM Treasury specifies the revaluation adjustment we must make, usually in March each year, and it is normally based on the September to September adjustment in the Consumer Price Index (CPI). Revaluation adjustments can be negative as well as positive, so your career average pension can be reduced as well as increased by the revaluation process.
If you have built up benefits in the previous final salary scheme, inflation proofing is achieved through the link to your final salary pay.
Once you claim your pension, we will ensure it maintains its spending power by using a similar adjustment known as Pensions Increase. Visit How your pension keeps pace with inflation to find out more, including previous pension increase rates.