Buying lost pension – Terms and Conditions
You can pay additional pension contributions to buy back lost pension if you are away from work with no pay. You can do this if you are in the main or 50/50 section of the LGPS.
You can buy back pension lost for any period of:
- additional unpaid maternity or adoption leave (normally weeks 27 to 52)
- unpaid shared parental leave
- unpaid bereavement leave
- unpaid leave with your employer’s permission where you are away from work for 31 days or more.
You do not need to buy back lost pension if you are away from work with no pay because of sickness, ordinary maternity or adoption leave (the first 26 weeks) or paternity leave. In these circumstances, you will already be building up pension as if you were at work receiving your normal pay.
If your employer allows you to take a period of unpaid leave, including for jury service, and you are away from work for 30 days or less, you do not need to buy back lost pension. In these circumstances, you will continue paying contributions on the pay you would have received had you not been away.
If you elect to buy back lost pension within 30 days of returning to work, your employer will meet two thirds of the cost (unless you were on strike or your leave was unauthorised). Your employer is only obliged to meet two thirds of the cost for periods of absence up to 36 months.
If you elect to buy back lost pension after 30 days of returning to work, you will be responsible for the whole cost. Your employer can choose to extend the 30-day period and still meet two thirds of the cost, but this is a discretion.
If you are away from work because of strike action, you are responsible for meeting the full cost yourself. Your employer can choose to meet some of the cost.
Paying for lost pension
You can spread the cost of buying lost pension by making regular payments from your salary, or you can pay by lump sum. However, the option of making regular payments is not available if:
• you are within 12 months of your Normal Pension Age (NPA)
• you are over your NPA
• your local pension fund decides it is not practical.
If any of the above apply you can only buy lost pension by making a lump sum payment.
Your local pension fund may ask you to submit a medical report before accepting your application. The fund may refuse the application if you are not in reasonably good health.
If you choose to make regular payments, the Additional Pension Contributions (APCs) will be taken from your salary each pay period. If you earn enough to pay tax, you will get tax relief on the APCs.
The minimum payment period is one year, and the maximum is the number of complete years to your NPA. The lost pension you buy in each year of the agreement will be added to your pension account in that year – it will then be adjusted in the following April in line with the cost of living.
If you stop paying APCs before the end of your agreed payment period, you will be credited with the amount of additional pension you have paid for. You will stop paying APCs early if you choose to do so, leave the LGPS or take flexible retirement. However, if you have to retire because of your ill health, you will be credited with the full amount of pension you agreed to buy.
The contributions you pay will be reviewed from time to time and could change in the future. If this applies, your local pension fund will let you know how much your contributions will change by. The revised contributions will be payable from the April following the review.
Lump sum payments
If you pay by lump sum, you can either make a payment directly to your local pension fund or pay the lump sum from your salary (provided your salary in the relevant pay period is sufficient to cover the lump sum).
If you pay the lump sum directly to your local pension fund you will be responsible for claiming any tax relief – you do this by submitting a self-assessment tax return. If you pay the lump sum from your salary tax relief will be applied automatically.
The lost pension you buy will be added to your pension account in the year you pay for it. It will then be adjusted each year in line with the cost of living.
Pre 2015 benefits
If you choose to buy all the lost pension, your local pension fund will include the period of time you were away from work when calculating certain protections. This will apply if you were a member of the LGPS before 1 April 2015 and you have underpin and/or 85-year rule protections.
If you stop paying APCs before the end of your agreed payment period, you will only be credited with the period of time you have paid for. However, if you have to retire because of your ill health, the whole period of absence will be included when calculating the protections.
Taking the lost pension
The amount of lost pension you buy is paid to you when you take your pension. If you take your pension before your normal pension age (NPA) it will normally be reduced for early payment. If you take it after your NPA it will be increased. Your NPA is the same as your State Pension age. If you have to retire early because of your ill health, the lost pension will not be reduced for early payment.
The lost pension you buy will also increase the pensions paid to your dependents when you die.
Before using the calculator, you will need to find out, from your employer, the amount of pensionable pay you would have been paid if you had not been away from work. You may wish to keep a written record of this. Once you have this figure you can use the calculator to find out the amount of lost pension and how much it will cost to buy it back.
When you have completed the application form you should send it to your employer for approval. They will check the details in part A of the form and complete and sign part B if they agree. If they agree, they will then send the application form to your local pension fund. Your local pension fund will let you know if they require you to submit a medical report before your application can be accepted.
If you have more than one job you must specify which job the lost pension is to be credited to. If you want to pay APCs for each job, you will need to submit separate applications for each job.
If you are paying APCs from your salary your employer will start taking the payments from the next available pay period after your local pension fund agrees your application. Your local pension fund has the right to refuse your application for regular payments if it thinks it is not practical – this will usually be if the payments are very small. Your employer will check that you earn enough to be able to make the payments you wish to pay.
If there is a delay in processing your application form which is caused by you, you will be asked to submit another application form if you pass a birthday, or your payment period exceeds the maximum.
Any lost pension you buy will count towards the maximum pension you can build up in a year and over your lifetime. Most people do not exceed the limits, but if you do, you will need to pay a tax charge. See tax for more information about these limits.
If you are paying by a lump sum directly to your local pension fund, you should be aware that there are potential tax implications if you use a tax-free lump sum from a pension scheme. This is known as recycling – you can find out more information on HMRC’s website.
By signing the application form to buy lost pension you agree to the amounts shown as payable by you being deducted from your pay or invoiced to you, depending on the method of payment chosen.
Should you fail to meet any of the payments due the agreement will end and you will only be credited with the pension you have paid for.