How much pension you build up in the LGPS is based on your pay. The pension you build up each year is added to your pension account. If you joined the LGPS before 1 April 2015, you have membership in the final salary scheme. Your final salary benefits are worked out differently.
How your pension works 01:42
How pension accounts work and what happens if you leave the LGPS before you take your pension.Download transcript for “How your pension works” (PDF 20KB)
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Your pension account
1/49th of your pensionable pay is put into your pension account every year. Assumed pensionable pay is used if your pay has been reduced for certain reasons. The balance in your pension account at the end of each year is adjusted in the following April in line with the cost of living. If you have more than one job you will have a separate pension account for each employment.
Let’s look at the pension account of a member who joined the Scheme on 1 April 2015. The member had pensionable pay of £24,500 in the first year and a pay rise of 1% in the next two years.
|Scheme year||Opening balance||Build up in Scheme year (pay ÷ build up rate = pension)||Total account 31 March||Cost of living adjustment||Total pension|
|2015-16||£0.00||£24,500 ÷ 49 = £500.00||£500.00||-0.1%||£499.50|
|2016-17||£499.50||£24,745 ÷ 49 = £505.00||£1,004.50||1%||£1,014.55|
|2017-18||£1,014.55||£24,992.45 ÷ 49 = £510.05||£1,524.60||3%||£1,570.34|
The member’s pension account will continue to build up in the same way every year. You can find a list of the cost of living adjustments that have applied each year in the Frequently asked questions section.
If you are buying extra pension by paying Additional Pension Contributions or Shared Cost Additional Pension Contributions, the amount you buy in each year is added to your pension account.
If you join the 50/50 section of the LGPS, you would pay half your normal contributions for half the normal pension build-up. Each year you are in the 50/50 section 1/98th of your pay is put into your pension account instead of 1/49th. See the Paying less section for more information about the 50/50 section.Back to top
How benefits built up before April 2015 are worked out
The LGPS changed from a final salary scheme to a career average scheme on 1 April 2015. If you joined the Scheme before 1 April 2015, you have built up benefits in the final salary scheme.
For membership built up between 1 April 2009 and 31 March 2015 you receive a pension of 1/60th of your final pay as a pension.
For membership before 1 April 2009, you receive a pension of 1/80th of your final pay plus an automatic lump sum of three times your pension.
Your final pay is usually your pensionable pay in the year you leave the Scheme. Pay from one of the previous two years will be used if it is higher.
How membership is worked out
If you worked part time before 1 April 2015, your membership is reduced accordingly. If you worked 17.5 hours per week and the whole time hours for your job were 35 per week, your membership would be reduced by 17.5 / 35, which is half. You would be credited with one year of membership every two years. Your membership may also be reduced if you are paid for less than 52 weeks per year.
If you are working part time in your final year, the final pay used to work out your pension is the pay you would have received if you worked whole time.
Your total membership in the final salary scheme may include:
- how long you were a member of the LGPS before 1 April 2015 in years and days, reduced for any period that you worked part time
- membership that was bought by transferring pension benefits from another scheme before 1 April 2015
- membership that was bought by transferring final salary benefits from another public service pension scheme at any time
- extra membership you have bought by paying added years contributions or by converting an in-house AVC into membership
- extra membership awarded by your employer.
Example of final salary benefits
Let’s look at the final salary benefits built up by a member who:
- joined the LGPS on 1 April 2000
- worked full time throughout and has nine years membership before 1 April 2009 and six years membership between 1 April 2009 and 31 March 2015
- leaves the LGPS on 31 March 2018
- has final pay of £28,000, based on the period from 1 April 2017 to 31 March 2018.
For the period 1 April 2009 to 31 March 2015 :
Annual pension: 6 / 60th x £28,000 = £2,800
For the period 1 April 2000 to 31 March 2009:
Annual pension: 9 / 80ths x £28,000 = £3,150
Plus a tax-free lump sum: 3 x 9 / 80ths x £28,000 = £9,450
The total annual pension would be £5,950, plus the value of pension built up in the pension account since 1 April 2015.
As the member in this example joined the LGPS before 1 April 2009, they will automatically receive a tax-free lump sum when they take their pension. Most members will be able to give up part of their annual pension in exchange for a tax-free lump sum. For every £1 of annual pension you give up you get £12 of lump sum. HM Revenue and Customs set a limit on how much you can receive tax-free. Use our Lump sum calculator to find out more about this option.Back to top
Protections if your rate of pay is reduced
Your LGPS benefits may be protected if your rate of pay is reduced. This may also apply if increases to it are restricted. In either case, this must be for reasons outside your control.
The protection does not apply for temporary reductions in pay or where a temporary pay increase has stopped.
You may qualify for the protection if your employer gives you a Certificate of Protection and you leave the Scheme within 10 years of the reduction or restriction.
If you believe that your benefits may be protected, you can ask your employer to give you a Certificate of Protection. You must ask within 12 months of the reduction or restriction. Your employer will check whether you qualify and, if so, give you a certificate.
If you ask your employer after then, your employer can decide to give you a certificate. Your employer can also decide to do so if you don’t ask. This is a discretion.
If you qualify for the protection, you will be able to choose whether to apply the protection to your LGPS benefits. Your pension fund will give you this choice when you leave the employment.
Benefits built up after March 2015
If you choose to apply the protection, your pension fund will increase the pay you receive from the date of the reduction or restriction when it works out your benefits.
Benefits built up before April 2015
If you choose to apply the protection, your pension fund can use an earlier year’s pay than normal as your final pay. This can be the best pay in any of the last five years or the best annual average pay from any consecutive three years in the last 13 years. Though, your pension fund will not use pay from more than three years before the reduction or restriction.Back to top