members

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.

How does my pension ‘build up’?

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.


What if I was a member before 1 April 2014?

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.

Do I build up a retirement lump sum?

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))

Pensions increase

Local government pensions are subject to pensions increase. Active pension accounts, deferred pensions and pensions in payment are adjusted each April in line with inflation. The rate of inflation used is as measured by the Consumer Prices Index, normally at the rate it was in the previous September.

On 11 April 2022, local government pensions will increase by 3.1 per cent. 

Because the increase applies mid-month, the monthly pension instalment we pay to pensioners in April will be a combination of two different annual rates. The pension payments we pay in May will be the fully increased amount. If your pension began on or after 12 April 2021, we will pay you a proportion of this year’s pension increase, depending on how many months your pension has been in payment. 

The State Pension will also rise by 3.1 per cent. 

Click here to view the previous pension increase rates.


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