Q & A for LGPS members
A new single tier, flat rate State Pension came into force on 6 April 2016, for anyone who will reach State Pension age on or after this date. The new State Pension should help people better understand what they will get so that they can plan for their retirement. It has replaced the previous system which was based around a basic and an additional State Pension.
During your membership of the LGPS before April 2016, you were 'contracted out' of the additional State Pension, so at that time you paid less in National Insurance.
But contracting out has now ended, so going forward you have to pay standard National Insurance contributions (unless you are over State Pension age or you are paying the Married Woman's / Widow's Reduced Rate of National Insurance contributions).
Remember, if you are eligible for the new State Pension you probably won't get the full amount – that's because you paid lower National Insurance in previous years.
You will, of course, continue to be entitled to your LGPS benefits. These will continue to be a very important part of your income in retirement, providing an excellent range of benefits including benefits for your loved ones.
The Q & A that follows has been produced to help LGPS members understand what the changes to the State Pension will mean for them.
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Q1 – Why has the State Pension changed?
A1. The Government wanted to introduce a simpler, fairer system where you have a clearer idea about what pension the state will provide, making it easier to plan your retirement.
Q2 – Who will receive the new State Pension?
A2. You will be able to claim the new State Pension if you're:
- a man born on or after 6 April 1951
- a woman born on or after 6 April 1953
and, normally, have at least 10 years qualifying years on your National Insurance record.
If you reach State Pension age before 6 April 2016 you’ll get your State Pension under the State Pension scheme that was in operation before 6 April 2016 instead.
If you do not know what your State Pension age is you can use the State Pension age calculator to find out.
Q3 – Why will I have to pay more in National Insurance contributions?
A3. Previously, the State Pension was made up of two parts: the basic State Pension and the additional State Pension (which many people still call by its old name SERPS).
So before April 2016, the LGPS was contracted-out of the additional State Pension. This meant that if you were a member before that date, you paid a lower rate of National Insurance. But in return, you weren't building up the additional State Pension.
Now that the new State Pension is in place, there is no more contracting out. The good news is, this means you will build up the new higher State Pension going forward, but the bad news is, you have to pay for that by paying the standard rate of National Insurance.
Q4 – How much is the increase in National Insurance?
A4. Before April 2016, contracted out members had a saving in their National Insurance of 1.4% of pay between certain thresholds.
Below are some examples showing the difference since the ending of contracting out:
|Earnings||National Insurance payable currently||National Insurance payable from 6 April 2016||Difference|
|£15,000 per year
(£1,250 per month)
|£58.66 per month||£69.36 per month||£10.70 per month|
|£27,000 per year
(£2,250 per month)
|£164.66 per month||£189.36 per month||£24.70 per month|
|£45,000 per year
(£3,750 per month)
|£307.65 per month||£352.76 per month||£45.11 per month|
These examples assume the individual is over 21 years of age.
Q5 – Will the benefits provided by the LGPS change because of this?
A5. There are no plans to change the benefits the LGPS provides as a result of the introduction of the new State Pension.
Q6 – I cannot afford to pay the extra National Insurance contributions. What can I do?
A6. The new State Pension will only provide a very basic level of income in retirement meaning that the LGPS will remain an important part of your retirement planning. Remember, if you pay tax you will continue to get tax relief on your pension contributions, as your contributions are deducted from your pay before you pay tax.
You have flexibility to pay less pension contributions, with the option to pay half your standard contributions in return for building up half your standard pension (although you still retain full lump sum life cover and ill health cover). This is known as the 50/50 option of the scheme and offers lower cost membership in the LGPS.
Your employer is required to re-enrol you back into the main section of the scheme every three years. This will be carried out in line with your employer’s automatic re-enrolment date.
A 50/50 option form is available from your employer and also on this website. See further information about the 50/50 option.
Q7 – Will I qualify for the full amount of the new State Pension?
A7. The new State Pension will be based on your National Insurance contributions record and a new minimum qualifying period will be introduced. People with no National Insurance contributions record before 6 April 2016 will need 35 qualifying years to get the full amount of new State Pension.
If you have paid into the LGPS between 6 April 1978 and 5 April 2016 and attain State Pension age after 5 April 2016 the amount of new State Pension you receive will be reduced, in respect of this period, to reflect the fact that you and your employer have paid a lower rate of National Insurance (due to the LGPS being contracted-out of the current additional State Pension). If this applies to you, you are unlikely to receive the full amount of the new State Pension but this will depend on your individual National Insurance record and how many qualifying years you have after April 2016.
However, in most cases, the pension you get from the LGPS will be at least the equivalent that you would have received from the State Pension had you not been contracted out. The Government refer to this as the Contracted Out Pension Equivalent (COPE) amount.
The COPE amount will be shown on your State Pension statement. However, please be aware that the amount shown is only an estimate and will include all the contracted out pension benefits you have built up if you have paid into any other contracted out pension schemes (e.g. the Teachers’ Pension Scheme) - it is not identified separately by pension scheme.
The Government has confirmed the full amount of new State Pension will be £151.25 a week.
For further information about the calculation of the new State Pension and for a definition of a qualifying year please refer to The New State Pension on GOV.UK .
Q8 - Will the new State Pension provide sufficient income in retirement?
A8. The State Pension is intended to be only a part of your retirement income and will provide a very basic standard of living in retirement. It is important that you plan for your retirement, taking into account that:
- people are generally living longer so you're likely to spend more time in retirement
- you may want to retire before your State Pension age
- if you were a member of the LGPS before 6 April 2016 you may not qualify for the full amount of the new State Pension (see answer 7)
The LGPS will continue to be an important part of your retirement planning. For information about the benefits provided by the LGPS please visit: LGPS with respect of the LGPS in England or Wales, or this (GMPF's) website.
Q9 – Where do I find out more information?
A9. More information about the new State Pension can be found at Your State Pension is changing - GOV.UK .
If you are over age 50 you can request an estimate of the State Pension you will receive under the new system here Get a State Pension statement - GOV.UK
A video about the new State Pension can be viewed here: PensionTube
You may see this term in State retirement pension statements or other State pension information from the DWP. It only applies to members of staff pension schemes like the LGPS who before April 2016 were contracted out of the additional State pension.
As members of the LGPS whose membership started before April 2016, we will not be entitled to the full amount of new State Pension. Instead we will receive some of our State pension income through our LGPS benefits. The same apples to members of other contracted out pension schemes, such as Teachers pensions.
Benefits from the LGPS should include an amount that is at least equivalent to the additional State Pension we would have got if we hadn't been contracted out. This is known as the COPE amount. But bear in mind that if you have been a contracted out member of different pension schemes in different jobs, as well as being a member of the LGPS, the COPE amount shown by the DWP will be for all your contracted out pension membership. The COPE amount included in your LGPS pension from GMPF will only be in relation to your membership of LGPS including any pension build-up transferred to GMPF.
Because of this please bear in mind the COPE amount given by DWP is not an exact indication of amount you will get through your LGPS benefits – and it won't be identified separately by us on your LGPS pension statement when you draw your benefits.
The COPE amount provided by DWP is an estimate of what you will get at State Pension Age. In many cases your LGPS benefits will be higher than the COPE amount. But there are various factors which could result in them being less. An example is if you choose to draw your LGPS benefits early (before your State Pension Age).