The New State Pension
A new single tier, flat rate State Pension is being introduced for people who reach State Pension age after 5 April 2016. The new State Pension should help people better understand what they will receive so that they can plan for their retirement. It will replace the existing basic and additional State Pension for those who reach State Pension age after 5 April 2016.
As a member of the LGPS you would have been ‘contracted out’ of the additional State Pension and therefore may be entitled to pay reduced National Insurance contributions, meaning that most members of the LGPS would be paying lower amount of National Insurance contributions.
From 6 April 2016, you will no longer receive this National Insurance rebate, which means you will start to pay a higher amount of National Insurance contributions
It is important that as a member of the LGPS, you understand that if you are eligible for the new State Pension you might not receive the full amount, because you may have paid a lower amount of 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.
Do my LGPS benefits interact with my state pension benefits?
Both are separate benefits but it is possible for them to interact. As noted above the state pension was related to any National Insurance contributions made and was split into two parts:
- Basic state pension
- Additional pension related to earnings, known as, SERPS & State second Pension (S2P)
Pension schemes such as LGPS were provided with an alternative to S2P and paid reduced national insurance contributions instead. As part of this arrangement the Clwyd Pension Fund had to guarantee that at State Pension Age the benefits from the LGPS will be at least as much as the additional pension they would have received from the State Pension if they had remained within the S2P and had not been contracted out. This is known as Guaranteed Minimum Pension (GMP).
In the vast majority of cases the LGPS pension will outweigh the guaranteed minimum, however, this calculation is automatically actioned by the Clwyd Pension Fund when calculating your benefits, meaning that you do not need to worry.