Introduction to the LGPS
Defined Benefit Scheme
The Local Government Pension Scheme is a Defined Benefit (DB) scheme, which usually provide a pension income based on:
- The number of years you've been a member of the scheme - known as pensionable service
- Your pensionable earnings - this could be your final salary at retirement or salary averaged over a career
- The proportion of those earnings you receive as a pension for each year of membership, this is called the accrual rate and differs dependent on when an individual was a member of the scheme
- Inflation - currently based upon Consumer Price Index for post 2014 benefits alone
Your LGPS pension is therefore not determined by the performance of investments, stock markets and cost of annuities. Schemes which rely on investments are known as Defined Contribution (DC) schemes, where you pay into a fund and when you retire, what you and your employer have paid in contributions, buys an annuity which will pay you a pension – this is not how the LGPS works.
The LGPS is a defined benefit scheme, which is guaranteed by the government and does not rely upon investments returns on the stock market. It is a 'funded' scheme and is invested in a number of ways to increase its value, but remember it is safe and guaranteed to be paid when you retire, rather than you having to look for an annuity or other arrangement to pay your pension.
Who's responsible for the scheme?
The LGPS is run by trustees who look after the interests of the scheme’s members. Your employer contributes in addition to your member contributions to ensure that there is enough money at the time you retire to pay your pensionable benefits.