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- Working out your deferred councillor pension
Working out your deferred councillor pension
You need to have paid pension contributions for three months or more to have a deferred pension benefit in the Local Government Pension Scheme, or LGPS Councillor.
LGPS Councillor is a defined benefit pension scheme. This means that the value of your deferred pension is not based on the pension contributions you paid.
Your pension benefits are based on:
- A build-up rate of 1/80,
- Your career average pay, and
- Your total membership in LGPS Councillor
In this example, the councillor was a member of LGPS Councillor for 5 years. Their career average pay is based on all of the fees or pay they paid pension contributions on, as well as cost of living increases, in line with an inflation measure called the Retail Price Index, or RPI.
The amount of membership is the time from when you started paying pension contributions to when you stopped.
Example
| Year 1 Earnings £9,400 | x cost of living increase 1.12 | = £10,528 |
| Year 2 Earnings £9,600 | x cost of living increase 1.08 | = £10,368 |
| Year 3 Earnings £9,900 | x cost of living increase 1.05 | = £10,395 |
| Year 4 Earnings £10,400 | x cost of living increase 1.02 | = £10,608 |
| Year 5 Earnings £11,000 | x cost of living increase 1.00 | = £11,000 |
| Accumulative Total | = £52,899 | |
| Career Average Pay (£52,899 ÷ 5 Years) |
= £10,579.80 |
Once we have figures for career average pay and membership, we can work out the value of the deferred pension:
| Annual pension
Years and days membership ÷ 80 x career average pay One off tax-free lump sum 1/80 annual pension x 3 |
Example
Annual pension 5 years ÷ 80 x £10,579.80 = £661.24 of 1/80 annual pension One off tax-free lump sum £661.24 x 3 = £1,983.72 |
At retirement, you will have an option to turn some of this pension into a one-off lump sum. For every £1 of annual pension you give up you will get a lump sum of £12.
HM Revenue & Customs limits the amount of tax-free lump sum you can take when your pension is paid to you. This limit is called a lump sum allowance (LSA). Currently, the maximum lump sum is the lowest of:
- 25% of the capital value of your benefits
- £268,275*
- £268,275* less the total lump sums you have already taken
*If you hold a valid Lifetime Allowance protection, you may be able to take a lump sum that is larger than £268,275.
The lump sum will usually be tax-free, but if you go over the lump sum allowance, you will have to pay tax on the excess at your marginal rate.
Your annual allowance is the amount the value of your pension benefits can grow in a tax year without you having to pay a tax charge. If the value of your pension savings from 6th April to 5th April is more than your annual allowance, the excess will be taxed as income.
For more details about annual allowance, please click here.