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- Working out your pension
Working out your pension
- How long you pay contributions for;
- Your pensionable salary during your employment;
- The hours you’ve worked, for pension you built up before 1st April 2014 only; and
- Any absences you have.
Depending on when you joined LGPS, your pension may be made up of 1, 2 or 3 parts because of changing LGPS rules over time. You need to pay pension contributions for two years or more to have a pension benefit in the LGPS.
LGPS is currently a Career Average Revalued Earnings pension scheme, or CARE for short. In the CARE scheme, you build up an annual pension for retirement.
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 employer lets us know the annual salary you have paid pension contributions on from one April to the next. This is known as your pensionable salary.
- If you pay full rate contributions in the main section, the pension you build up each year will be a 49th of your annual pensionable salary.
- If you pay half rate contributions in the 50:50 section, the pension you build up each year will be a 98th of your annual pensionable salary.
Your pension then increases each year to help it keep pace with the cost-of-living. We base the increases on an inflation measure called the Consumer Price Index (CPI).
| Scheme year | Pension at start of year | Gross pensionable salary and build up rate | Pension (for that year) | Pension (built up to date) | Inflation increase | Pension at end of year |
|---|---|---|---|---|---|---|
| Year 1 | £0.00 | £19,600 ÷ 49 | £400.00 | £400.00 | 1.20% | £404.80 |
| Year 2 | £404.80 | £23,129 ÷ 49 | £472.02 | £876.82 | -0.10% | £875.94 |
| Year 3 | £875.94 | £25,000 ÷ 49 | £510.20 | £1,386.14 | 1.00% | £1,400.00 |
You will carry on building up your pension in this way each year, until you either retire, leave employment or opt out of paying pension contributions.
Note: If you qualify for the McCloud Remedy, the pension you built up from 1st April 2014 to 31st March 2022 will be based on the better of the CARE scheme pension or the final salary 60th pension as explained below.
Before the April 2014 CARE scheme, LGPS was a final salary pension scheme. This means that you will receive a fraction of your final pensionable salary as your annual pension for each day you were a member before 31st March 2014, and an automatic tax-free lump sum for each day you were a member before 31st March 2008.
At retirement, you will have an option to turn some of this pension into extra 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.
If you were in the LGPS before 1st April 2008, this means that you will automatically receive a tax-free lump sum at retirement as well.
When you stop paying pension contributions, your employer will let us know:
- the hours you have worked;
- any absences you have had; and
- the final pensionable salary figure to use
to work out this part of your pension. If you have worked part time or term time, your final pensionable salary will always be the full-time full year equivalent, and could be any of the following:
- The 365 days up to your leave date; in this example, 31st August 2023:
- 1st September 2022 to 31st August 2023
- The best of the last 3 years, when a year is the 365 days up to your leave date. So, for this example, the best 365 days from:
- 1st September 2022 to 31st August 2023
- 1st September 2021 to 31st August 2022
- 1st September 2020 to 31st August 2021
- In some situations, you can ask your employer to work out your final pay as the average of any 3 consecutive years ending on 31st March. You will normally have this option if your pay reduces:
- after you move to a job with less responsibility (except flexible retirement or the end of a secondment)
- following a job evaluation exercise or equal pay exercise
- because the pensionable pay specified in your contract changes
- less than ten years before you stop paying pension contributions
| 1st April 2008 to 31st March 2014 | Annual pension only
Years and days membership ÷ 60 x final pensionable salary |
|---|---|
| On or before 31st March 2008 | Annual pension
Years and days membership ÷ 80 x final pensionable salary One off tax-free lump sum 80ths annual pension x 3 |
| 1st April 2008 to 31st March 2014 | Annual pension only
6 ÷ 60 x £24,833.33 = £2,483.33 annual pension |
|---|---|
| On or before 31st March 2008 | Annual pension
10 years ÷ 80 x £24,833.33 = £3,104.17 annual pension One off tax-free lump sum £3,104.17 x 3 = £9,312.51 one-off tax-free lump sum |