Glossary & Definitions

Avon Pension Fund
Administered by Bath and North East Somerset Council

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Glossary & Definitions

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Glossary & Definitions

Active Member

An employee who is currently paying pension contributions.

Actual Service

This is used to assess your entitlement to receive benefits and means the calendar length of your employment while a member of the LGPS, plus the calendar length of any service transferred into the LGPS from a previous employer's scheme In certain circumstances it may also include previous part-time or non contributory service.

Additional Voluntary Contributions (AVCs)

These are extra payments to increase your future benefits. You can also pay AVCs to provide additional life cover.

All local government pension funds have an in-house AVC scheme where you can invest money through an AVC provider, often an insurance company or building society. AVCs are deducted directly from your pay and attract tax relief.

Administering authority

The LGPS is run by administering authorities, for example County Councils, in accordance with regulations approved by Parliament. Each administers their own Fund, into which all contributions are paid. Every three years, independent actuaries carry out a valuation of each Fund and set the rate at which the participating employers must contribute to fully fund the payment of Scheme benefits for that Fund’s membership.

Admission Body

An admission body is an employer that chooses to participate in the Scheme under an admission agreement. These tend to be employers such as charities and contractors.

Annual Allowance

This is the amount by which the value of your pension benefits may increase in any one year (disregarding the year that that all your benefits become payable) without having to pay income tax at 40% on the excess. The annual allowance is set by the Treasury and for 2007/2008 is £225,000. Most scheme members will not be affected by the annual allowance. For calculating the increase in value of your LGPS benefits, the first year ran from 6th April 2006 to 31st March 2007; subsequent years run from 1st April to 31st March. If you exceed the annual allowance in any year you are responsible for reporting this to HM Revenue and Customs on your Self-assessment tax return and for paying the annual allowance tax charge. Your administering authority will be able to give you the information you require on the increase in the value of your LGPS benefits including any additional voluntary contribution (AVC) arrangement you may have. The assessment covers any pension benefits you may have in all tax-registered pension arrangements – not just the LGPS. Please note, however, that the annual allowance tax charge will not apply if you have registered to have enhanced protection (but only if you keep enhanced protection throughout the relevant tax year).

Annuity

An amount of additional pension benefit. When you buy an annuity you can choose the type of pension that best suits your circumstances.

Additional Voluntary Contributions (AVCs)

These are extra payments to increase your future benefits. You can also pay AVCs to provide additional life cover.

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Cash Equivalent Value (CEV)

This is the cash value of your pension rights for the purposes of divorce or dissolution of a civil partnership.

Casual Employee

A member of staff who is employed to work on a as and when required' basis, with no fixed days or hours.

Career average pay

Career average pay is the pay for each year or part year ending 31 March increased (other than the final years pay) by the rise in the Retail Prices Index between the end of the relevant year and the last day of the month in which the councillor member’s active membership of the Scheme ends. The aggregate of each years re-valued pay is then divided by the total number of years and part years to arrive at the career average pay.

Civil Partnership

A civil partnership is a relationship between two people of the same sex (“civil partners”) which is formed when they register as civil partners of each other.

Contracted-out

The LGPS is contracted-out of the State Second Pension Scheme (S2P). This means that, up to State pension age, you pay reduced National Insurance contributions between the Lower and Upper Earnings Limits, unless you have opted to pay the married woman’s/widow’s reduced rate of National Insurance, and that you do not earn a pension under S2P. Instead, the LGPS must guarantee to pay you a pension that in general is as high as you would have earned had you been in the S2P. The LGPS guarantees that the benefits it provides will, in general, be no less favourable than those provided under a Reference Scheme prescribed under the Pensions Act 1995.

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Deferred Pensioner

A former member of the LGPS who has left the Scheme, but still has benefits in the Scheme and will collect a pension from the LGPS on retirement.

Designating Body

Designating bodies are bodies which can designate employees for access to the Scheme. Employees of Town and Parish Councils, voluntary schools, foundation schools, foundation special schools, Transport for London, and the Children and Family Court Advisory and Support Service, among others, can be designated for membership of the Scheme.

Discretion

This is the power given by the LGPS to enable your council or your administering authority to choose how they will apply the Scheme in respect of certain of its provisions. Under the LGPS your council or your administering authority are obliged to consider certain of these discretionary provisions and to pass resolutions to form a policy of how they will apply the provision. In respect of the remaining discretionary provisions they are advised to do so. They have a responsibility to act with ‘prudence and propriety’ in formulating their policies and must keep them under review. You may ask your council or your administering authority what their policy is in relation to a discretion.

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Earnings Threshold

For the tax year 2004/2005 the figure is 3,600. A Treasury Order may amend this figure every year.

Eligible children

Eligible children are your children. They must, at the date of your death:

be under 18 and be wholly or mainly dependant on you, or
be aged 18 or over and under 23, be dependent on you, and be in full-time education or undertaking vocational training (although a dependant child who commences fulltime education or vocational training after the date of your death may be treated as an eligible child up to age 23), or
in come cases, a dependant child of any age who is disabled may be classed as an eligible child.

In all cases, the children must have been born before or within a year of your death.

Eligible councillor

This is a councillor or an elected mayor (other than the Mayor of London) who is eligible for membership of the LGPS in accordance with the scheme of allowances published by an English county council, district council or London borough council or by a Welsh county council or county borough council.

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Final Pensionable Pay

Usually means the earnings on which you pay contributions during the 12 months before leaving the LGPS (including any Pensionable Pay lost through sickness), or the better of the two previous years if this gives a higher figure.

For part-time employees, it usually means the pay of an equivalent full-time post.

If your pay has been reduced through circumstances beyond your control within the last 13 years and you have received a certificate from your employer confirming this, your Final Pensionable Pay will be either the best year from your last 5 or the best 3 year average from the last 13 years.

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Guaranteed Minimum Pension (GMP)

The LGPS guarantees to pay you a pension that is at least as high as you would have earned had you not been contracted out of the State Earning Related Pension Scheme (SERPS) at any time between 6 April 1978 and 5 April 1997. This is called the Guaranteed Minimum Pension (GMP).

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Local Government

The term Local Government in this guide also covers Police and Fire civilian staff, the Mayor of London and members of the London Assembly, the chairman of the London Transport Users’ Committee, employees of a National Probation Service local board or Probation Trust, a registration officer, a coroner, a rent officer, employees of a valuation tribunal, employees of a passenger transport authority, employees of the Environment Agency, non-teaching employees of an Academy, an Education Action Forum or a Further or Higher Education Corporation.

Lower Earnings Limit

This is the amount of pay that you can receive before you pay any National Insurance contributions. The Lower Earnings Limit for 2008/2009 is £90 per week or £390 per month. It is usually increased annually by Parliament.

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Nominated co-habiting partner

To be able to nominate a co-habiting partner, of either opposite or same sex, to receive a survivor's pension on your death, your relationship has to meet certain conditions laid down by the LGPS. Information on these conditions, and how to make a nomination, are set out in the guide on ‘Life cover – protection for your family’.

Normal Retirement Age

This is normally your 65th birthday (unless you have accrued service while working as: a councillor; a coroner or a justices' clerk)

If you were a member of the LGPS before 1st April 1998 and were not employed in one of the occupations listed above, your normal retirement age is the earlier of:

Your 60th birthday if you have, or would have, accrued 25 years total membership by the day before that birthday, or
the day after the date between your 60th and 65th birthdays when you have, or would have, accrued 25 years total membership, or
your 65th birthday.

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Pay

In England, this is your basic allowance or special responsibility allowance, or both, which is specified as being pensionable in your council’s scheme of allowances. In Wales it is your basic and special responsibility allowance. It does not include any dependants’ carers allowance, travelling and subsistence allowance.

Pensionable Pay

Means your normal pay, plus any shift allowances, bonuses, contractual overtime and statutory sick pay.

Pensionable Service

This is used to calculate the amount of your benefits and means the number of years you have been a member of the LGPS, plus any Transferred Service from previous membership of another pension scheme. It may include any added years of service bought with additional contributions, and non-contributory service prior to 1973. For part-time employees, it means the appropriate fraction of full time service.

Personal Pension

A personal pension plan is usually purchased from a financial services company, such as an insurance company, bank, investment company or building society. You usually pay into the plan every month and your employer can also contribute to you plan. The money in your pension is invested to pay for a pension when you are older. However, charges to your pension scheme provider may have to be made. You will normally get tax relief on your contributions to a private pension scheme. This is available to everyone who pays into a personal pension scheme, even those who do not pay tax. Refer to www.thepensionservice.gov.uk for further details.

Policy Statement

This is a statement that your council and your administering authority must produce, setting out the policies that they have resolved to follow in exercising certain discretions under the LGPS. Other discretions may also be included. You should be notified of the policies contained on the Statement and, where changes are made, you should be notified within one month of the change occurring. You may ask your council and your administering authority for the latest copy of their Policy Statements.

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Retail Prices Index

This shows the changes in the cost of living. It reflects the movement of prices covering goods and services over time. The amount by which pensions are increased annually is based on movement in the Retail Prices Index during the 12 months to September.

Rule of 85

When a member elects to retire before age 65, the Rule of 85 test is used to find out whether the member retires on full or reduced benefits. The agreement of the employer is required for employees who wish to retire before the age of 60. If the sum of the members age and the number of whole years of their Scheme membership is 85 or more, benefits are paid in full; if the total is less than 85, the benefits will be reduced. The employer does, however, have the power to waive the reduction on compassionate grounds and to pay the benefits in full. The Rule of 85 is not relevant where a member is made redundant, is retired on grounds of efficiency or ill health.

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Scheduled Body

Means a body which is either statutorily obliged to join the LGPS or, in the case of parish councils, has a statutory right to do so.

State Earnings Related Pension Scheme (SERPS)

This is the extra earnings related part of the state pension that employed people could earn up to 5 April 2002. LGPS members were automatically contracted out of SERPS, and most paid lower national insurance contributions as a result. SERPS was replaced by the State Second Pension (S2P) from 6 April 2002.

Spouse

Your husband or wife to whom you are legally married.

Stakeholder Pension

These are new, low-cost private pensions, available from 6 April 2001. They are meant for people who currently do not have a good range of pension options available to save for their retirement. You use your own money to build up your pension fund. Your stakeholder pension scheme will put your contributions into investments such as stocks and shares for you. When you retire, you will use your fund to buy a pension from a pension provider. Refer to www.thepensionservice.gov.uk for more information.

State pension age

This is currently age 65 for men and 60 for women, but from 2010 will change for women as shown in the table below, so that by 2020 State pension age will have been equalised at age 65.

Date of Birth	State pension age
Before 6th April 1950	60
6th April 1950 - 5th April 1951	Between 60 & 61
6th April 1951 - 5th April 1952	Between 61 & 62
6th April 1952 - 5th April 1953	Between 62 & 63
6th April 1953 - 5th April 1954	Between 63 & 64
6th April 1954 - 5th April 1955	Between 64 & 65
After 5th April 1955	65

State Second Pension (S2P)

The State Second Pension (formerly SERPS) is the additional state pension, payable from State pension age by the Department for Work and Pensions. Initially, S2P will be an earnings-related pension but from April 2009 it begins building up as a flat rate pension, achieving full flat rate accrual by around 2030.

LGPS members are contracted out of S2P and most pay lower national insurance contributions as a result. More information on the State Second Pension (S2P) is available from the DWP Pensions Service.

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Transfer value

A transfer value is a cash sum representing the value of your pension rights.

Transferred Service

Any pension that you have transferred into the LGPS from a previous pension arrangement that now counts towards your LGPS membership (See Pensionable Service) which also counts towards Rule of 85.

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Upper Earnings Limit

This is the amount of pay beyond which you cease to pay the full, contracted-out rate of National Insurance contributions. The Upper Earnings Limit for 2008/2009 is £770 per week or £3,337 per month. It is usually increased annually by Parliament. On earnings above the Upper Earnings Limit you only pay a 1% National Insurance contribution.

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18/11/2009