How is my pension worked out?

Abacus

Your pension is the amount per year (paid in monthly instalments) that you will get for life when you retire.

Being in the local government pension scheme (LGPS) you can look forward to enjoying a guaranteed package of benefits when you retire.

These benefits are made up of:

  • An annual pension that, after leaving, increases every year in line with the cost of living for the rest of your life, and
  • The option to exchange part of your pension for a tax-free lump sum paid when you draw your pension benefits.

The LGPS is a defined benefit pension scheme, which means that your pension is worked out using a set formula. How your pension is calculated depends on when you joined the scheme.  The scheme was a final salary one before 1 April 2014 and Career Average Revalued Earnings (CARE) scheme after 1 April 2014.

Therefore your pension could be made up of pre-April 2014 service in the final salary scheme and post 1 April 2014 April service in the CARE scheme.

Your membership in each of the schemes will be calculated and added together to give you your annual pension amount.

In summary,

  • Annual Pension = Pensionable pay for each scheme year x 1/49 + cost of inflation added
  • No automatic lump sum, but you can exchange some pension for a cash lump sum (each £1 of annual pension you give up will buy you £12 of lump sum).

Your annual pension under the CARE scheme (from 1 April 2014) is worked out as follows:

  • For each year you are in the scheme from 1 April 2014, you build up a pension based on your pensionable pay in that year. Your pensionable pay is the amount of pay on which you pay your pension contributions.
  • For each scheme year that you are a member, a pension equal to a 49th of your pensionable pay is added to your pension account (or half this rate of build up for any period you have elected to be in the 50/50 section of the scheme)
  • Inflation increases were added each year to ensure that your pension account keeps up with the cost of living.
  • There is no automatic tax-free cash lump sum, but you can give up some of your pension in exchange for a cash lump sum (£1 of pension exchanged for £12 of cash)

If during the scheme year you had been on leave on reduced contractual pay or no pay due to sickness or injury, or had been on relevant child-related leave or reserve forces service leave then, for the period of that leave, your pension is based on your assumed pensionable pay.

The amount of pension built up during the scheme year is then added to your pension account and revalued at the end of each scheme year with inflation increases being added, so your pension keeps up with the cost of living.

You can take a tax-free lump sum by giving up some of your annual pension. You can take up to 25% of the capital value of your LGPS benefits as a lump sum. For every £1 of annual pension that you give up you will receive a £12 lump sum. In the same way, giving up £100 of your annual pension would give you £1,200 lump sum, and so on.

For post 1 April 2014 membership your actual pay figure is used rather than whole-time equivalent.

In summary,

Membership up to 31 March 2008 provides:

  • Annual Pension = Total membership in years  x Final Pay x 1/80
  • Automatic Lump Sum = Total membership in years x Final Pay x 3/80

Membership from 1 April 2008 to 31 March 2014

  • Annual Pension = Total membership in years x Final Pay x 1/60
  • No automatic lump sum, but you can exchange some pension for a cash lump sum (each £1 of annual pension you give up will buy you £12 of lump sum).

For each year of membership built up before 1 April 2008 you receive a pension based on 1/80th of your final pay. You will also receive an automatic tax-free lump sum of three times your pension.

For each year of membership built up between 1 April 2008 to 31 March 2014 you receive a pension based on 1/60th of your final pay.

You can give up some of your pension in exchange for a cash lump sum (£1 of pension exchanged for £12 of cash) You can take up to 25% of the capital value of your LGPS benefits as a lump sum.

Final pay is normally the pay in your last 12 months of work that you’ve paid pension contributions on, but we can sometimes use previous years pay where that would be higher.

If you have worked part-time the same calculation is used, but the total membership is scaled down to the whole-time equivalent length based on the contractual hours worked and the Final Pay is scaled up to the whole-time equivalent rate.