A to Z of pension terms

A

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 AVC arrangement in which 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.

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.

Assumed Pensionable Pay

This provides a notional pensionable pay figure to ensure your pension is not affected by any reduction in pensionable pay due to a period of sickness or injury on reduced contractual pay or no pay, or relevant child related leave or reserve forces service leave.

If you have a period of reduced contractual or no pay due to sickness or injury or you have a period of relevant child related leave or reserve forces service leave then your employer needs to provide the pension administering authority with the assumed pensionable pay you would have received during that time unless during the period of relevant child related leave the pensionable pay received was higher than the value of the assumed pensionable pay. This requires a calculation to be carried out by your employer to determine what your pay would have been for the relevant period.

The assumed pensionable pay is calculated as the average of the pensionable pay you received for the 12 weeks (or 3 months if monthly paid) before the pay period in which you went on to reduced pay or no pay because of sickness or injury or before you started a period of relevant child related leave or reserve forces service leave. In calculating the average, any reduction due to authorised leave of absence or due to a trade dispute is ignored. If the pay you receive in the 12 weeks (or 3 months if monthly paid) before the pay period in which you went on to reduced pay or no pay is materially lower than the pay you would normally receive, your employer has a discretion to use a higher pay in the calculation. Your employer must have regard to the pensionable pay you earned over the previous 12 months when determining what your normal level of pensionable pay is. The resulting figure is then grossed up to an annual figure and then divided by the period of time you were on reduced pay or no pay for sickness or injury or on relevant child related leave or reserve forces service leave.

Assumed pensionable pay is also used to work out any enhancement to your pension awarded as a result of ill health retirement, any lump sum death grant following death in service, and any enhancement which is included in survivor benefits following death in service. The assumed pensionable pay for these purposes is calculated as the average of the pensionable pay you received for the 12 weeks (or 3 months if monthly paid) before you died in service or before you left employment due to ill health retirement. In calculating the average, any reduction due to authorised leave of absence or due to a trade dispute is ignored. If the pay you receive in the 12 weeks (or 3 months if monthly paid) before the pay period in which you went on to reduced pay or no pay is materially lower than the pay you would normally receive, your employer has a discretion to use a higher pay in the calculation. Your employer must have regard to the pensionable pay you earned over the previous 12 months when determining what your normal level of pensionable pay is. Also, where an independent registered medical practitioner certifies that, during the period used to determine assumed pensionable pay, you were working reduced contractual hours because of the ill health which led to your retirement or death in service, the assumed pensionable pay is to be calculated on the pay you would have received during that period had you not been working reduced contractual hours. The resulting figure is then grossed up to an annual figure.

Automatic enrolment date

This is the earlier of:

the day you reach age 22 provided you are earning more than £10,000 (2019/20 figure) a year in the job, or
the beginning of the pay period in which you first earn more than £10,000 (2019/20 figure) in the job, on an annualised basis, provided you are aged 22 or more and under State Pension Age at that time.

C

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.

Club transfer rules

Club transfer rules allow certain final salary occupational pension schemes, mainly public service pension schemes, to calculate transfers on a special terms. Transfers into the LGPS, including final salary membership from other public sector club transfer schemes (usually membership up to 31 March 2015), or transfers out of the LGPS to other public sector club schemes (including final salary membership built up before 1 April 2014), provide benefits that are broadly equivalent across both schemes. Provided there is not a continuous break in active membership of a public service pension scheme of more than 5 years, any final salary membership transferred would purchase a period of membership and retain a final salary link. Avon Pension Fund will provide you with further information on club transfers should this apply to you.

Consumer Prices Index (CPI)

The Consumer Price Index (CPI) is the official measure of inflation of consumer prices in the United Kingdom. This is currently the measure used to adjust your pension account at the end of every scheme year when you are an active member of the scheme and, after you have ceased to be an active member, it is used to increase (each April) the value of your deferred pension in the scheme and any pension in payment from the scheme. The adjustment ensures the value of your pension keeps up with the cost of living.

Contracted out

The LGPS was formerly contracted out of the State Earning Related Pension Scheme (SERPS) and the State Second Pension (S2P). This meant that, up until 5 April 2016, prior to State Pension Age you paid reduced National Insurance contributions between certain thresholds (unless you had opted to pay the married woman’s / widow’s reduced rate of National Insurance). The LGPS guarantees to pay you a Guaranteed Minimum Pension (GMP) for being contracted out of the State Earning Related Pension Scheme (SERPS).

From 6 April 2016 the 'contracted out’ status ceased to exist for all pension schemes due to the introduction of the new single tier State Pension. Therefore, from 6 April 2016 members of the LGPS pay the standard rate of National Insurance.

D

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, federated schools, technical institutes, Transport for London, and the Children and Family Court Advisory and Support Service, among others, can be designated for membership of the scheme.

Discretions

This is the power given by the LGPS to enable your employer or Avon Pension Fund to choose how they will apply the scheme in respect of certain provisions. Under the LGPS your employer or Avon Pension Fund are obliged to consider how to exercise their discretion and, in respect of some (but not all) of these discretionary provisions, to have a written policy on how they will apply their discretion. They have a responsibility to act with ‘prudence and propriety’ in formulating their policies and must keep them under review. You may ask your employer or your administering authority what their policy is in relation to a discretion.

E

Eligible children

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

be your natural child (who must be born within 12 months of your death), or
be your adopted child, or
be your step-child or a child accepted by you as being a member of your family (this doesn’t include a child you sponsor for charity) and be dependent on you.

Eligible children must meet the following conditions:

be under age 18, or
be aged 18 or over and under 23 and in full-time education or vocational training (although your administering authority can continue to treat the child as an eligible child notwithstanding a break in full-time education or vocational training), or
be unable to engage in gainful employment because of physical or mental impairment and either:
- has not reached the age of 23, or
- the impairment is, in the opinion of an independent registered medical practitioner, likely to be permanent and the child was dependent on you at the date of your death because of that mental or physical impairment.

Eligible cohabiting partner

An eligible cohabiting partner is a partner you are living with who, at the date of your death, has met all of the following conditions for a continuous period of at least 2 years:

you and your cohabiting partner are, and have been, free to marry each other or enter into a civil partnership with each other, and
you and your cohabiting partner have been living together as if you were a married couple, or civil partners, and
neither you nor your cohabiting partner have been living with someone else as if you / they were a married couple or civil partners, and
either your cohabiting partner is, and has been, financially dependent on you or you are, and have been, financially interdependent on each other.

Your partner is financially dependent on you if you have the highest income. Financially interdependent means that you rely on your joint finances to support your standard of living. It doesn’t mean that you need to be contributing equally. For example, if your partner’s income is a lot more than yours, he or she may pay the mortgage and most of the bills, and you may pay for the weekly shopping.

On your death, a survivor’s pension would be paid to your cohabiting partner if:

all of the above criteria apply at the date of your death, and
your cohabiting partner satisfies Avon Pension Fund that the above conditions had been met for a continuous period of at least 2 years immediately prior to your death.

You are not required to complete a form to nominate a cohabiting partner for entitlement to a cohabiting partner’s pension. However, you can provide Avon Pension Fund with your cohabiting partner’s details. They will require evidence on your death to check that the conditions for a cohabiting partner's pension are met.

Eligible Jobholder

An eligible jobholder is a worker who is aged at least 22 and under State Pension Age and who earns more than the annual amount of £10,000 (2019/20 figure).

F

Final pay

This is usually the pay in respect of (i.e. due for) your final year of scheme membership on which you paid contributions, or one of the previous 2 years if this is higher, and includes your normal pay, contractual shift allowance, bonus, contractual overtime (but not non-contractual overtime), Maternity Pay, Paternity Pay, Adoption Pay, Shared Parental Pay and any other taxable benefit specified in your contract as being pensionable.

If you were part-time for all or part of the final year the whole-time pay that you would have received if you had worked whole-time is used. If your pay in your final year was reduced because of sickness or relevant child related leave, final pay is the pay you would have received had you not been on sick leave or relevant child related leave.

G

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).

L

Local Government

The term local government in this booklet also covers police and fire civilian staff, a coroner, civil servants engaged in probation provision, a Mayoral development corporation, a conservation board, a valuation tribunal, a passenger transport authority, the Environment Agency, and non-teaching employees of an Academy employer, an Education Action Forum, a sixth form college corporation or a Further or Higher Education Corporation.

N

Normal Pension Age

Normal Pension Age is linked to your State Pension Age for benefits built up from April 2014 (but with a minimum of age 65) and is the age at which you can take the pension you have built up in full. If you choose to take your pension before your Normal Pension Age it will normally be reduced, as it's being paid earlier. If you take it later than your Normal Pension Age it's increased because it's being paid later.

You can use the Government’s State Pension Age calculator (www.gov.uk/calculate-state-pension) to find out your State Pension Age. Please note that this calculator does not include proposed changes to State Pension Age.

Remember that your State Pension Age may change in the future and this would also change your Normal Pension Age in the LGPS for benefits built up from April 2014. Once you start drawing your pension any subsequent change to your State Pension Age will not affect your Normal Pension Age in the LGPS.

Remember that your State Pension Age may change in the future and this would also change your Normal Pension Age in the LGPS for benefits built up from April 2014. Once you start receiving your pension any subsequent change to your State Pension Age will not affect the Normal Pension Age of the LGPS pension that is in payment.

If you were paying into the LGPS before 1 April 2014 your final salary benefits retain their protected Normal Pension Age - which for most is age 65. However, all pension benefits taken on normal retirement must be taken at the same date ie you cannot separately take your final salary benefits (built up before April 2014) at age 65 and your benefits in your pension account (built up from April 2014) at your Normal Pension Age (which for your benefits built up from April 2014 is linked to your State Pension Age but with a minimum of age 65).

O

Occupational pension scheme

These schemes are also called company pension schemes. It's a scheme set up by an employer to provide pension or death benefits for its employees. An occupational pension can provide pension benefits on a money purchase, defined benefits, cash balance or hybrid arrangement basis. The two most common arrangements for occupational schemes are defined benefits (such as the LGPS) and money purchase

If you leave a job you'll normally have to stop building up pension savings in that employer's scheme. These benefits can be transferred to your pension in the LGPS. Any transfer into the LGPS would buy extra pension which is then added to your pension account, unless the transfer is from a public service pension scheme and is transferred under the Club transfer rules in which case any part of the transfer that relates to final salary benefits in that scheme (usually membership up to 31 March 2015) would buy pre 1 April 2014 membership in the final salary scheme.

P

Pension Account

Each scheme year the amount of pension you have built up during the year is worked out and this amount is added to your active pension account. Adjustments may be made to your account during the scheme year to take account of:

any transfer of pension rights into the account during the year
any additional pension you may have decided to purchase during the year
any additional pension which is granted to you by your employer during the year
any reduction due to a Pension Sharing Order or qualifying agreement in Scotland (following a divorce or dissolution of a civil partnership) and
any reduction due to an Annual Allowance tax charge that you have asked the Scheme to pay on your behalf.

Your account is then revalued to take account of the cost of living. This adjustment is carried out in line with the Treasury Revaluation Order index which, currently, is the rate of the Consumer Prices Index (CPI).

You will have a separate pension account for each employment. That pension account will hold the entire pension built up for that employment.

In addition to an active member’s pension account there are also:

a deferred member’s pension account;
a deferred refund account;
a retirement pension account;
a flexible retirement pension account;
a deferred pensioner member’s account;
a pension credit account; and
a survivor member’s account.

These accounts will be adjusted by any debits for any Pension Sharing Order or qualifying agreement in Scotland (following a divorce or dissolution of a civil partnership) and for any Annual Allowance tax charge that you have asked the scheme to pay on your behalf. These accounts are currently increased each April in line with the Consumer Prices Index (CPI).

Pensionable Pay

The pay on which you normally pay contributions is your normal salary or wages plus any shift allowance, bonuses, overtime (both contractual and non-contractual), Maternity Pay, Paternity Pay, Adoption Pay, Shared Parental Pay and any other taxable benefit specified in your contract as being pensionable.

You do not pay contributions on:

any travelling or subsistence allowances
pay in lieu of notice
pay in lieu of loss of holidays
any payment as an inducement not to leave before the payment is made
any award of compensation (other than payment representing arrears of pay) made for the purpose of achieving equal pay
pay relating to loss of future pensionable payments or benefits
any pay paid by your employer if you go on reserve forces service leave nor
the monetary value of a car or pay received in lieu of a car (apart from some historical cases).

Public service pension scheme

A public service pension scheme includes a pension scheme covering civil servants, the judiciary, the armed forces, any scheme in England, Wales or Scotland covering local government workers, or teachers, or health service workers, or fire and rescue workers or members of the police forces; or membership of a new public body pension scheme.

R

Relevant Child Related Leave

Relevant child related leave includes periods of Ordinary Maternity, Adoption or Shared Parental Leave (normally first 26 weeks), Paternity Leave and any periods of paid Additional Maternity or Adoption Leave (normally after week 26 weeks up week 39) or Shared Parental Leave.

Reserve Forces Service Leave

This occurs when a Reservist is mobilised and called upon to take part in military operations. The period of mobilisation can be up to a maximum of 12 months. During a period of reserve forces service leave you will, if you elect to stay in the LGPS during that leave, continue to build up a pension based on the rate of assumed pensionable pay you would have received had you not been on reserve forces service leave.

S

Scheme Year

The scheme year runs from 1 April to 31 March each year.

SERPS (State Earnings Related Pension Scheme)

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 which, in turn, was replaced by the single tier State Pension from 6 April 2016.

State Pension Age

Please see the State pension benefits page

State Second Pension (S2P)

Please see the State pension benefits page

V

Vesting Period

The vesting period in the LGPS is 2 years. You will meet the 2 years vesting period if:

you have been a member of the LGPS in England and Wales for 2 years, or
you have brought a transfer of pension rights into the LGPS in England or Wales from a different occupational pension scheme or from a European pensions institution and the length of service you had in that scheme or institution was 2 or more years or, when added to the period of time you have been a member of the LGPS is, in aggregate, 2 or more years, or
you have brought a transfer of pension rights into the LGPS in England or Wales from a pension scheme or arrangement where you were not allowed to receive a refund of contributions, or
you have previously transferred pension rights out of the LGPS in England or Wales to a pension scheme abroad (i.e. to a qualifying recognised overseas pension scheme), or
you already hold a deferred benefit or are receiving a pension from the LGPS in England or Wales (other than a survivor's pension or pension credit member's pension), or
you paid National Insurance contributions whilst a member of the LGPS and cease to contribute to the LGPS in the tax year of attaining pension age,
you cease to contribute to the LGPS at age 75, or
you die in service.