A to Z of pension terms

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.

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 is a notional pay figure that employers must calculate when your pensionable pay is reduced because you are absent from work in certain circumstances, such as sickness or child related leave. This notional pay figure is used to make sure your pension benefits build up as if you were at work receiving normal pay.

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.

This is the earlier of:

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

Earnings are assessed by converting your pay in a pay period to a yearly figure.

Each employer must automatically enrol their workers who are eligible jobholders into a workplace pension scheme unless the employer decides to postpone for a period up to three months. In certain cases, the employer does not have to an enrol a person. For example, if the person recently opted out.

Where a person is enrolled into a scheme, the person can choose to opt out. If they do, generally, the employer must automatically re-enrol them back into a scheme at regular intervals, about every three years.

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 allow certain pension schemes to calculate pension transfers on special terms. Public service pension schemes generally operate club transfers.

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 in the April following the end of every Scheme year when you are an active member of the Scheme. Each April after you have left the Scheme, it is used to adjust the value of your deferred pension or pension in payment. The adjustment ensures your pension keeps up with the cost of living.

The LGPS was contracted out of the State Earnings Related Pension Scheme, known as SERPS, and the State Second Pension (S2P) from 6 April 1978 to 5 April 2016. This meant that most LGPS members paid reduced National Insurance contributions in this period. If you reached your State Pension age before 6 April 2016, the increases to your pension may be worked out differently.

Designating bodies are employers that can designate employees for access to the LGPS. The main types of designating bodies are listed below, but there are others:

• town and parish councils
• voluntary schools
• foundation schools
• foundation special schools
• federated schools
• technical institutes
• Transport for London
• the Children and Family Court Advisory and Support Services.

Discretion is the power given by the LGPS to choose how to apply the Scheme rules in certain situations. Your employer and Avon Pension Fund have the power to exercise different discretions.

Eligible children are your children. At the date of your death they must be your: 

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

A child sponsored by the member through a registered charity is not an eligible child.

An eligible child must also be:

• under age 18, or
• aged under 23 and in full-time education or vocation training. Your pension fund can continue to treat a child as an eligible child even of there has been a break in full-time or vocational training, or
• under age 23 and unable to engage in gainful employment because of physical or mental impairment, or
• over age 23, unable to engage in gainful employment because of permanent physical or mental impairment and the child was dependent on the member at the date of death because of that impairment. An independent registered medical practitioner must give their opinion on whether the impairment is likely to be permanent.

Gainful employment means paid employment for at least 30 hours per week that lasts for at least a year.

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

A survivor’s pension would be paid to your cohabiting partner if:

• all the above criteria apply at the date of your death, and
• your cohabiting partner satisfies the Fund that the above conditions had been met for a continuous period of at least two years immediately before your death.

On your death, the Fund will require evidence that the conditions for a cohabiting partner's pension are met.

A pension will only be paid to your eligible cohabiting partner if you paid into the LGPS after 31 March 2008.

An eligible jobholder is a worker aged between 22 and State Pension age who earns more than £10,000 per year.

Final pay is the figure used to work out final salary benefits in the LGPS. Final pay is usually the pay due for your final year of Scheme membership. Pay for one of the previous two years can be used if it is higher. Final pay includes:

• your normal pay
• contractual shift allowance
• bonus
• contractual overtime
• maternity, paternity, adoption or shared parental pay
• any other taxable benefit specified in your contract as being pensionable.

Final pay does not include non-contractual overtime.

If you were part time during your final year, your final pay is based on the pay you would have been due if you had worked full time.

If your pay in the final year is reduced because of sickness or child-related leave, final pay is the pay that would have been due if you had not been sick or on leave.

If you were a member of the LGPS between 6 April 1978 and 5 April 1997, you paid reduced National Insurance contributions. You did not pay into the State Earnings Related Pension Scheme, or SERPS, when you were an LGPS member. The LGPS guarantees to pay you a pension at least as good as you would have received from SERPS. This is called the Guaranteed Minimum Pension or GMP.

The term local government on this website 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
• non-teaching employees of an academy employer, an Education Action Forum, a sixth form college corporation and Further or Higher Education Corporation.

Normal Pension Age is linked to your State Pension Age for benefits built up from 1 April 2014, with a minimum of age 65. It 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 tool to check your State Pension Age.

Your State Pension Age may change in the future. If it does, this would also change your Normal Pension Age in the LGPS for benefits built up from 1 April 2014. Once your LGPS pension is being paid to you, any subsequent change in your State Pension Age will not affect your Normal Pension Age in the LGPS.

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.

All pension benefits paid on normal retirement must generally be taken at the same time. You cannot choose to have your final salary pension (built up before April 2014) paid at age 65 and your pension in your pension account (built up from April 2014) at your State Pension Age. Different rules may apply if you take flexible retirement.

Occupational pension schemes are also called company pension schemes. An occupational pension scheme is a scheme set up by an employer to provide pension or death benefits for its employees.

An occupational pension scheme can provide pension benefits on a money purchase, defined benefits, cash balance or hybrid arrangement basis. Occupational pension schemes are most commonly money purchase or defined benefits schemes. The LGPS is a defined benefits scheme.

When you leave a job you will generally have to stop building up pension savings in that employer’s scheme.

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

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

Your account is revalued in the April following the end of each Scheme year to take account of the cost of living. This adjustment is carried out in line with the Treasury Revaluation Order index which is the rate of the Consumer Prices Index (CPI).

You will have a separate pension account for each 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). A deferred refund account will not be adjusted in these ways.

A pension credit is a share of an ex-spouse’s or ex-civil partner’s pension benefits. A pension credit is awarded by a Court under a Pension Sharing Order or by a qualifying agreement in Scotland following a divorce or dissolution of a civil partnership. 

Pensionable pay is the pay that pension contributions are deducted from. Pensionable pay includes:

• your normal salary or wages
• bonuses
• overtime – both contractual and non-contractual
• pay for additional hours if you work part time
• maternity, paternity, adoption and shared parental pay
• shift allowance
• any other taxable benefits specified as pensionable in your contract.

You do not pay pension contributions on:

• any travelling or subsistence allowances
• pay in lieu of notice
• pay in consideration of loss of holidays
• pay as an inducement not to leave before the payment is made
• any award of compensation made for the purpose of achieving equal pay, other than a payment representing arrears of pay
• pay relating to loss of future pensionable payments or benefits
• pay paid by your employer when you are on reserve forces leave
• the monetary value of a car or pay received in lieu of a car
• any sum which has not had tax liability determined on it.

A public service pension scheme is a pension scheme covering:

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

Relevant child related leave means periods of:

• ordinary maternity leave – normally the first 26 weeks
• ordinary adoption leave – normally the first 26 weeks
• paid shared parental leave
• paternity leave
• paid parental bereavement leave
• paid additional maternity leave – normally weeks 27 to 39
• paid additional adoption leave – normally weeks 27 to 39.

This occurs when a Reservist is mobilised and called on 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 your assumed pensionable pay.

The Scheme year runs from 1 April to 31 March.

The State Earnings Related Pension Scheme or SERPS is the earnings-related part of the State Pension that employed people could build up before 6 April 2002. LGPS members were automatically contracted out of SERPS and most paid a lower rate of National Insurance as a result. SERPS was replaced by the State Second Pension (S2p) between 6 April 2002 and 5 April 2016. Contracting out ended on 5 April 2016.

Your State Pension age is the earliest age that you can receive the basic State Pension. State Pension age increased to 66 for both men and women between December 2018 and October 2020.

Under current legislation State Pension age is due to rise to 67 between 2026 and 2028 and to 68 between 2044 and 2046. However, the Government has announced plans to bring forward the rise to 68 to between 2037 and 2039.

The State Second Pension or S2P was the additional state pension payable to people who attained State Pension Age before 6 April 2016. LGPS members were contracted out of S2P and paid a lower rate of National Insurance as a result.

Initially S2P was an earnings-related pension but from April 2009 it built up as a flat rate pension. It was replaced with the new single tier State Pension from 6 April 2016.

The vesting period is the length of time that you must be an active member of the LGPS to qualify for benefits in the Scheme. The vesting period in the LGPS is two years. You can meet the vesting period with less than two years’ membership in certain circumstances.

You will meet the two year vesting period if you:

• have been a member of the LGPS in England and Wales for two years
• transferred a pension into the LGPS from a different occupational pension scheme or from a European pensions institution and the length of service you had in that scheme plus your period of LGPS membership is more than two years
• have transferred pension rights into the LGPS from a pension scheme or arrangement in which you were not allowed to have a refund of contributions
• have previously transferred pension rights out of the LGPS to a pension scheme abroad – to a qualifying recognised overseas pension scheme
• already hold a deferred benefit or you are receiving a pension from the LGPS in England and Wales, other than a survivor’s pension or a pension credit member’s pension
• paid National Insurance contributions as a member of the LGPS and you stop paying into the LGPS in the tax year that you attain State Pension age
• stop paying into the LGPS at age 75
• die in service.