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Most people working in local government have taken the important decision to join a pension scheme which provides access to high quality pension benefits based on final pay. 

You probably do not have the time to spend hours reading about all aspects of the Local Government Pension Scheme. But it is important to know what you can get and have your questions answered. So, lets run through the facts... 

As a member of the Local Government Pension Scheme (LGPS) you could look forward to a package of benefits to enjoy when you retire: 

• a pension which will go up every year in line with the cost of living 
• an option to exchange your pension to provide a tax free lump sum. Every £1 pension converted will provide £12 lump sum. Up to 25 per cent of the capital value of your pension can be taken as a lump sum.                        

The basic benefits are a yearly pension of 1/60th of your final year's pay for each year of scheme membership after 1 April 2008, with an option to exchange your pension to provide a lump sum.

Any membership up to 31 March 2008 will continue to provide pension calculated on 1/80th plus an automatic 3/80th lump sum. The amount of the lump sum can be increased by exchanging pension for additional lump sum.

Final year's pay is the best one of the last three years pay before leaving on which contributions have been taken. If a member works part time, the final year's pay is the whole time equivalent. This is to compensate for the fact that if a member works part time the membership is reduced. Where a member has a period of reduced or no pay due to sickness, the final year's pay is the amount that would be payable had the member worked normally.

Members who downgrade or move to a job with less responsibility can choose to have benefits calculated on the average of the best three consecutive years pay in the last 10 years of service (ending 31 March).

For contributors with at least three months membership or with a transfer of pension rights the scheme also provides:

• Payment of unreduced benefits at the normal retirement age of 65, but with the right to take pension from age 60 or, with employer's consent, from age 55 (or from age 50 for members paying into the scheme on 31 March 2008 opting to draw benefits with employer consent before 31 March 2010).

• Immediate payment of benefits on redundancy/efficiency from age 55 (or from age 50 for members paying into the scheme on 31 March 2008 leaving before 31 March 2010).

• Employees can be in the same scheme beyond age 65 but benefits must be drawn before age 75. Benefits drawn after age 65 will be actuarily increased to reflect the fact that they are being paid after the normal retirement age of 65.

• If you have to leave work with at least three months membership due to permanent ill health, a tiered ill health package is available at any age. This could give you increased benefits, paid straight away, if you are unlikely to be capable of gainful employment within a reasonable time after you leave.

  • A higher enhancement of 100 per cent membership to age 65 will be awarded if there is no reasonable prospect of obtaining gainful employment before age 65.

  • A lower enhancement of 25 per cent of membership to age 65 will be awarded if the member is unlikely to obtain gainful employment within three years of leaving but is likely to do so before age 65.

  • If you are likely to be capable of obtaining gainful employment within three years of leaving, benefits are paid without enhancement. These benefits will be stopped after three years or earlier if you become gainfully employed or become capable of undertaking gainful employment.

  • Gainful employment is defined as paid employment (in local Government or elsewhere) for nto less then 30 hours per week for a period of not less then 12 months.

• Flexible retirement with employer consent, may be permitted from age 55, allowing scheme members to draw some or all of their benefits while continuing work on reduced hours or in a post of less responsibility (or from age 50 for members paying into the scheme on 31 March 2008 opting to draw benefits on flexible retirement with employer consent before 31 March 2010).

Life assurance cover 
If you die while still contributing to the scheme a lump sum of three times your final year's pay will be paid.

If you work part time it is your actual final year's pay that is used to calculate the death grant.

If you die within 10 year's after retiring, a lump sum equal to the balance of ten years' pension will be paid.

You can nominate who you want the lump sum death grant to be paid by completing a death grant nomination form. 

Cover for your family
In addition to giving you a pension, the scheme also provides a pension for your spouse, civil partner and nominated co-habiting partner (subject to qualifying conditions).

The pension payable is equal to 1/160th of your final pay times the membership built up to age 65. For civil partners and co-habiting partners the pension is based on post 5 April 1988 membership only.

Pensions are also payable to eligible children - the amount depends on the number of eligible children you have as at date of death.

Contributions - how much does it cost?

Employee contribution rates are tiered according to the following table based on whole-time equivalent pensionable pay (including pensionable allowances).

• The band ranges will be increased each April in line with the rise in the Retail Prices Index.

• Employees will pay contributions on their actual pensionable earnings including pensionable allowances.

• The contribution band for part-time employees is to be determined by their whole-time equivalent pay.

• Where an employee holds more than one employment each is to be treated separately when determining the band relevant for that employment.

• The contribution band for term-time employees is determined by their whole-time equivalent pay not grossed up to 52 weeks.

• The contribution band for fee earners is determined by their actual fee amount.

• Any queries in connection with the assessment of bandings should be made to your employers HR/personnel section.

• The contribution rate for those existing members who are currently paying five per cent will be increased on a phased basis, bringing their rate into line with all other scheme members from 1 April 2011.

  • 1 April 2008 - 5.25 per cent
  • 1 April 2009 - 5.5 per cent
  • 1 April 2010 - 6.5 per cent if appropriate

  • 1 April 2011 - standard band as shown above

• Please see Pension News for examples of how the contribution rate is assessed.

• Employers also pay contributions towards the total cost of the scheme. This varies from one employer to another, but over a working lifetime will be about twice the members contributions.

Paying more to increase your benefits

Scheme members are able to buy extra scheme pension in steps of £250 up to a maximum of £5,000 (to provide a pension for themselves only or to provide a pension for themselves and any survivor on their death). As an alternative you may wish to pay an Additional Voluntary Contributions (AVCs). You get full tax relief on any extra contributons paid.                        

For details see Increasing your benefits.

What happens if I leave the scheme before retiring?

  If you are leaving the scheme early there are several options you can choose from:

Refund of contribution

If you have less than three months membership and you have:

• not transferred in any other pension rights
• no other LGPS benefits elsewhere

then you can claim a refund of your contributions.

Deferred benefits: If you have:

• at least three months membership, or
• transferred in any other pension rights, or
• other LGPS benefits elsewhere (e.g. frozen refunds, deferred LGPS benefit, pension credit awarded as a result of divorce, LGPS pension, hold an ongoing concurrent employment in the LGPS)       

you will be awarded a preserved benefit which will be paid when you reach normal retirement age. 

Transfer: As an alternative to a refund or deferred benefits you may wish to transfer the value of your LGPS benefits to another pension arrangement. It may even be possible to transfer to an overseas pension scheme. 

For more information see the Leaving the scheme early. 

When can I receive my pension? 

Benefits are paid immediately after leaving your job: 

• at age 65
• on retiring aged 60-65, but your benefits may be reduced 
• on retiring aged 65-75, if you draw your pension after age 65 it will be paid at an increased rate
• on taking early retirement because of permanent ill health and are unlikely to be capable of gainful employment within a reasonable time after you leave.
• on taking early retirement at 55 or older because of redundancy or efficiency measures (or 50 or over if you joined the LGPS before 1 April 2008 and retire on the grounds of redundancy before 1 April 2010)
• on taking early retirement with the agreement of your employer when aged 55-60, but your benefits may be reduced      
• on taking Flexible Retirement with the agreement of your employer at age 55 or over (or 50 if you joined the LGPS before 1 April 2008 and you take flexible retirement before 2010)

If you leave your job early and have deferred benefits these will normally be paid from age 65.

You can request early payment of your deferred benefits from age 55, but you must have your former employers consent for payment before 60. If you choose to receive payment of your deferred benefits before age 65 they may be reduced. The reduction depends on how early you draw them (your employer will have a policy on early payments of benefits).

Early payment of your deferred benefit can be made on the grounds of permanent ill health. You would need to be permanently incapable of the job you were working in when you left the LGPS and you are unlikely to be capable of gainful employment within three years of applying for the benefit, or before age 65 if sooner.

Voluntary retirement between the age 60 and 65 - reductions and the '85 year rule'

The normal retirement age for taking unreduced benefits in the Local Government Pension Scheme is 65. If you choose to retire before then, your pension benefits may be reduced.

Any reductions depend on when you joined the scheme, how old you are and how much membership you have.

• If you joined the LGPS on or after 1 October 2006 your benefits will be reduced if you retire before age 65.

  • Example: George joined the scheme in December 2006. If he decides to retire at 60 (because he is choosing to take his benefits 5 years before age 65) both his pension and lump sum will be reduced as follows:

    Pension reduction: 24 per cent
    Lump sum reduction: 12 per cent

• If you joined before 1 October 2006 a test is carried out on retirement to see when you meet the ‘85 year rule’. Your age and length of membership (both in whole years) are added together and depending on when these two elements total 85 and  when you were born determines whether your benefits may be reduced.

• Working out how you are affected by the 85 year rule can be quite complex, but this should help you work out your general position:

• • If you don't satisfy the 85 year rule by the time you are 65, then all your benefits are reduced if you choose to retire before 65. The reduction will be based on how many years before 65 you draw your benefits.

  • If you are aged 60 or over by 31 March 2016 and choose to retire before age 65, then. provided you satisfy the 85 year rule when you start to draw your pension, the benefits you build up to 31 March 2016 will not be reduced.

  • If you will be under age 60 by 31 March 2016 and choose to retire before age 65, then. provide you satisfy the 85 year rule when you start to draw your pension, the benefits you build up to 31 March 2008 will not be reduced.

  • Also if you will be aged 60 between 1 April 2016 and 31 March 2020 and meet the 85 year rule by 31 March 2020, some or all of the benefits you build up between 1 April 2008 and 31 March 2020 will not have a full reduction.

• Born before 1 April 1956, retiring before 1 April 2016 and meet the 85 year rule? No reductions will be made to your benefits.

  • Example: Sue was born in 1952 and joined the scheme at 18. If she decides to retire at age 60 in 2012 she will have 42 years membership so will meet the 85 year rule.
     
    There will be no reductions to Sue’s benefits.

• Born before 1 April 1956, retiring before 1 April 2016 and do not meet the 85 year rule when you retire but do so before age 65? Your benefits will be reduced based on the period between date of leaving and the date the 85 year rule is met.

  • Example: Adrian was born in 1 April 1949 and joined the scheme in 1989. If he decides to retire at age 60 he will have 20 years membership. At age 60 he will not have met the 85 year rule, however, he will meet the 85 year rule at age 63. Adrian’s benefits will have a 3 year reduction (based on the period between date of leaving and the date the 85 year rule is achieved) as follows:

    Pension reduction: 16 per cent 
    Lump sum reduction: 7 per cent

• Born between 1 April 1956 and 31 March 1960, retiring before 1 April 2020 and meet the 85 year rule? Your benefits to 31 March 2008 will not be reduced. The benefits based on membership after 1 April 2008 won’t have a full reduction – the reduction will be ‘tapered’ (the Governments decision on extending full 85 year protections after 1 April 2008 for this group is still outstanding).

• Born after 1 April 1960 and meet the 85 year rule when you retire? Your benefits up to 31 March 2008 will not be reduced. The benefits based on membership after 1 April 2008 will be reduced if you take them before age 65. The reduction is based on the period between the date of leaving and age 65.

  • Example: Rachel was born 1 April 1974 and joined the scheme at age 18. If she retires at age 60 she will have 40 years membership so will meet the 85 year rule. The benefits based on 20 years membership before 1 April 2008 will be unreduced, but the benefits based on the 20 years membership after 1 April 2008 will have a 5 years reduction (because she is choosing to take her benefits 5 years before age 65) as follows:

    Pension reduction: 24 per cent
    Lump sum reduction: 12 per cent

Want to know more?

Look on the other sections on this website, or you can get a copy of the Derbyshire Pension Fund employee's guide by phoning Call Derbyshire on 08 456 058 058