How are benefits built up before April 2008 worked out?
The Local Government Pension Scheme (LGPS) changed from a final salary scheme to a career average scheme on 1 April 2014. From 1 April 2014 the benefits built up in the LGPS are worked out under the rules of the new career average scheme. However, if you joined the scheme before 1 April 2014 you will also have built up benefits in the final salary scheme. This section looks at how the benefits built up in the LGPS up to 31 March 2008 are calculated.
For membership built up to 31 March 2008 you receive a pension of 1/80th of your final pay plus an automatic lump sum of 3 times your pension. Your final pay is usually the pensionable pay earned in the year prior to leaving the scheme, however, one of the two previous years' pay can be used, if higher.
Let's look at a member who:
- joined the LGPS on 1 April 2000
- has built up 8 years membership to 31 March 2008
- leaves the LGPS on 31 March 2018 with a total membership of 18 years
- has a final year's pay of £26,500 (based on the period from 1 April 2017 to 31 March 2018)
For the period 1 April 2000 to 31 March 2008 ONLY
Annual pension is: 8/80th x £26,500 = £2,650
Plus an automatic tax free lump sum: 3 x 8/80th x £26,500 = £7,950
These benefits are then added to the pension benefits built up from 1 April 2008 to the date of leaving.
Remember, at retirement you can choose to exchange some of your pension for extra tax free cash lump sum (within certain limits set by HM Revenue and Customs). For every £1 of pension you give up you will receive an extra £12 of lump sum.
What counts towards membership before 1 April 2008?
- how long you have been a member of the LGPS in years and days
- membership that has been bought by transferring benefits from another scheme where the date the transfer took place was before 1 April 2008
- any extra membership you have bought by paying additional contributions or by converting an in-house AVC into membership
- any extra membership awarded by your employer before 1 April 2008
If you worked part-time before 1 April 2008, your membership is reduced accordingly. For example, if you worked 17.5 hours per week and the whole time equivalent hours for the job were 35 hours per week, your membership will be reduced by 17.50/35.00 which is half. So using the example above, if the member had worked 17.50/35.00 hours per week for the whole period 1 April 2000 to 31 March 2008 the pension benefits would be calculated using 4 years rather than 8 years and would be:
Annual pension is: 4/80th x £26,500 = £1,325
plus an automatic tax free lump sum: 3 x 4/80th x £26,500 = £3,975
The final pay used in the calculation is the whole time pay that you would have received, if you had worked whole time.
If your pay is reduced or increases to your pay are restricted in your last 10 years of continuous employment -
with your employer because you downgrade or move to a job with less responsibility, or as a result of a job evaluation / equal pay exercise, or because of a change to what is specified as pensionable pay in your contract (using the definition of pensionable pay before 1 April 2014), or is restricted for some other reason, you may have the option to have your final pay calculated as the average of any 3 consecutive years' pay in the last 13 years (ending on a 31 March). You must tell your pension fund that wish to take up this option no later than one month before leaving. You cannot make use of this option to use earlier years' pay in working out your benefits if the reduction or restriction to your pay was as a result of the loss of a temporary increase in pay, or resulted from a reduction in your grade in order to take retirement benefits on flexible retirement.
If your pay was reduced or restricted for reasons beyond your control before 1 April 2008 and you were issued with a certificate of protection from your employer and you leave the LGPS within 10 years of the reduction or restriction in your pay, then your final pay will be worked out as the best year's pay in the last 5 years, or the average of the best consecutive 3 years in the last 13 years after allowing for inflation.