The terms of membership and primary scheme benefits that are applicable to individuals who make payments into the LGPS on or after April 1, 2024, are briefly described below.
The Local Government Pension Scheme (LGPS) is a significant pension scheme in the United Kingdom, serving individuals employed in local government and other participating organizations. This comprehensive guide delves into the various aspects of the LGPS, providing a clear understanding of its structure, benefits, and key features.
What is the LGPS?
The LGPS is a defined benefit pension scheme, meaning the benefits you receive are predetermined based on your salary and years of service. It is a contributory scheme, requiring both employer and employee contributions to build your retirement fund. The LGPS is a statutory scheme established by Acts of Parliament, ensuring its stability and reliability.
Key Features of the LGPS:
- Defined Benefit: Your pension is calculated based on a formula that considers your salary and years of service, providing a predictable and stable retirement income.
- Contributory: Both employer and employee contribute to the scheme, ensuring a substantial retirement fund.
- Statutory: Established by Acts of Parliament, the LGPS offers security and reliability.
- Funded: Contributions are invested to grow the fund and cover future pension payments.
- Career Average Revalued Earnings (CARE): Benefits are based on your average salary throughout your career, adjusted for inflation.
- Forty-Ninth Pension Scheme: You accrue a pension of 1/49th of your pensionable pay for each year of membership.
Benefits of the LGPS:
- Generous Pension: The LGPS provides a secure and predictable retirement income, ensuring financial stability in your later years.
- Tax Relief: Contributions receive tax relief, reducing your taxable income and increasing your overall savings.
- Death Benefits: In the event of your death, your spouse or dependents may receive a lump sum or pension, providing financial security for your loved ones.
- Early Retirement Option: You may be eligible for early retirement under certain circumstances, offering flexibility in your retirement planning.
- Transferability: You may be able to transfer your LGPS benefits to another pension scheme, providing greater control over your retirement savings.
Eligibility for the LGPS:
The LGPS is available to individuals employed by local authorities, schools, police forces, fire and rescue services, and other participating organizations. Eligibility criteria may vary depending on the specific employer and their participation in the LGPS.
Contribution Rates:
Contribution rates for the LGPS are set by the government and vary depending on your age and salary band. Both employer and employee contributions are made to the scheme.
Retirement Age:
The LGPS retirement age is currently 65, but it is subject to change in line with government policy.
The LGPS is a valuable pension scheme offering a secure and generous retirement income for individuals working in local government and participating organizations. Its defined benefit structure, contributory nature, and statutory backing provide stability and reliability for your future financial well-being. If you are eligible for the LGPS, it is essential to understand its features and benefits to make informed decisions about your retirement planning.
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The terms of membership and primary scheme benefits that are applicable to individuals who make payments into the LGPS on or after April 1, 2024, are briefly described below.
The Public Services Pensions Act of 2013 established the defined benefit occupational pension scheme known as the LGPS, which is tax approved. Benefits under the plan are determined by taking into account your Career Average Re-Valued Earnings (CARE) as of April 1, 2014. It is highly secure because the advantages are outlined in legislation.
Local government and other organizations that have opted to participate are covered by the LGPS. If you are under 75 years old and have an employment contract that is valid for at least three months, you will automatically be enrolled in the scheme. Alternatively, if you are under 75 and have a contract of employment lasting less than three months, your employer will give you the opportunity to join the scheme rather than enrolling you automatically. You cannot join the LGPS if you work as a teacher, firefighter, or police officer.
It is crucial that you fill out the joiner forms completely and return them in order to ensure your eligibility for the scheme benefits. Upon receiving these forms, pertinent documentation will be created and you will receive an official notification of your membership in the LGPS. Additionally, confirm that pension contributions are being deducted by looking over your pay stub.
By obtaining an opting out form from the Pension Section and sending it back to your Employer, you can quit the LGPS at any time. If you quit the program within two years of enrolling, you might then be eligible for a reimbursement of your contributions. If you choose to opt out, you can always choose to return to the program as long as you are under 75. However, in accordance with the guidelines of Automatic Enrollment, your employer will be in charge of re-entering the LGPS on your behalf. You will then have the option to opt-out again. To make an informed decision about opting out of the LGPS, you might want to consult an independent financial advisor.
Please be aware that you shouldn’t finish an opt-out declaration prior to starting work.
Depending on your pay, your contribution rate will range from 5 to 5% and 12. 5% of your pensionable pay. Which pay band you are in will determine the rate you pay.
Here are the Contribution Bandings from 1 April 2024.
| main scheme | 50/50 section | ||
| up to | £ 17,600.00 | 5.50% | 2.75% |
| £ 17,601.00 | £ 27,600.00 | 5.80% | 2.90% |
| £ 27,601.00 | £ 44,900.00 | 6.50% | 3.25% |
| £ 49,901.00 | £ 56,800.00 | 6.80% | 3.40% |
| £ 56,801.00 | £ 79,700.00 | 8.50% | 4.25% |
| £ 79,701.00 | £ 112,900.00 | 9.90% | 4.95% |
| £ 112,901.00 | £ 133,100.00 | 10.50% | 5.25% |
| £ 133,101.00 | £ 199,700.00 | 11.40% | 5.70% |
| £ 199,701.00 | or more | 12.50% | 6.25% |
When your contributions to the LGPS are taken out of your paycheck, you will receive tax relief. The amount of tax relief on pension contributions is subject to limitations. You might be required to pay a tax charge if the value of your pension savings rises in any given year by more than the £60,000 annual allowance. Most people will not be affected by the annual allowance.
The remaining expense of providing your benefits under the LGPS is covered by your employer. An independent review is conducted every three years to determine how much your employer should be contributing to the Scheme. Keep in mind that, in accordance with government guidelines, members and employers may need to split any future increases or decreases in the scheme’s cost.
To enhance your retirement benefits, you can make additional payments under the LGPS.
You can accomplish this by funding the scheme’s Additional Voluntary Contribution (AVC) arrangement or by paying Additional Pension Contributions (APC) to purchase additional LGPS pension. For additional details regarding these choices, kindly get in touch with the Pension Section
For this period, you have the option to pay half of your regular contribution and receive half the amount of pension. But during this period, you will continue to have full health and death insurance. You must ask your employer for an election form if you want to participate in the 50/50 portion of the program. You will then need to fill out another election form in order to return to the Main section.
You can transfer benefits into the LGPS from other pension plans or from other accounts you have previously accrued. The choice to transfer must be made within a year of joining, or for as long as your employer permits, after that. To find out more, please contact your Employer.
You must have been a member of the LGPS for at least two years, have transferred other pension rights into the LGPS, or have an existing deferred benefit in the LGPS in England and Wales in order to be eligible for retirement benefits.
When you reach your Normal Pension Age (NPA), which is determined by your State Pension Age (SPA) and may fluctuate in the future, you can retire and begin receiving your full LGPS benefits. The Scheme does, however, also provide for the early payment of your LGPS benefits.
You can choose to withdraw a portion of your pension as a tax-free lump sum after you retire. You will receive an annual pension. As mentioned in The Benefits section, if you joined the LGPS prior to April 1, 2008, an automatic tax-free lump sum will be part of your standard benefit package.
Any age between 55 and 75 is when you can choose to voluntarily retire and start receiving your LGPS benefits; however, your benefits could be actuarially reduced to account for early payment prior to your NPA.
Your LGPS benefits will be lowered if you choose to retire before your NPA in order to account for the early payment and the longer pension period. However, you might have been shielded from a potential reduction in part or all of your benefits if you joined the LGPS on or before September 30, 2006.
You may postpone collecting your benefits if you choose to retire on or after your NPA, but you must do so by the time you turn 75. In the event that you begin drawing from your pension after your NPA, your benefits will be increased to account for the payment delay.
Whether or not you want to join the scheme, you must notify the pension fund that pays your pension if you are reemployed in local government or by an employer who offers you membership in the LGPS. After that, a determination will be made regarding whether your pension will be decreased or discontinued.
You will be eligible to receive your LGPS benefits immediately and without reduction if you are 55 years of age or older.
The program offers a tiered ill health retirement package if you are forced to leave work at any age due to permanent illness, which must be verified by an independent occupational health physician chosen by your employer. Benefits could be paid to you immediately, and they could be increased if it seems unlikely that you will be able to find gainful employment within three years of leaving.
Gainful employment is defined as working for pay for at least 30 hours per week for a minimum of 12 months.
This is known as Flexible retirement. You can start drawing some or all of the pension benefits you have accrued from age 55 if you reduce your hours or move to a less senior position, as long as your employer agrees. This will help you transition more smoothly into retirement. Your benefits may be lowered to reflect the early payment of your Flexible retirement if you take it before your NPA, unless your employer agrees to waive the reduction entirely or in part.
You can keep contributing to the LGPS while working fewer hours or in your new position to accrue more benefits. Your employer will decide whether to offer flexible retirement benefits, and they are required to publish a statement outlining their policy.
Working after your NPA will allow you to keep contributing to the plan and accrue more benefits. When you retire, when you approach your 75th birthday, or if you take a flexible retirement plan with your employer’s approval, we will begin to pay your pension. Your pension will be increased to reflect that it will be paid for a shorter period of time if you draw it after your NPA. Your pension has to be paid before your 75th birthday.
Upon retirement, you will receive a lifetime indexed linked annual pension as well as the option to exchange a portion of your pension, subject to HMRC limits, for a lump sum payment that is tax-free and payable at the time you draw benefits.
Each year, from 1 April to 31 March, you will accrue a pension equal to 1/49th of the pensionable pay you received during that scheme year. The amount of your salary that you can deduct from your pension is known as your pensionable pay. The rate at which your pension builds will be half this rate, or 1/98th of your pensionable pay, if you have chosen to participate in the 50/50 portion of the scheme.
Your pension account will then receive the pension that you accrued between April 1 and March 31. Every April, the pension is revalued in accordance with the relevant cost of living index. The example below shows how your pension is calculated.
Example
It has been determined that Sian’s pensionable pay from 1 April to 31 March (Scheme Year 1) is £15,000. The amount of pension that was added to her pension account for this year is determined as follows:
1/49 x £15,000 = £306.12
Having added £306. 12 percent to her pension account, after which it is revalued to reflect an assumed 2 percent inflation increase (%C2%A3306) 12 + 2% = £312. 24).
Sian’s pensionable pay was assessed at £15,150 during Scheme Year 2:
1/49 x £15,150 = £309.18
£309. 18 is added to her pension account (£312. 24 + £309. 18 = £621. 42). After that, her account is revalued to reflect a 2 percent increase in inflation that is assumed. 5%. After Scheme Year 2, her pension account is worth £636. 96. Nevertheless, Sian’s pension would have been determined as follows if she had chosen to pay into the scheme’s 50/50 portion for the entirety of Scheme Year 1:
1/98 x £15,000 = £153. 06 (+ a 2% assumed inflation increase = £156. 12).
Take note of the disparity in Sian’s pension accumulation during her 50/50 Scheme contributions (£312). 24 less £156. 12 = £156. 12).
You can exchange a portion of your annual pension for a one-time, tax-free cash payment under HMRC regulations. You may receive up to 2025 percent of the capital value of your pension benefits as a lump sum by exchanging 20C2%A31% of your pension for 20C2%A312% of the lump sum (as long as the total lump sum does not exceed 20C2%A3268,275, less the value of any other pension rights you have in payment).
Regarding the payment of your additional voluntary contribution (AVC) under the LGPS, you will have a number of options. Kindly get in touch with the Pensions Section for additional details regarding these choices.
On April 1, 2014, the LGPS transitioned from a final salary scheme to a Career Average Re-valued Earnings (CARE) scheme. But, if you enrolled in the program on or before March 31, 2014, you will also have accrued benefits in the final salary plan, which will continue to be determined by your final salary upon your retirement or departure from the program.
For membership accrued through March 31, 2008, you will receive an automatic lump sum payment free of taxes equal to three times the value of this pension, in addition to a pension equal to one-eightieth of your final pay. Additionally, your membership in the scheme—which is proportionate if you work part-time—is taken into account in this computation. If your membership accrued between April 1, 2008, and March 31, 2014, you will be entitled to a pension equal to 1/60th of your final pay; however, you will not automatically be eligible for a tax-free lump sum payout. When you retire, though, you will have the choice to convert a portion of your pension into a tax-free lump sum (as detailed on the preceding page).
This will then give you the full value of your LGPS benefits when added to your CARE benefits. The example that follows demonstrates how your final salary benefits are determined.
Example
Sian participated in the program for ten years, ending on March 31, 2008, and for six years, ending on April 1, 2008, and ending on March 31, 2014. She has consistently worked full-time, and £15,000 is the total amount she was paid.
Her final salary benefits are calculated as follows:
Membership up to 31 March 2008:
10 years x 1/80 x £15,000 = £1,875 Annual Pension
£15,000 x 3/80 x 10 years = £5,625 Automatically tax-free Lump Amount
Membership from 1 April 2008 to 31 March 2014:
6 years x 1/60 x £15,000 = £1,500 Annual Pension
NO Automatic tax-free Lump Sum entitlement
Total value of Final Salary benefits:
£1,875 + £1,500 = £3,375 Annual Pension
£5,625 Automatic tax-free Lump Sum
When you retire, your final salary benefits will typically be computed using your final year’s full-time equivalent pensionable pay (as defined by the 2008 definition). However, if your pay has decreased or been restricted during your last ten years of continuous employment with your employer, you have the option to base your final salary benefits on the average of any three consecutive years of pay in the last thirteen years (ending on March 31). Alternatively, your benefits may be calculated on the higher of the two previous years’ pay. You have one month to write to the Pension Section to make this election before you depart.
The LGPS provides statutory pension increases. This implies that your pension will be raised annually in accordance with the relevant cost of living index if you retire at or after the age of 55. Regardless of age, sick health pensions are increased annually in accordance with the relevant cost of living index.
Protection for your Family
The benefits listed below are payable in the event that you pass away while serving as an LGPS member.
- A lump sum death grant of 3 years pay. If you work part-time, it’s 3 years’ part-time pay. When determining the pay to be used for the lump sum death grant and any survivor pension payable to your spouse, registered civil partner, or eligible cohabiting partner, the reduction in your hours is disregarded if it was caused by a condition or illness that, in the opinion of the independent occupational health physician, ultimately results in your death.
- Automatic payment of a survivor’s pension is made to your spouse, registered civil partner, or, under specific circumstances, your eligible cohabiting partner. The pension is payable to them immediately upon your passing for the duration of their life, and it will rise annually in accordance with the relevant cost of living index.
In the case of membership accrued between 1 April 2014 and the date of death, the pension payable is calculated as follows: 49/160ths of the total amount of any pension credited to your pension account after a transfer of pension rights; plus a pension equal to 1/160th of your assumed pensionable pay for each year of membership you would have accrued between the date of death and your NPA.
- Pensions for eligible children.
A survivor’s pension is automatically paid to your spouse, registered civil partner, eligible cohabiting partner, and any eligible children you may have, provided certain qualifying conditions are met. If you are under 75 years old on the date of death and less than 10 years of pension has been paid, a death grant will be issued; in that instance, the remaining 10 years of pension will be paid as a lump sum. You can also specify who should receive any death grant under the LGPS by filling out an Expression of Wish form, which you can get from the Pension Fund website. However, the administering authority of the Scheme has complete discretion over who gets paid any death grant.
Please get in touch with the Pension Section if you would like more details about your cohabiting partner’s eligibility or how a child’s pension is calculated.
Understanding the LGPS – AVC Wise
FAQ
Is the LGPS a defined benefit scheme?
Are local government pension schemes funded or unfunded?
Is LGPS a civil service pension?
What is the local government superannuation scheme?
What is the LGPS pension scheme?
The LGPS is one of the largest pension schemes in the UK. It is a defined benefit pension scheme which means your pension is based on your salary and how long you pay into the Scheme. Your pension is not affected by how well investments perform. The LGPS provides you with a secure and guaranteed income every year when you stop working.
Who is covered by the local government pension scheme (LGPS) booklet?
It applies to individuals who were contributing members of the Local Government Pension Scheme (LGPS) on 1 April 2014 or who have joined the Scheme on or after that date. The booklet is for employees in England or Wales and reflects the provisions of the LGPS and overriding legislation at the time of publication.
How does the LGPS work?
The scheme is administered locally through 101 regional pension funds (89 in England & Wales), and offers: employers’ contributions averaging between 14% and 18% on top of the contributions you pay towards the cost of your pension. Are you eligible for the LGPS? To become a LGPS member, you have to be under the age of 75.
How many members does LGPS have?
The LGPS is made up of 90 funds in England and Wales administered and managed at local level, although the scheme rules are set at a national level. There are nearly 2 million active members of the scheme and around 1.75 million pensions in payment. LGPS: which scheme applies to me?