Calculating your Benefits
Your pension benefits will be calculated on a Career Average Revalued Earnings (CARE) basis from 1 April 2014. However, if you became a member of the scheme before this date, the benefits that you have built up until 31 March 2014 will continue to be calculated on a Final Salary basis when you retire, using your pensionable pay at the point of retirement.
The combined value of your Final Salary and CARE benefits will then yield the pension benefits payable upon your retirement. You will also have the option to give up part of your pension to receive tax free cash (in addition to any automatic lump sum entitlement that you may have in respect of your pre 2008 scheme membership). This is known as Commutation. (Exchanging your Pension).
Protections are also in place if you are nearing retirement, to ensure that you will get a pension at least equal to that which you would have received, had the scheme not changed on 1 April 2014.
This applies if you were:
- paying into the Scheme on 31 March 2012;
- within 10 years of your Normal Pension Age (normally age 65) on 1 April 2012; and
you haven’t had a disqualifying break in service of more than 5 years; and
- you've not drawn any benefits in the LGPS before Normal Pension Age and you leave with an immediate entitlement to benefits. If you are covered by this protection, a calculation will be performed upon your retirement to check that the pension you have built up is at least equal to that which you would have received had the scheme not changed on 1 April 2014. You will then receive the 'best deal'.
What if I started in the Scheme on or after 1 April 2014?
The 'Final Salary' references made within this section will NOT apply, therefore reference should only be made to the CARE Benefits and Exchanging your Pension sections.
Your benefits may be actuarially reduced / increased if paid before / after your Normal Pension Age (NPA). NO reference has been made to the actuarial reduction / increase of benefits in this section.
Final Salary Benefits
If you became a member of the Local Government Pension Scheme (LGPS) on or before 31 March 2014, your benefits in respect of this period will be calculated in accordance with your whole-time equivalent pensionable pay at the point of retirement, and your scheme membership up to 31 March 2014.
Your Scheme Membership
Your total membership is measured in years and days and includes the length of time in which you have been a member of the LGPS, as well as any membership awarded for the transfer of previous pension rights into the scheme.
If you worked part time during these periods, your total membership will have been proportioned in accordance with the part time hours.
Your Final Pay
This is the amount of pensionable pay that you have received during your final year of employment i.e. 365 days back from your date of leaving. However, there is scope for it to be based on one of the previous two years, if higher.
If you work part time, your final pay will be calculated as a whole-time equivalent.
Note that 'non-contractual' overtime will NOT be included in the calculation of your final pay.
Calculating your 'Final Salary Benefits'
For membership up to 31 March 2008, benefits will be calculated at an 80th, with an automatic lump sum entitlement, equal to three times your annual pension:
Membership ÷ 80 x Final Pay = Annual Pension
For membership from 1 April 2008 to 31 March 2014, the rate is set as a 60th, but with NO right to an automatic lump sum.
Membership ÷ 60 x Final Pay = Annual Pension
The total of these calculations will form the Final Salary element of your benefits.
If your pay has been restricted or reduced by your Employer, you will have the option to calculate your final pay as an average of any 3 consecutive years pay in the last 13 years of employment (ending 31 March). If you believe that this may be appropriate to your circumstances, please contact us.
Your Local Government Pension Scheme (LGPS) benefits from 1 April 2014 will be calculated on a Career Average Revalued Earnings (CARE) basis.
You will have a Pension Account for each of your pensionable employments, which is then credited every year with the amount of pension that you have built up from 1 April to 31 March.
The amount of pension to be awarded is based on your actual pensionable pay, as adjusted by the 1/49th accrual rate. Your account(s) will then accumulate and will be revalued each April in line with the appropriate cost of living index.
Calculating your CARE Benefits
The amount of pension to be credited to your account every year is calculated as follows:
Actual Pensionable Pay from 1 April to 31 March ÷ 49 = Pension awarded
Any non-contractual overtime payments will be included in the assessment of your pensionable pay.
Exchanging your Pension
At the point of retirement, you will have the option to give up some of your pension to gain a tax free lump sum; known as Commutation. For every £1 of pension you decide to give up, you will receive £12 of lump sum, subject to a maximum 25% of the Capital Value of your benefits. (In addition to any automatic lump sum entitlement that you may have in respect of your membership up to and including 31 March 2008).
However, this is NOT compulsory and you may even wish to exchange a lesser amount than the maximum option.
Upon your retirement, you will be given this information within your retirement pack, which will include your base pension values and the maximum commutation amounts. Only then will you have to make an election, or alternatively choose to commute a lesser amount.
So that you have plenty of time to make up your mind and seek financial advice if you wish, it is important that you contact your Employer well in advance of your intended retirement date so that you can be provided with an estimate of these amounts.
If you have been contributing to an in-house AVC arrangement and you wish to consider using this fund to boost your LGPS benefits; your AVC fund will form part of your 'Capital Value' calculation. For further information, please contact us.
Any reduction to your annual pension to provide for a tax free lump sum will NOT reduce any subsequent Survivor's benefits which may become payable upon your death.