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Local Government Pension Scheme: an introduction
The Local Government Pension Schemes (LGPS) has more than five million members – contributors, ‘deferred members’ and pensioners and is made of individual funds with assets running into billions of pounds.
It has members in local government, education from primary to higher, police staff, the voluntary sector, environment agencies and private contractors.
The LGPS is a statutory public service scheme, so the scheme’s benefits and terms are set out in regulations passed through parliament.
Membership is automatic for nearly all eligible employees taken on before the age of 75, but you can opt out.
What are the benefits of the LGPS?
The scheme is administered locally through 101 regional pension funds (89 in England & Wales), and offers:
- a pension based on your pay and how long you’ve been in the scheme, not the state of the financial markets when you retire;
- the option to exchange part of your pension for tax free cash on retirement;
- immediate life cover and a pension for your husband, wife, partner and/or children when you die;
- an option means you can retire from 55 and receive benefits immediately, although if you voluntarily retire early, your pension is likely to be significantly reduced for being paid early;
- an option to flexibly retire from 55 with employer’s consent, and you can negotiate with your employer to continue working on reduced hours and draw part or all your pension;
immediate payment of pension benefits, without reduction, if you are made redundant or retired for business efficiency purposes after 55;
- access to a pension, which could be enhanced, from any age if the medical evidence shows you should be retired on the grounds of permanent ill health;
the ability to boost your pension by paying more contributions, for which you receive tax relief;
- 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.
If you are not sure whether you are already paying into the scheme, check your payslip.
How much do scheme members receive?
The pension you receive from the LGPS in England and Wales before 1 April 2014 will be based on your best year’s final pensionable earnings within the last three years of your scheme membership, and on your length of service in the scheme.
From 1 April 2014 in England and Wales, your future pension will be calculated on an average of your future earnings, revalued for inflation, rather than just on your earnings near to retirement.
This change will take place from April 2015 in Scotland and Northern Ireland.
Pay bands and rates
In the LGPS in England and Wales, you currently pay between 5.5% and 12% (before tax relief)of the pay you receive, depending on how much you earn.
You only pay contributions on the pay you actually earn. If your pay is reduced – for example, because of ill health or maternity – there are rules that set out when “assumed pay” is to be used so you are not penalised.
These pay bands and rates apply from April 2014 in England and Wales:
|Pay rate||Gross contribution rate||Contribution you pay after tax relief|
|Up to £13,500||5.5%||4.4%|
|£13,501 to £21,000||5.8%||4.64%|
|£21,001 to £34,000||6.5%||5.2%|
|£34,001 to £60,000||6.8%||5.44%|
|£60,001 to £85,000||8.5%||5.1%|
|£85,001 to £100,000||9.9%||6.3%|
|£100,001 to £150,000||11.4%||6.84%|
|More than £150,000||12.5%||6.88%|
Part-time workers’ contribution rates are now based on their actual pay, rather than what they would be earning if they worked full time, and for the first time, non-contractual overtime pay will count toward deciding a member’s contribution rate.
How to join the LGPS
Your employer should put you into the scheme automatically.
If you have a contract of less than three months you will not be put in the scheme automatically but you do have the right to join if you want to.
Check your payslip to see if you are paying in and, if not, contact your employer to see if you can join. It is important that you complete and return any joining form sent to you.
When your form is received, relevant records will be set up and an official notification of your membership in the scheme will be sent to you.
There are 89 LGPS funds in England and Wales, and each must have a board to assist in the decision making process. The funds need to be governed efficiently and effectively so that pensions can be paid and costs kept to a minimum. The boards are required to have an equal number of representatives from employers and scheme members.
UNISON encourages members to join the LGPS boards.
LGPS fund boards
- From 1 April 2015, the separate pensions funds in the LGPS (England & Wales) and SLGPS (Scotland) will have to set up boards with equal numbers of employer and scheme member reps.
- UNISON is keen that as many member reps as possible are trained UNISON activists, overseeing how our members’ pension funds are used.
Local Government Pension Scheme
Will I receive the full state pension?
The state department that administers the state pension, the Department for Work and Pensions (DWP), have said that fewer than half of those retiring between 2016 and 2020 will get the full amount of state pension and that “contracted-out” workers, most public service workers, will receive no more than £133 a week.
In response to a freedom of information request the DWP have said that only 45% of the 3.5 million people retiring between 2016 and 2020 will receive the full £150 (approximately) a week.
If you are a member of a public service pension scheme (i.e. local government, NHS Pension Schemes) you are currently contracted-out of the State Second Pension.
The current state pension system is split into two; the Basic State Pension and the State Second Pension. Public service workers currently only earn an entitlement to the basic element which is currently £115.95 a week for someone with a full 30 year National Insurance record.
You hence do not get a State Second Pension but do pay less National Insurance, as does your employer. More specifically you pay 1.4% less National Insurance on your weekly earnings between £155 and £770 and your employer saves 3.4% in comparison.
With effect from the 6 April 2016 this will stop and you will no longer be contracted-out. You will therefore pay a higher rate of National Insurance contributions than currently.
Ultimately if you are reasonably close to retirement you will not get what you may expect as your existing National Insurance record will determine the majority of your entitlement and you will simply pay more National Insurance for relatively little extra benefit. Younger workers will typically however accrue a bigger state pension over time than they would otherwise have done (albeit through paying more in National Insurance and having to wait longer to draw their state pension).
I hear that there are changes being made to the Local Government Pension Scheme: is there anything that I need to know?
The regulations changing the LGPS came into force on 1 April 2014.
Anyone who has opted out of the LGPS must rejoin the scheme if they want protection of the earnings link on any final-salary benefits that they have earned up to April (there is some protection for those who opt back in within five years of opting out).
If the cost of contributions is a problem, the new regulations from April will allow members to pay half their normal contribution rate for half the pension.
If they do not rejoin, any benefits earned before they opted will go up in line with prices – currently the Consumer Prices Index – rather than earnings.
The transitional protection regulations that became law on 10 March allow members who have opted out to opt back in within five years and still get the earnings link protection.
When they opt back they can decide within 12 months of rejoining whether or not to combine their service before April 2014 with their current service so it gets earning link protection.
If their pay has gone down since they opted out they may decide to keep it deferred and for it to go up in line with prices (CPI) instead.
Where can I find information on pension entitlement or enhancement when faced with redundancy?
If you’re made redundant or you retire because of service efficiency, you have a statutory right to draw an unreduced pension as long as you are at least 55 years old when your job ends.
In addition, your employer can consider:
- awarding you up to £6,250 a year additional pension;
- awarding you up to 10 years extra pensionable service;
- increasing your statutory redundancy payment;
- up to a maximum compensation of up to 104 weeks pay.
Each employing authority has a legal duty to publish its policies on these discretionary powers and keep them under.
The employer does not have to have a different policy, depending on whether a redundancy is voluntary or compulsory, but, it is possible for employers to adopt a particular policy that they only offer on a voluntary redundancy basis – if, for example, the employer wants to encourage people to come forward and apply.
Can I still receive a state pension if I am a member of the LGPS?
There are currently two parts to the state pension; the basic state pension and the additional state pension.
You will qualify for a basic state pension if you’ve made enough national insurance contributions in addition to your pension from the LGPS.
However you could find that your entitlement to the additional state pension is minimal, or even zero, as public service pension schemes including the LGPS are contracted-out of this, meaning while in the LGPS you pay less national insurance contributions and don’t get the additional state pension as a result.
The LGPS is separate and in addition to your state pension.
I’m thinking of joining the scheme. What now?
To be eligible to join the LGPS, you need to be under 75 and work for an employer which offers LGPS membership.
Membership is automatic for most eligible employees.
At what age can I join the scheme?
You can join the pension scheme at any time up to 75.
Is the LGPS just for local government employees?
No. Local government employers have to participate in the LGPS, but around 25% of members are from the Environment Agency, higher education and police sectors plus some private contractors who have been granted admitted body status.