Calculating Retirement Benefits

Retirement

Table of Contents

Calculating Retirement Benefits

If you have become a member since 1 April 2014

From 1 April 2014 the Local Government Pension Scheme (LGPS) is still known as a 'Defined Benefit (DB)' pension scheme (i.e. the way in which benefits are calculated will continue to be defined in legislation) but instead of benefits building up on a final salary basis they build up on a 'Career Average Revalued Earnings' (CARE) basis. This means that the pension you earn each year is based on your actual pensionable pay received in each Scheme year (1 April to 31 March) instead of being based on the pay you receive at the point you leave or retire from the Scheme.

Each scheme year 1/49th of your actual pensionable pay will be added to your 'pension account'. Your pension account is then revalued in line with an inflationary increase (currently CPI) being added each year so that it keeps its value from the point the pension is earned to the point from which it becomes payable.

The inflationary increases applied to your pension account since 1 April 2015 are:

1 April 2015

1.2%

1 April 2016

-0.10%

1 April 2017

1%

1 April 2018

3%

1 April 2019

2.4%

1 April 2020

1.7%

 

If you first joined the LGPS on or after 1 April 2014, your benefits will be calculated as follows:

Annual pension: Actual Pensionable Pay x 1/49th

Lump sum: NIL (but with an option to convert part of your pension into tax-free cash)

In addition, a pension will be paid to your surviving spouse, nominated cohabiting partner or civil partner if you die first.

Example

Adam is in the MAIN section of the Scheme from 1 April 2014 to 31 March 2016 when he retires. His pensionable pay for 2014/2015 is £24,500 increasing to £25,333 for 2015/2016.

Scheme Year

2014/2015

Section of Scheme MAIN
Rate of build up 1/49th of pensionable pay

Pensionable Pay

£24,500
Amount of pension build up £500 (i.e £24,500 divided by 49)

At the end of the scheme year, £500 is added to Adam's Pension Account. To make sure the amount keeps it value, the total in the Pension Account will be adjusted in line with the cost of living. If inflation was say, 3%, the £500 in Adam's account at the end of the scheme year (31 March 2015) would be increased on 1 April 2015 to £515.

Adam remains in the main section of the Scheme from 1 April 2015 to 31 March 2016 and earns £25,333 in that year.

Scheme Year 2015/2016
Section of Scheme MAIN
Rate of build up 1/49th of pensionable pay
Pensionable Pay £25,333
Amount of pension built up £517 (i.e £25,333 divided by 49)
Pension brought forward £515
Pension Account Total £1,032

An online calculator has been produced to help you understand how your pension is calculated under the CARE Scheme arrangement from 1 April 2014.

If you have become a member before 1 April 2014

If you became a member of the LGPS for the first time before 1 April 2014 your benefits up to 31 March 2014 will be based on a Final Pay formula and will be calculated depending on whether you joined the LGPS before or after 1 April 2008:

For membership from 1 April 2008 to 31 March 2014

Annual Pension: Scheme Membership x Final Pay ÷ 60

Lump Sum: NIL (with an option to convert part of your pension into tax-free cash).

In addition a pension will be paid to your surviving spouse, nominated cohabiting partner or civil partner if you die first. This will be calculated as:

For membership prior to 1 April 2008

Annual Pension: Scheme Membership x Final Pay ÷ 80

Lump Sum: Scheme Membership x Final Pay x 3 ÷ 80

In addition a pension will be paid to your surviving spouse or civil partner if you die first. This will be calculated as:

Example

A member has 16 years of membership, 10 years pre April 2008 and 6 years post March 2008 up to 31 March 2014. His final pay at 31 March 2014 is £20,000. His benefits will be calculated as follows:

Annual Pension

10 x £20,000 ÷ 80

£2,500

  6 x £20,000 ÷ 60

£2,000

Total Pension

  £4,500
     
Lump Sum 10 x £20,000 x 3 ÷ 80  £7,500
     
Contingent Partner's Pension 16 x £20,000 ÷ 160 £2,000

If you became a member before 1 April 2008 and leave after 31 March 2014

Now we will have look at an example of a member who has, pre April 2008, post April 2008 and post April 2014 membership:

A member joined the LGPS as a full-time employee on 1 April 1998. He leaves the LGPS on 31 March 2015. His final pay at 31 March 2015 is £24,000. His pension will be calculated in three parts as follows:

Annual Pension    
Pre 1 April 2008 membership

10 years x £24,000 ÷ 80

£3,000
Membership from 1 April 2008 - 31 March 2014 6 years x £24,000 ÷ 60

£2,400

Membership from 1 April 2014 - 31 March 2015 £24,000 ÷ 49 £489.80
TOTAL ANNUAL PENSION   £5,889.80
     
LUMP SUM RETIREMENT GRANT    
Pre 1 April 2008 membership 10 years x £24,000 x 3 ÷ 80 £9,000
Membership from 1 April 2008 - 31 March 2014 NIL £NIL
Membership from 1 April 2014 - 31 March 2015 NIL £NIL
TOTAL LUMP SUM RETIREMENT GRANT   £9,000.00

Based on this example the member would be entitled to an Annual Pension of £5,889.80 and a Lump Sum Retirement Grant of £9,000. If they claim their benefits before their Normal Pension Age (NPA) these benefits would be reduced to cover the cost of the pension being release early.

Important: If you left your employment after 1 April 2014, aged 55 or over but under 60 and you are interested in applying for the release of your pension a three month written notice period is required. Please contact the Pensions Team in writing who will provide details of the benefits payable. Should you wish to go ahead payment will commence three months from the date your written request is made.

Converting Pension into Additional Tax-Free Cash

It is possible to elect to convert part of your pension into additional tax-free cash. You are allowed to exchange £1 of pension for an additional £12 tax-free cash up to a maximum of 25% of the capital value of your total "pension pot". You will be provided with details of how this option applies to you before your benefits come into payment, as you will need to decide if you wish to convert any part of your pension into additional tax-free cash before that time.