Under the LGPS regulations salary sacrifice through a Car Lease scheme is classed as non-pensionable. We would therefore be unable to count your sacrificed salary towards the calculation of your pension.
Under the LGPS you build up pension each year based on your annual pensionable salary divided by 49. For example based on an annual salary of £25000 the annual pension you build up each year is as follows:
£25000 / 49 = £510.20 annual pension
Example 1
Under salary sacrifice your pension build up would be based on the pensionable pay after the car lease deduction has been made. Therefore if you paid £1800 per year/£150 per month (as an example) under salary sacrifice the pensionable pay that we then use in the calculation of your pension for that year would be £23200 (£25000-£1800 = £23200). Your annual pension build up would be:
£23200 / 49 = £473.47 annual pension
Based on this example the difference in annual pension build up is £36.73 per year (£510.20 – £473.47)
Example 2
Based on a salary sacrifice of £2000 per year (£166.67 per month) your pension build up would be as follows:
£25000 - £2000 = £23000
£23000 / 49 = £469.39 annual pension
Based on this example the difference in annual pension build up is £40.81 per year (£510.20 – £469.39)
Important - Please be advised that if you cease the salary sacrifice contract your pension may continue to build up on the reduced annual salary (post salary sacrifice value) even though your pay would have reverted back to normal. Similarly any previous pension built up under the final salary pension scheme (i.e LGPS pension membership up to 31 March 2014) may be based on the reduced salary sacrificed pay.
Your contract of employment is changed when the salary sacrifice arrangement starts. Your employer decision is based on what happens when that salary sacrifice arrangement ends (either it stops or you stop participating in it). Employers could take the view that the increased pay is pay in lieu of the provision of a car, which is not pensionable under the LGPS regulations.
Alternatively, your employer could change the contract again when you stop participating in the salary sacrifice scheme, or the contract could be written in such a way that your pay reverts to its ‘normal’ level when they stop sacrificing salary. If your employer takes this option, then your pensionable pay is increased to the ‘normal’ level after participation in the salary sacrifice scheme ends.
If you were a member of the scheme pre 1 April 2014:
The calculation of final pay depends on which view your employer takes. If you stop participating in the salary sacrifice arrangement in your final year and your employer has taken the view that the pay that was formerly sacrificed becomes pensionable, then the final pay calculation would be based on the relevant proportions of pre and post sacrificed salary, depending on when in the final year participation in the salary sacrifice arrangement ended.
Please note the 'best of the last three year's final pay' figure is used when calculating pre 1 April benefits.
If you join the salary sacrifice arrangement and leave less than three years later, then the pre salary sacrifice pay from an earlier year can be used to work out your final salary benefits.
Please check with your employer regarding their contract conditions if you are considering a car lease arrangement.