Up until 31 March 2008 a Local Government Pension Scheme (LGPS) pension built up at the rate of 1/80th of final pay for each year of Scheme membership. Attached to this was an automatic tax-free lump sum equal to three times the value of the annual pension.
From 1 April 2008, an LGPS pension built up at a rate of 1/60th of final pay for each year of Scheme membership with no automatic tax-free lump sum but with the opportunity to convert part of the annual pension into tax-free cash if the Scheme member so wished.
From 1 April 2014, the rate at which an LGPS pension builds up is equal to 1/49th of the actual pensionable pay received in each Scheme year. This means that if you have local government service that backdates to before 1 April 2008 you may have a pension based on 4 different pension build-up rates.
| Membership From | Membership To | Pension Build-Up Rate | Automatic Lump Sum |
|---|---|---|---|
| LGPS start date | 31 March 2008 | 80th of Final Salary | YES |
| 1 April 2008 | 31 March 2014 | 60th of Final Salary | NO |
| 1 April 2014 (MAIN Section) | onwards | 49th of Pensionable Pay | NO |
| 1 April 2014 (50/50 Section) | onwards | 98th of Pensionable Pay | NO |
CARE scheme
From 1 April 2014, the LGPS remains a 'Defined Benefit' 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 year you will receive 1/49th of your actual pensionable pay and this will be added to your 'pension account'. Your pension account is then revalued every April in line with an inflationary increase (currently CPI) so that the pension keeps its value from the point the pension is earned to the point from which it becomes payable.
The CARE revaluation rates applied to your pension account since the introduction of the CARE Scheme are:
| Date | Rate & |
|---|---|
| 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% |
| 1 April 2021 | 0.5% |
| 1 April 2022 | 3.1% |
| 1 April 2023 | 10.1% |
| 1 April 2024 | 6.7% |
Converting pension into additional tax-free cash
It is possible to elect to convert part of your annual pension into additional tax-free cash.
You are able to exchange £1 of annual pension for £12 of tax-free cash, up to a maximum of 25% of the capital value of your total 'pension pot' (including any AVCs).
You will be provided with details of how this option applies to you at the point you retire from the scheme. You can then decide if you wish to convert any of your annual pension into additional tax-free cash at that time.