Changes to your job
In this section you will find information on how a change in your job may affect your pension benefits. Some of the topics included refer to changing your hours of employment and taking a drop in salary. You can also find out what happens to your pension contributions if you have a leave of absence.
Leaving the Local Government Pension Scheme
On leaving the scheme without an immediate entitlement to receive your benefits, you will have following options:
- Deferred benefits
- Transfer to another local government pension fund if you take up further employment with an employer who participates in the LGPS
- Transfer to a non-local government pension scheme such as a new employer's scheme or even a personal pension plan
- Refund of pension contributions (if you have less than 2 years of scheme membership including any membership you may have transferred into the scheme from other pension schemes)
Change of hours
If you change your weekly hours or term-time weeks of employment the benefits you build up within the scheme will be affected as, since 1 April 2014, it is your actual earnings that are used to determine the amount of pension you build up.
For the majority of our members we class part-time employees as anyone whose contractual hours of work are less than 37 per week for 52.143 weeks of the year.
A part-time employee may also be someone who works 37 hours per week but for less than 52.143 weeks of the year such as an employee of a school who works during term-time only.
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The LGPS is a defined benefit, career average revalued earnings (CARE) pension scheme. As such benefits are defined in line with statutory regulations and based on your pensionable pay in each year from 1 April to 31 March (this is known as the scheme year).
For each scheme year that you are a member, a pension equal to a 49th of your pensionable pay will be added to your pension account. Inflationary increases will then be added to ensure that your pension account keeps up with the cost of living.
Benefits are not based on the contributions that you and your employer pay into the scheme (as they would be if you belonged to a 'money purchase' scheme). The longer you are a member of the scheme, and the greater your pensionable pay, the higher your benefits will be when you retire or leave the scheme.
The pensionable pay used in the calculation of your pension will reflect periods of full and part-time employment that you may have.
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As we have already mentioned your pension is built up based on a 49th of your pensionable pay during each scheme year running from 1 April to 31 March.
The pensionable pay is the amount of pay on which you pay contributions. It includes non-contractual (as well as contractual) overtime and any additional hours worked in excess of your contractual hours. If you are part-time the pensionable pay used to calculate your pension will be your actual part-time pensionable pay from 1 April to 31 March each year.
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Since April 2006 the LGPS Regulations have allowed employers the discretion to release scheme members' benefits whilst keeping them employed on reduced hours or at a lower grade. This is known as flexible retirement.
Once you reach the age of 55 your employer can agree to the release of your benefits thereby avoiding the perceived 'cliff-edge' that many face at retirement. Benefits released early may be subject to reduction if you do not satisfy certain conditions of the scheme, although your employer also has discretion to waive any reduction that may be applied.
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No. You can only pay contributions on the actual pay you receive.
There are ways in which you can increase your pension benefits by paying additional contributions, but these would be deducted from your part-time pay. The options you have are to:
You can even pay into your own personal pension or a stakeholder pension scheme.
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- As a member of the LGPS there is a lump sum death grant payable in the event of your death. This is equal to 3 times your assumed pensionable pay. For part-time employees this is your actual part-time pensionable pay.
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- If you reduce your hours, perhaps because of poor health, you need to consider the impact that this could have of any future ill-health retirement. If your employer agrees to your early retirement because of permanent ill-health, any enhancement afforded by the scheme may reflect the part-time nature of your job.
Changes to your salary
As a career averaged revalued earnings (CARE) pension scheme the pensionable pay received by a scheme member is crucial in determining the level of pension benefits that the member will receive.
In addition, a member who contributed to the scheme before 1 April 2014 will have their benefits built up to 31 March 2014 based on their final pay when they come to leave their pensionable employment or retire from the scheme.
Whilst a scheme member's final pay will normally be the pensionable pay received during the last year of employment this is not always the case and, in such instances, there are various options available to the scheme member as to how their final pay is calculated for the purposes of determining their pension benefits.
If you experience a reduction in your salary there are a number of options available, but they somewhat rely on your own personal circumstances and this is by no means an exhaustive list:
- how close you are to retirement age
- how much scheme membership you have
- do you satisfy the rule of 85?
- how old you are
- by how much is your pay being reduced?
Option 1 - Use the best of the last three years pay (regulation 8(2))
This option will be of particular importance to employees who are within three years of retirement. If you are more than three years from retirement this option is of no use.
Option 2 - use the best consecutive three years in the last thirteen (regulation 10(4))
This option will be of interest to any employee who is within 10 years of retirement at the point from which their pay is reduced but more than 3 years from retirement. If you fall into this category you can elect, in writing, to have a previous rate of pay used to calculate their benefits.
Option 3 - Defer accrued benefits to date and start again
If you will not be protected under options 1 or 2 you can elect to defer your accrued benefit to date based on your pay before any reduction is applied and then continue to contribute to the scheme on their lower pay thereby accruing further benefits.
There are some considerations to take into account, however, when choosing this option:
- The deferred benefits go up in line with the consumer price index. Pay will go up in line with pay awards.
- By 're-joining' the scheme you are treated as being a new scheme member under the 2008 regulations and therefore lose any rule of 85 protections on the 'new' membership that you may have built up under the 'old' membership. Whilst the 'old' membership will be unaffected and still payable from the member's eligible retirement age, the benefits based on the 'new' membership will be actuarially reduced if taken before the age of 65.
- If you were to be made redundant (assuming aged 55 or over) in the future having deferred part of their benefits, those deferred benefits would not be brought into immediate payment and would remain deferred until the age of 60 at the earliest. Had you continued your membership despite the reduction in pay, the whole of these benefits would be brought into payment immediately upon redundancy.
- If you were to be retired due to permanent ill health in the future a separate decision to release the deferred benefits would have to be taken by the 'former' employer.
- You can only elect to merge your deferred benefits with your ongoing membership within the first 12 months of re-joining the scheme. If your final pay ultimately exceeds the rate of pay on which your deferred benefits were calculated, plus pensions increases, the two periods of membership cannot be merged.
- Similarly, if you transfer to another LGPS in the future it is only the latest period of membership that can be transferred to the new scheme. The previous period will remain deferred.