Please see the section entitled Who runs the LGPS?

Annual Allowance

This is the amount by which the value of your pension benefits may increase in any one year (disregarding the year that all your benefits become payable) without having to pay income tax at 40% on the excess. The annual allowance is set by the Treasury and for 2006/2007 is £215,000. Most scheme members will not be affected by the annual allowance. For calculating the increase in value of your LGPS benefits, the first year runs from 6 April 2006 to 31 March 2007; subsequent years run from 1 April to 31 March. If you exceed the annual allowance in any year you are responsible for reporting this to HM Revenue and Customs on your self-assessment tax return and for paying the annual allowance tax charge. The Clwyd Pension Fund will be able to give you the information you require on the increase in the value of your LGPS benefits including any additional voluntary contribution (AVC) arrangement you may have. The assessment covers any pension benefits you may have in all tax-registered pension arrangements – not just the LGPS. Please note, however, that the annual allowance tax charge will not apply if you have registered to have enhanced protection (but only if you keep enhanced protection throughout the relevant tax year).

Civil Partnership

A civil partnership is a relationship between two people of the same sex (“civil partners”) which is formed when they register as civil partners of each other.

Contracted-out

The LGPS is contracted-out of the State Second Pension Scheme (S2P formerly known as SERPS). This means that, up to State Retirement Age, you pay reduced National Insurance contributions between the Lower and Upper Earnings Limits, unless you have opted to pay the married woman's/widow's reduced rate of National Insurance, and that you do not earn a pension under S2P.

Instead, the LGPS must guarantee to pay you a pension that in general is as high as you would have earned had you been in the State Earnings Related Pension Scheme / S2P.

For contracted-out membership on and between 6th April 1978 and 5th April 1997, this is dealt with as detailed in the section below entitled Guaranteed Minimum Pension. For membership after 5th April 1997, the LGPS has guaranteed that the benefits it provides will, in general, be no less favorable than those provided under a Reference Scheme prescribed under the Pensions Act 1995.

Discretion

This is the power given by the LGPS to enable your employer or your administering authority to choose how they will apply the Scheme in respect of certain of its provisions.

Under the LGPS your employer or your administering authority are obliged to consider certain of these discretionary provisions and to pass resolutions to form a policy of how they will apply the provision. In respect of the remaining discretionary provisions they are advised to do so.

They have a responsibility to act with ‘prudence and propriety’ in formulating their policies and must keep them under review. You may ask your employer or your administering authority what their policy is in relation to a discretion. See also ‘Policy Statement’ below.

Enhanced Protection

See under Primary Lifetime Allowance Protection.

Final pay

This is the figure used to calculate most of your pension benefits and is normally your pay in the last year before you retire, or one of the previous two years' pay if that amount is higher.

For a part-time employee, the figure used is normally the pay you would have received if you had worked whole-time.

If your pay is reduced because of sickness, the final pay is taken to be the pay you would have received if you had not been sick.

During any period of maternity, paternity or adoption leave in respect of which you pay (or are deemed to have paid) pension contributions, final pay includes the pay you would have received had you not been on maternity, paternity or adoption leave.

If a Certificate of Protection has been issued please 'Click Here'.

Should you reach age 65 and continue in employment 'Click Here' for further details.

Guaranteed Minimum Pension (GMP)

This is the minimum pension that the LGPS must pay you in relation to the period that you were a member of the LGPS on and between 6th April 1978 and 5th April 1997. It is calculated by reference to the State Earnings Related Pension Scheme entitlement that you would have earned if you not been a member of the LGPS during this period.

If your pension benefits are subject to a Pension Sharing Order issued by the Court following a divorce or annulment of marriage or the dissolution or nullity of a civil partnership, or are subject to a qualifying agreement in Scotland, your GMP will be reduced in accordance with the Court Order or agreement. 'Click Here' for further details.

Lifetime Allowance

This is the total capital value of all pension benefits you can have without triggering an excess benefits tax charge. If the value of your pension benefits when you draw them (not including any state retirement pension, state pension credit or any spouse’s civil partner’s or dependant’s pension you may be entitled to) is more than the lifetime allowance, or more than any primary lifetime allowance protection you may have, you will have to pay tax on the excess benefits (unless you have enhanced protection). The lifetime allowance is set by the Treasury and for 2006/2007 is £1.5 million. The lifetime allowance covers any pension benefits you may have in all tax-registered pension arrangements – not just the LGPS. Most scheme members’ pension savings will be significantly less than the lifetime allowance.

When any LGPS benefit, or any other pension arrangement you may have, is brought into payment you use up some of your lifetime allowance – so even if your pensions are small and will not exceed the lifetime allowance you should keep a record of any pensions you receive. If you have a pension in payment before 6 April 2006, this will be treated as having used up part of your lifetime allowance.

When you draw your LGPS pension the Clwyd Pension Fund will ask you for the percentage of the lifetime allowance that has been used up by any pensions you already have in payment, and any benefits you are about to take in other schemes. If you do not provide this information promptly it could delay the payment pf your pension.

If your LGPS benefits exceed your lifetime allowance, or your primary lifetime allowance protection, a recovery tax charge will be made against the excess (unless you have enhanced protection). The charge on excess benefits paid as a pension will be 25%, with income tax deducted thereafter; excess benefits taken as a lump sum will be taxed once only at 55%.

Lower Earnings Limit

This is the amount of pay that you can receive before you pay any National Insurance contributions. The Lower Earnings Limit for 2006/2007 is £84 per week or £364 per month. It is usually increased annually by Parliament.

Pay

This is your normal salary or wages plus any shift allowance, bonuses, contractual overtime, Statutory Sick Pay, Maternity Pay, Paternity Pay, Adoption Pay and any other taxable benefit specified in your contract as being pensionable.

Pay does not include non-contractual overtime, travelling or subsistence allowances, pay in lieu of notice, pay in lieu of loss of holidays, school achievement awards, any payment as an inducement not to leave before the payment is made, nor (apart from some historical cases) the monetary value of a car or pay received in lieu of a car.

Pay is limited to the earnings cap if you joined the LGPS on or after 1st June 1989.

Policy Statement

This is a statement that your employer and your administering authority must produce, setting out the policies that they have resolved to follow in exercising certain discretions under the LGPS.

Other discretions may also be included. You should be notified of the policies contained on the Statement and where changes are made, you should be notified within one month of the change occurring. You may ask your employer and your administering authority for the latest copy of their Policy Statements.

Primary Lifetime Allowance Protection and Enhanced Protection

Primary protection is aimed at protecting benefits earned up to 5 April 2006 in respect of those high earners affected by the introduction of the lifetime allowance from 6 April 2006. Under HM Revenue and Customs rules, if the value of your pension benefits exceeds the lifetime allowance by 5 April 2006, you can register for primary protection so that you have an individual lifetime allowance based on how much your benefits at 5 April 2006 exceed the value of the standard lifetime allowance. Your individual lifetime allowance increases at the same rate as the standard lifetime allowance. You can also register for enhanced protection, as well as primary protection, if the value of your pension benefits exceeds the lifetime allowance by 5 April 2006, or you can register for enhanced protection if you believe they may do so in the future. Under enhanced protection you do not pay tax on benefits in excess of the lifetime allowance provided your benefits at 5 April 2006 have not increased since then beyond certain limits (in general terms, by more than the greater of 5% per annum, the increase in the Retail Price Index or increases in your pensionable pay). If the limit exceeded, enhanced protection is lost, so if you have enhanced protection it is your responsibility to monitor the increase in your benefits and, if the limit looks likely to be exceeded, take appropriate action if you wish to retain enhanced protection. You will lose enhanced protection if you pay contributions into a money purchase pension arrangement (e.g. pay into the LGPS in house AVC facility) or if you start a new pension arrangement, or if you transfer your LGPS benefits to another defined benefit pension scheme. You can also voluntarily give up enhanced protection by giving notice that you no longer wish to keep it.

If you lose enhanced protection you must notify HM Revenue and Customs within 90 days. Failure to do so could result in a fine of up to £30,000.

You have to register with HM Revenue and Customs by 5 April 2009 if you wish to obtain primary or enhanced protection.

Protected Member

If you were contributing to the Scheme on 30th September 2006 you may have protected rights regarding early payment of your benefits.

• If you will be age 60 or over by 31st March 2013 and choose to retire before age 65 (with employer’s consent if retiring before age 60) you may have some protection from the reductions applied to benefits voluntarily drawn before age 65, as explained below:-

• If you satisfy the 85 year rule when you start to draw your pension, the benefits you have accrued up to 31st March 2013 will not be reduced. However, the benefits built up after 31st March 2013 will be reduced by the factor shown here which relates to the number of years the benefits are being paid earlier than age 65.
• If you do not satisfy the 85 year rule when you start to draw your pension, but would have satisfied the rule if you had remained in employment until age 65, the calculation of your benefits is split into two parts. Firstly, all the benefits you have built up in the scheme up to 31st March 2013 will be reduced by the factor shown here which relates to the number of years the benefits are being paid earlier than the date you would have met the 85 year rule. Secondly, any benefits you have built up in the scheme after 31st March 2013 will be reduced by the appropriate factor shown here which relates to the number of years the benefits are being paid earlier than age 65.

• If you will be under age 60 by 31st March 2013 and choose to retire before age 65 (with employer’s consent if retiring before age 60) you may have some protection from the reductions applied to benefits voluntarily drawn before age 65, as explained below:-

• If you satisfy the 85 year rule when you start to draw your pension, the benefits you have accrued up to 30th September 2006 will not be reduced. However, the benefits built up after 30th September 2006 will be reduced by the factor shown in the table here which relates to the number of years the benefits are being paid earlier than age 65.
• If you do not satisfy the 85 year rule when you start to draw your pension, but would have satisfied the rule if you had remained in employment until age 65, the calculation of your benefits is split into two parts. Firstly, all the benefits you have built up in the scheme up to 30th September 2006 will be reduced by the factor shown in the table here which relates to the number of years the benefits are being paid earlier than the date you would have met the 85 year rule. Secondly, any benefits you have built up in the scheme after 30th September 2006 will be reduced by the appropriate factor shown in the table here which relates to the number of years the benefits are being paid earlier than age 65.

How do I know if I will satisfy the 85 year rule?

The rule is satisfied if your membership (as defined below) and age (each in whole years) adds up to 85.

Membership that counts in working out the 85 year rule

• the number of years that you have been a LGPS member as an employee (with part-time employment counting at full calendar length) plus, for deferred benefits, the period between the date of leaving and the date benefits are to be brought into payment, but excluding any membership in respect of which you are already in receipt of a Local Government pension or in respect of which you hold an earlier Local Government deferred pension.
• the number of years purchased by a transfer into the LGPS from a previous employer’s pension plan (or, if you were contributing to the LGPS on 31st March 1998 and were still contributing on 30th September 2006, the number of years actually served in that plan)
• the number of years purchased by a transfer into the LGPS from a stakeholder pension scheme or a personal pension plan
• any additional years of membership that you have bought or which have been granted to you by your employer
• any additional years of membership purchased by converting AVCs into a period of membership.

It does not include membership in the LGPS for any period that you were in the scheme as a councilor or mayor.

Note: if you joined the LGPS prior to 1 April 1998 and the date you would have achieved 25 years membership falls before the date you would have achieved the 85 year rule, the earlier date will be used when assessing the amount of the reduction to be applied to the early payment of your benefits. This will result in a smaller reduction to your benefits.

Retail Prices Index

This shows the changes in the cost of living. It reflects the movement of prices covering a range of goods and services over time. The amount by which pensions are increased annually is based on movement in the Retail Prices Index during the 12 months to September.

State Earnings Related Pension Scheme (SERPS)

The State Earnings Related Pension Scheme (SERPS) is an earnings-related element of the State Scheme. Benefits are paid by the Department for Work and Pensions (the old DSS) and are based upon any National Insurance contributions you paid between the Lower and Upper Earnings Limits between 6 April 1978 and 5 April 2002 (with a maximum of 20 years counting). Benefits cannot be paid before State Pension Age, and have been reduced for people who retire after 1998.

State Pension Age

This is currently age 65 for men and 60 for women, but from 2010 will change for women as shown in the table below, so that by 2020 State pension age will have been equalised at age 65.

Total membership

This is the amount of membership that counts, as detailed below, for:

• Working out whether you are entitled to a benefit

• The number of years and days that you have been a LGPS member as an employee (at full calendar length for part-time employment).
• Any membership transferred from a previous employer's pension plan into the LGPS (normally at the actual length served in that plan, but only at the length of membership purchased for the purposes of determining entitlement to an ill health pension).
• The number of years and days purchased by a transfer into the LGPS from a personal pension plan or stakeholder pension scheme.
• Any part-time employment prior to joining the LGPS which you have been allowed to count (at full calendar length).
• Any membership in respect of which you are, as a former employee, already in receipt of a Local Government pension or in respect of which you hold a Local Government deferred pension.
• Any additional years of membership purchased by you or purchased by converting AVCs into a period of membership.
• It does not include any additional years of membership which have been granted to you by your employer.
• It does not include membership in the LGPS for any period that you were in the scheme as a councillor or mayor.