In this example, the councillor has been a member of LGPS Councillor for 5 years. Their career average pay is based on all of the fees or pay they have paid pension contributions on, as well as cost of living increases, in line with an inflation measure called the Retail Price Index, or RPI.
The amount of membership is the time from when you start paying pension contributions to when you stop.
Example
| Year 1 Earnings £9,400 |
x cost of living increase 1.12 |
= £10,528 |
| Year 2 Earnings £9,600 |
x cost of living increase 1.08 |
= £10,368 |
| Year 3 Earnings £9,900 |
x cost of living increase 1.05 |
= £10,395 |
| Year 4 Earnings £10,400 |
x cost of living increase 1.02 |
= £10,608 |
| Year 5 Earnings £11,000 |
x cost of living increase 1.00 |
= £11,000 |
| |
Accumulative Total |
= £52,899 |
| |
Career Average Pay
(£52,899 ÷ 5 Years) |
= £10,579.80 |
Once we have figures for career average pay and membership, we can work out the pension value:
Annual pension
Years and days membership ÷ 80 x career average pay
One off tax-free lump sum
1/80 annual pension x 3
|
Example
| Annual pension
5 years ÷ 80 x £10,579.80 = £661.24 of 1/80 annual pension
One off tax-free lump sum
£661.24 x 3 = £1,983.72
|
At retirement, you will have an option to turn some of this pension into a one-off lump sum. For every £1 of annual pension you give up you will get a lump sum of £12.
HM Revenue & Customs limits the amount of tax-free lump sum you can take when your pension is paid to you. This limit is called a lump sum allowance (LSA). Currently, the maximum lump sum is the lowest of:
- 25% of the capital value of your benefits
- £268,275*
- £268,275* less the total lump sums you have already taken
*If you hold a valid Lifetime Allowance protection, you may be able to take a lump sum that is larger than £268,275.
The lump sum will usually be tax-free, but if you go over the lump sum allowance, you will have to pay tax on the excess at your marginal rate.