Working out your deferred pension

LGPS is currently a Career Average Revalued Earnings pension scheme, or CARE for short. In the CARE scheme, you build up an annual pension for retirement.

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.

Your employer lets us know the annual salary you have paid pension contributions on from one April to the next.

• If you paid full rate contributions in the main section, the pension you built up each year was a 49th of your annual pensionable salary.
• If you paid half rate contributions in the 50:50 section, the pension you built up each year was a 98th of your annual pensionable salary.

Your pension then increases each year to help it keep pace with the cost-of-living. We base the increases on an inflation measure called the Consumer Price Index (CPI).

Example of LGPS main section

The above steps repeated each year until you either left employment or opted out of paying pension contributions.

Note: If you qualify for the McCloud Remedy, the pension you built up from 1st April 2014 to 31st March 2022 will be based on the better of the CARE scheme pension or the final salary 60th pension as explained below.

Before the April 2014 CARE scheme, LGPS was a final salary pension scheme. This means that you will receive a fraction of your final pensionable salary as your annual pension for each day you were a member before 31st March 2014, and an automatic tax-free lump sum for each day you were a member before 31st March 2008.

At retirement, you will have an option to turn some of this pension into extra 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.

If you were in the LGPS before 1st April 2008, this means that you will automatically receive a tax-free lump sum at retirement as well.

When you stopped paying pension contributions, your employer let us know:

• the hours you worked;
• any absences you had; and
• the final pensionable salary figure to use

to work out this part of your pension. If you worked part time or term time, your final pensionable salary was the full-time full year equivalent. Your employer will have told us to use one of the following:

• The 365 days up to your leave date; in this example, 31st August 2023:
  • 1st September 2022 to 31st August 2023
• The best of the last 3 years, when a year is the 365 days up to your leave date. So, for this example, the best 365 days from:
  • 1st September 2022 to 31st August 2023
  • 1st September 2021 to 31st August 2022
  • 1st September 2020 to 31st August 2021
• In some situations, your employer will have worked out your final pay as the average of any 3 consecutive years ending on 31st March. You will only have had this option if your pay reduced:
  • after you moved to a job with less responsibility (except flexible retirement or the end of a secondment)
  • following a job evaluation exercise or equal pay exercise
  • because the pensionable pay specified in your contract changed
  • less than ten years before you stopped paying pension contributions

We worked out your final salary scheme pension in one or both of the following ways, depending on when you started and stopped paying LGPS contributions:

Example