Adviser > Technical Central > Pre simplification > Occupational > Local Government Pension Scheme (LGPS)
Local Government Pension Scheme (LGPS)
The content of this page is based on our understanding of how pensions worked before A-Day, the 6 April 2006, and is provided for reference only.
The Government is in the process of reviewing this scheme and are considering how changing demographics and increased longevity will affect pension costs. Changes will be made in the future, however these are still be consulted on. The current scheme information is provided below:
Administrator
The scheme is administered by local authorities
Website available
Local Government Pension Scheme Website
Contracted-out
Yes
Eligibility
The scheme is open to all employees in Local Government. Members have to be younger than 65 to join
Contribution basis
AVC scheme available - Yes
Stakeholder scheme available - There is no designated scheme, however members are free to have a Stakeholder plan (subject to normal restrictions)
Member contribution - 6% p.a. of pensionable pay
Employer contribution - Government Actuary decides on the level of contribution required to be paid by the employer
Added Years permitted? - Yes, members can purchase additional years or the scheme may accept a transfer payment from a previous pension scheme
Salary definition
Pensionable pay - Normally the pay in the last year before member retires, or one of the previous two years pay if that amount is higher
Pensionable service - Normally from date of joining scheme to exit date in years and months
Normal retirement benefits
Retirement Age - 65
Pension accrual - 1/80th of pensionable pay X pensionable service
Retirement lump sum - 3 times annual pension
Early retirement on the grounds of ill-health
Members who have more than 2 years pensionable service (Scotland) or 3 months pensionable service (England & Wales) and who are under age 65 are entitled to retire on the grounds of ill-health (subject to medical evidence). Service is enhanced as follows:
- <5 years – actual pensionable service only
- 5 to 10 years – pensionable service doubled
- 10 to 13 1/3 years – pensionable service increased to 20 years
- 13 1/3 to 33 1/3 years – pensionable service increased by 6 2/3 years
- 33 1/3 to 40 years – pensionable service increased to 40 years
- Over 40 years – actual pensionable service
Pensionable service must not exceed the amount which could have been accrued if member continued in employment to age 65
Early retirement
Scotland - If member has more than 2 years pensionable service, and the employer gives permission, members can retire early
England & Wales – If member has at least 3 months pensionable service or has transferred other pension rights into the LGPS, and the employer gives permission, members can retire early
The pension may be reduced depending on the member's age at retirement and pensionable service of the scheme, both of these are counted in full years and calculated in accordance with the ‘85 year rule’. This means that if when these are added together and equal at least 85 years, there is no reduction to the benefits payable. If they do not equal 85 years, the benefits will be reduced in proportion to the lesser of :
- the number of years and days until the member would satisfy the 85 year rule, and
- the number of years and days until the member reached age 65
Late retirement
If allowed by the employer
Scotland - Benefits are based on pensionable pay at age 65 and increased by an actuarial factor
England & Wales – If member was in the scheme prior to 20 May 1999, member can continue to accrue benefits up to a maximum of 40 years total membership, or 45 years total membership if member joined the scheme prior to 1 June 1989
If member joined the scheme after 20 May 1999 benefits are based on pensionable salary at age 65 and increased by an actuarial factor
Death before retirement benefits
Lump sum - 2 times pensionable pay
Dependant's pension - A short-term pension amounting to final pay will be paid for the first 3 months after death, if there are any eligible children then this pension is paid for 6 months
For members who have completed more than 2 years pensionable service a long-term pension of 50% of the pension the member would have received had they retired early due to ill-health at date of death
For members who have completed less than 2 years service a pension of 1/160th of final pay for each year of pensionable service will be payable
Children’s pensions may also be payable
Deferred members
Lump sum - The deferred lump sum
A long-term pension of 50% of member’s deferred pension
Children’s pensions may also be payable
Death after retirement benefits
Lump sum - If member dies within 5 years of starting to receive their pension, a lump sum amounting to the difference between 5 times the annual pension less any pension payments received is payable
Dependant's pension - 50% of member’s preserved benefit for the spouse
Children’s pensions may also be payable
Pension increases
In line with RPI, however not payable until age 55 (exception ill-health retirement and survivors' benefits)
Early leavers options
Transfer value - Available on request
Preserved pension
- Scotland - Allowed if member has completed more than 2 years pensionable service
- England & Wales - Allowed if member has completed more than 3 months pensionable service
Refund of contributions
- Scotland - If member has completed less than 2 years pensionable service a refund of contributions may be paid
- England & Wales - With effect from 1 April 2004 - If member has less than 3 months pensionable service a refund is payable
Active members at 1 April 2004 - if less than 2 years pensionable service will be entitled to a refund of contributions
Treatment of pension rights on divorce
Earmarking - The court can order the scheme to pay all or part of the pension and lump sum. The scheme will only make payments to the former spouse when a court order has specifically instructed them to do so. If the former spouse remarries, he or she will not receive payments in respect of the pension after date of remarriage, however this normally does not affect the lump sum
Pension sharing on divorce - The accrued pension rights are reduced by a percentage confirmed by the court. The former spouse is given rights in the scheme equal in value to the amount of reduction - known as the pension credit rights. There is the option to transfer the pension credit rights out of the LGPS.
Any research and analysis included has been provided by us for our own purposes and the results of it are being made available only incidentally.
Published 29 October 2004
Updated 28 October 2005
For professional advisers only
