When you retire:
- For service up to 31 March 2009, you will receive a tax-free lump sum from the Local Government Pension Scheme (LGPS), followed by regular pension payments.
- For service after 1 April 2009 you will receive a pension, part of which can be taken as tax free cash.
If you’ve paid enough national insurance contributions over your working life, you’ll also receive the basic State Pension at State Pension Age.
You can the benefit calculator to estimate your LGPS benefits.
Benefit statement
Every year you will receive a benefit statement, which indicates what you may be due if you retire immediately, and at 65. Going part-time, getting a pay rise, retiring early and many other factors can affect what you’ll finally get.
How is your pension calculated?
Your pension is based on your pensionable service (how long you’ve been a member of the LGPS) and your final pay (your pay in your last 365 days of work).
For most people, for service up to 31 March 2009, your annual pension is worked out by dividing your final pay by 80 (60 for service after 31 March 2009) and multiplying this by your total membership.
If you’ve been working part time, your pensionable service is reduced in proportion to the hours worked, while your final pay is scaled up to the full time equivalent. For example, if you’ve worked 30 years at exactly half time, and you are paid £8,100, then for the sake of the calculation your total membership is considered to be 15 years and your final pay is considered to be £16,200.
When you’ve retired - unless you retire early - your pension will increase every year in line with rises in the cost of living.
How is your lump-sum payment calculated?
The lump sum, which is automatically paid when you retire for service up to 31 March 2009, is three times your annual pension and is tax-free. To work out your lump sum, divide your final salary by 80, multiply this by your total membership, and then multiply the final figure by 3. If you’ve been working part time, your pensionable service is reduced in proportion to the hours worked and your final pay is scaled up to the full time equivalent, as above.
You can choose to reduce your annual pension in order to get a bigger lump sum. For every £1 you take off your annual pension, you increase your lump sum by £12.
This isn’t for everyone, because you will have less to live on each year unless you invest your lump sum in a way which gives you a regular income. Remember to consider taking financial advice.
Example pension and lump sum calculation
Retiring at age 65 on 31 March 2011, a scheme member has 32 years and 73 days (73/365 days = 0.2 years + 32 years = 32.2 years) total membership and has a final pay of £16,200. 2 years service will be in the new LGPS.
The annual pension from the old LGPS is:
£16,200 / 80 = 202.5
202.5 x 30.2 = £6115.50
The lump sum from the old LGPS is:
£16,200 / 80 = 202.5
202.5 x 30.2 = 6115.5
6115.5 x 3 = £18,346.50
The annual pension from the new LGPS is:
£16,200 / 60 x 2 = £540.00
More information
A Guide to the LGPS provides full details of all aspects of the LGPS. If you would rather receive a copy by post, contact us.