Basic scheme information - especially helpful if you have just started employment
This page includes some very basic information on the Local Government Pension Scheme (LGPS). If you would like more detailed information, have a look at our Employee Guide to Pensions. Since May 2003 there have been some changes to the Employee Guide; both the original document and the changes can be found under Current Documents.
Basic Scheme Information
Introduction
When most people first start working, a retirement pension is one of the last things they think about. As you get older and take on more responsibilities, you may begin to wonder how you will manage when you come to retire or what would happen to your family if anything happened to you. If you leave it too late there may not be time to build up a pension to meet your retirement needs.
It is never too early to start a pension. If you become a member of the Local Government Pension Scheme (LGPS), you will belong to a scheme that provides access to high-quality pension benefits based on final pay.
Please remember this is only a brief introductory guide. It is not an interpretation of the scheme regulations. The scheme regulations will be used to reach a decision in any dispute or disagreement.
The LGPS is available for all local government employees in England, Wales and Scotland including those employees who are entitled to join the scheme under an admission agreement agreed with the local administering authority. It is also open to non-teaching staff of self-governing schools and further and higher education colleges. The LGPS is set up by law, and benefit levels are set in legislation passed by Parliament. It is a contracted-out tax-free pension scheme. It meets the requirements of both the Department for Work and Pensions (formerly known as the Department of Social Security) and the Inland Revenue, because it provides benefits at least the value of the state scheme, and within limits set by Parliament. This means that you pay reduced national insurance contributions and you receive tax relief on your contributions.
The LGPS is run locally by The Highland Council, which is the administering authority. As a member of the LGPS your benefits are guaranteed by law. To meet this guarantee, The Highland Council controls a pension fund that must be run completely separately from any other local government finances. Unlike personal pensions, your benefits are not affected by how well investments perform. As a "final salary" scheme, you are guaranteed to receive benefits based on your pay in your last year of membership and on the length of time you have been a member.
Explanation of Terms
Some terms that are used in this leaflet are explained below. Throughout the text, these terms are shown in bold..
Contracted-out and Contracted-in
As well as providing a flat-rate pension, the Department for Work and Pensions is also responsible for working out and paying pensions under the State Second Pension Scheme (S2P). S2P provides the equivalent of an occupational pension related to pay. The LGPS is a contracted-out pension scheme. During your period of membership in the LGPS, you will not earn a pension from S2P. To be contracted-out, the scheme had to guarantee to pay you a pension at least as good as or better than S2P.
Pensionable pay
This is your normal salary plus any shift allowance, bonus, contractual overtime (overtime which you must work as part of your terms of employment), Statutory Sick Pay and Statutory Maternity Pay. Pensionable pay does not include overtime you choose to work, travelling or subsistence allowance (a portion of wages paid in advance to cover immediate needs), pay instead of notice, pay instead of holidays, the value of a car or pay received instead of a car.
Final pay
This is normally the pensionable pay you earn in the last year before you retire, or one of the previous two years' pensionable pay if that is higher. If you work part time, the figure used to work out your pension benefits is the pensionable pay you would have received if you had worked full time.
Actuary
An actuary is a professionally-qualified independent person who the administering authority asks to value the fund. The actuary makes sure that there is enough money in the fund to guarantee the payment of your pension and the pension of any eligible dependants you have.
Joining or Leaving the LGPS
To be able to join the scheme, you simply have to work for a local authority or an employer who is allowed to be part of the scheme. You will automatically become a member of the scheme unless you choose not to or unless you are employed on a casual basis. When you start working, if you are employed on a casual basis, you will have to ask to join. You are also eligible to join the scheme if you work occasionally and your pay depends on duties rather than the number of hours you work. You must be under 65 to join the scheme. It does not matter what hours you work.
You cannot join the scheme if you are eligible to join another public service scheme, like those run for teachers, police officers or firefighters. If you currently contribute to a personal pension plan or stakeholder pension scheme and decide to join the LGPS, then you should immediately inform the administrators of your personal plan or stakeholder pension scheme that you have joined your employer's contacted-out occupational pension scheme. You may, if you wish, be able to continue to make your own contributions to a stakeholder pension scheme or to a personal pension plan. You should check the position with the administrators of your stakeholder or personal pension plan.
Once you have joined the scheme, you can stay a member until you leave your job or you decide to leave the scheme. To leave the scheme you must formally write to your employer, giving the date you want to end your membership. If you do not give a date, your membership will end from the end of the current payment period. If you choose to leave the scheme, there will only be limited chances for you to rejoin in the future.
If you elect to join, not to join or leave the scheme, you should send your written election to the Finance Service/Department of the Council or other body who are or will be employing you.
If you wish to opt out then an opt out leaflet (66kb) and a FSA guide on The Risks Of Opting Out Of Your Employer's Pension Scheme (187kb) are available here.
Your Contributions
All new employees joining the scheme for the first time after 1 April 1998 will make contributions of 6% of their pensionable pay. If you were previously a member of the scheme paying 5% contributions, and you were not out of work for longer than one month and a day, your contributions might only be at the rate of 5%.
The amount you must pay is less than 6% (or 5%) because you will receive tax relief on your contributions. This means, for example, that if you are paying 22% tax, every £1 you contribute will only cost you 78p from the pay you take home. There is an extra saving of 1.6% because you pay lower rate national insurance contributions but some married women who can still pay reduced rate national insurance contributions do not get this extra saving.
Contributions by your Employer
Your employer also pays contributions to meet the total cost of your pension. An actuary decides, every three years, by an independent assessment of the fund, the amount your employer must pay.
Transferring Other Pension Rights into the Scheme
If you have previously paid into a company, occupational or personal pension scheme you may be able to transfer the benefits you have built up into the LGPS.
Benefits
The LGPS provides a full range of benefits, including the following:
A guaranteed pension based upon your final pay and how long you have been a member of the scheme.
A tax free lump sum of three times your yearly pension.
Life assurance cover of at least twice your yearly pay from the day you join the scheme.
Pensions for your husband or wife and your children.
Enhanced pension and lump sum if you have to stop work early because you are ill.
A pension that will increase each year in line with inflation.
Benefits that can be paid from age 50, subject to your employer’s consent.
A deferred pension and lump sum if you leave before retirement with at least two years scheme membership (or a transfer in from another pension arrangement).
The option of taking a refund of your contributions if you have less than two years scheme membership (with no transfer in from another pension arrangement).
The opportunity to transfer the total value of your benefits to another pension scheme.
Paying more to increase your benefits
There are three ways through the LGPS in which you may be able to improve your basic benefits by choosing to pay up to an extra 9% of your pay.
- You can buy added years.
- You can pay Additional Voluntary Contributions.
- You can pay Shared-Cost Additional Voluntary Contributions.
Added years
You may be able to buy an extra period of membership to bring your total membership up to a maximum of 40 years.
Additional voluntary contributions (AVCs)
You can pay additional contributions into an AVC fund. This money is invested separately from the scheme’s main fund and will be used to increase your yearly pension. You can also pay AVCs to increase your death in service benefits.
Shared-cost additional voluntary contributions
If your employer has set up a shared-cost additional voluntary contributions arrangement, and you join, your employer may decide to share the cost of an AVC arrangement with you.
Enquiries
The Highland Council’s Pension Section is available to answer any questions you may have. Click here to find out how to contact us.