Pensions Home

Like the current LGPS, the new scheme is based on your final salary when you retire. The amount of pension you earn is dependant upon your final salary, the number of years you have been a member of the pension scheme and the accrual rate of the scheme.

The accrual rate determines how fast your pension grows. In the new scheme the accrual rate is being improved and will be 1/60^th of pensionable pay. This means that to earn a pension of half your final salary you would need 30 years membership of the pension scheme. In the current scheme, where the accrual rate is 1/80^th, you would need 40 years membership to achieve the same pension.

However, the new LGPS allow you to commute (or transfer) some of your pension into a lump sum - up to a maximum of 25% of your pension. The commutation (transfer) rate is 1:12, meaning that for every £1 you transfer from your pension, you will receive a lump sum of £12.

Partner pensions will be extended to include nominated cohabiting partners. The Heads of Agreement paper highlights the criteria to determine whether a nominated cohabiting partner would receive a pension.

1. The new scheme will increase death in service benefit to three times final salary. Other changes include:

1. a) in the case of death of deferred scheme members, the lump sum will be increased to 5 times pension; and
2. b) in the case of death of pensioner scheme members, the lump sum will be increased to 10 times pension, less any pension already paid, if a pensioner dies before age 75.

The new LGPS will provide enhanced ill-health early retirement benefits to those who are permanently incapable of doing their current jobs, and have a reduced likelihood of ‘gainful employment' before the normal retirement age.

Those who have no reasonable prospect of gainful employment will have their benefits calculated on the basis of their full potential service up to the normal retirement age (65); a lower-level enhancement, taking account of 25 per cent of prospective service, will apply to those with a reasonable prospect of gainful employment. Gainful employment is described as paid employment for not less than 30 hours a week, for a period of at least a year.

There will also be a third tier of ill-health compensation, outside the LGPS, under the Local Government (Discretionary Payments and Injury Benefits) (Scotland) Regulations 1998. This would come from a discretionary employer lump sum for a person who would be capable of undertaking further gainful employment. It will be calculated on one week's pay for each year of service up to a maximum of 30 weeks' pay. This payment will be made by the employer, at their discretion, rather than by the pension fund. Up to a maximum of £30,000 the payment would be tax free. Permanent incapacity is not required to be eligible for this payment.

Whilst keeping the current provisions for flexible retirement, the new scheme will provide increased flexibility through the ability to draw down part or all of your pension while still working.

Another improvement is the updated Actuary Tables used to determine any reduction in pension and lump sum if members retire early. The table below highlights the reduction factors that would be applied in cases of early retirement.

Percentage Reduction in Accrued Retirement Benefits

What is the Minimum Pension Age (MPA)?

The MPA refers to the age at which you can first draw your pension.

The Finance Act 2004 introduced an MPA of 55 for occupational pension schemes, including the LGPS.

Therefore, the Minimum Pension Age for early retirement (other than on ill health) will be 55 years for new entrants from 1 April 2009; those who are already members will retain their age 50 NMPA until April 2010, when the tax rules change (except for those who are retired on redundancy or efficiency grounds and who have a protected pension age).

The new LGPS will have a fairer contribution scale with most staff paying less and contributions more closely linked to earnings.

This includes a tiered system of employee contributions in which members pay one contribution rate on the first part of their earnings, a higher rate on the next chunk, and so on - similar to the income tax system.

This means that everyone will pay 5.5% on the first £18,000 they earn, and as a salary rises different contribution rates are applied to each pay band. It also has to be remembered that the tax bands (as highlighted in the Heads of Agreement) do not include tax allowances. These reduce the real level of contributions that members will make to the LGPS. Some examples are shown in the table below.

Overall Equivalent Contribution Rates (Illustrative)

Members contributions to the scheme will rise slightly on average (from 6% to 6.3%) but they will now be on a tiered rate so that pension contributions increase as salary increases. Lower paid staff - up to 60% of local government who earn less than £23,600 - will end up paying less than they do at present.

For part-time staff allocation to tiers is according to whole time equivalent pay. This is because the final pension is calculated on the basis of whole time equivalent pay. Pensionable service is of course still pro rata i.e. a member working half time for 10 years would have 5 years service.

Overall the average new scheme costs are estimated at 19.6% with employee contributions averaging 6.3%, and employers making up the difference.

All members will transfer to the new scheme on 1^st April 2009, and start to accrue pension benefits at the new rate.

Their existing pensions will be protected, and at retirement, two pension calculations will be carried out - one for each scheme.

Transitional protection will be in place for those members who were eligible for the Rule of 85 and will reach age 60 before 31 March 2020.