Local government pension schemes (LGPS)

As far as pension schemes go, the LGPS is a cracker. So, if you’re a member it’s happy days! As a statutory public service scheme, the benefits and terms for members are excellent, secure and set out in regulations passed through Parliament. You’ll receive a guaranteed retirement pension based upon your length of service and your income.

LGPS pension principles

• You’re required to pay into the scheme, but the great news is you get tax relief on top from the government. Your employer must pay in money too.
• As a member, whether past and present, you’ll have an account within the scheme which provides benefits for everyone. They will take care of everything for you and appoint advisers to manage the scheme and its investments.
• There’s plenty of flexibility on offer too. You can take your pension and tax-free cash at your State Pension age (normally 66) or at any age between 55-75. If you retire early, they’ll reduce the amount you receive.
• Once in payment, your pension will be increased annually to help with increases in the cost of living, which is always welcome!

How does the LGPS differ from other pensions?

The biggest difference is that the LGPS offers guarantees that apply to the amount of pension, and any tax-free cash you’ll receive when you retire.

The appeal of the LGPS is that you’re not directly affected by stock markets and how they’re doing. You’ll know exactly where you stand every year. It’s reassuring to know that the amount of income you’ll receive is fixed, likewise your take tax-free cash if you choose to take any.

This certainty of what you might receive is great compared to other types of pensions where your retirement income and tax-free cash are dependent upon how much is paid in and how well your savings grow. These are known as money purchase or defined contribution schemes.

We all know that stock markets can go up and down. For money purchase schemes that are mostly invested in stocks and shares, this means how much your pension pot is worth each year goes up and down too. Similarly, the income you’ll get to live on in retirement can vary.

Build up those benefits!

Each year your LGPS will send you a statement showing how much benefit you have built up since joining the scheme. The annual benefit that’s credited to you is a fraction, for example 1/49th of your pensionable pay. Now, that doesn’t sound a lot, does it? Actually, that’s pretty valuable and over the years those little fractions will add up to nuggets of pension gold.

When you retire, the LGPS will multiply the number of 1/49th benefits you’ve earned by the average of your salaries during your service and hey presto, that will be your pension income.