Joining the LGPS

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Now's the time to be planning for your future, so you need to consider a pension.

Choose the Local Government Pension Scheme (LGPS) and have a head start.

That's because the Scheme is provided by your employer who pays a large part of the cost (1).

The Scheme is an important part of your employment package and is a valuable benefit on top of your pay.

How much does it cost you to join?

Let's look at the cost and benefits of joining the LGPS that apply from 1 April 2008.

The cost of being a member of the Scheme is less than you might think.

How much it costs you depends on how much you’re paid but it will be between 5.5 and 7.5% of your pay. The rate you pay depends on which pay band you fall into(2).

If you work part time, your rate will be based on the whole time pay rate for your job, although you will only pay contributions on the pay you actually earn.

Here are the pay bands that apply from April 2009
Band ranges normally increase each April in line with inflation, based on the Retail Price Index in the previous September. Since the September 2009 RPI was minus 1.4%, contribution bands remain unchanged for 2010.

It costs even less if you pay tax and National Insurance as you get tax relief on your contributions and pay a lower rate of National Insurance.

Lets take a look at someone who works full time at a pay rate of £20,000

They will pay 6.5% of their pay - that's around £108 a month - in contributions.
If they were to work half time, they would still pay the 6.5% rate. That's because the whole time rate for their job is still £20,000, but their contributions would be based on their part time earnings, so they would have £54 deducted.

The benefits of joining

The LGPS is one of the best ways to plan for retirement with an excellent range of benefits that both full time and part time employees can enjoy. These include, after 3 months in the Scheme:

A tiered ill health retirement package if you have to leave work at any age due to permanent ill health. This could give you benefits, paid straight away, and which could be increased if you are unlikely to be capable of gainful employment within 3 years of leaving.
Early payment of benefits if you are made redundant or retired on business efficiency grounds and you are aged 55 or over.
The right to voluntarily retire from age 60, even though the Scheme’s normal pension age is 65. You can even retire from as early as age 55, provided your employer agrees.
Flexible retirement from age 55 if you reduce your hours, or move to a less senior position. Provided your employer agrees, you can draw some or all of your benefits – helping you ease into your retirement.

If you choose to voluntarily retire before 65, or take flexible retirement before then, your benefits would normally be reduced to account for them being paid for longer.

You can even stay in the LGPS if you carry on working beyond age 65, although you have to draw your benefits by 75. Benefits drawn after age 65 will be increased.

There is also:

Life cover from the moment you join, with a lump sum of 3 years pay being paid if you die in service.
Cover for your family with a pension for your husband, wife, registered civil partner(3) or nominated cohabiting partner(4) and for eligible children if you die in service or die after leaving with a pension entitlement.

When you retire you can look forward to:

A pension for life that increases with the cost of living
You can exchange part of your annual pension for a one off tax free cash payment.

What's more it's a final salary scheme, which means your benefits are normally based on your final year's pensionable pay and the number of years you have been a member of the Scheme.

How are benefits worked out?

For each year in the Scheme you receive a pension of 1/60th of your final year's pensionable pay.

And if you want to take up a lump sum, you receive £12 lump sum for each £1 of pension given up. You can take up to 25% of the capital value of your pension benefits as a lump sum. Here's how it's worked out:

If you work full time:

Mrs A is 65 and has 20 years full time membership in the Scheme
Her final year's pensionable pay is £15,000
Her annual pension is: 20 years x 1/60 x £15,000 = £5,000
If she decided to give to give up £1,000 pension for a cash lump sum then her reduced annual pension is: £5,000 less £1,000 = £4,000
This gives her a tax free lump sum of £1,000 x 12 = £12,000

If you work part time your membership is reduced to reflect part time working but full time pay is used in the calculation:

Mr B is 65 and also has 20 years membership in the Scheme. He has always worked half time in a job with the same rate of pay as Mrs A.
His annual pension would be: 10 years x 1/60 x £15,000 = £2,500 because his 20 years membership is adjusted for half time working.
If he decided to give up £500 pension for a cash lump sum then his reduced annual pension is: £2,500 less £500 = £2,000
This gives him a tax free lump sum of £500 x 12 = £6,000

If Mr B's hours had changed during membership of the Scheme, his benefits would be calculated to reflect the change.

Look foward with confidence because...

You can look foward with confidence with the LGPS because:

contributions you pay today will provide you with retirement benefits based on your pensionable pay in the year you leave. This means the pension you build up during employment keeps pace with rises in your pay.
after retirement your pension increases with the cost of living.
your benefits are secure. They are set out in law.

And you can:

pay more to increase your benefits
ask to transfer previous pension rights into the Scheme

And something to think about...

When it's time for you to retire will the state pension alone offer the security you will need?
You can find our about your state retirement pension and how to request a state pension forecast from The Pension Service at www.thepensionservice.gov.uk
You can also request a state pension forecast by phoning the State Pension Forecasting Team on 0845 3000168.

How to join the LGPS

To join the LGPS you need a contract of employment that's for at least 3 months and be under age 75.

New employees who are eligible(5) are automatically brought into the Scheme, except for employees of admitted bodies(6) who can join by completing an application form. Employees who have previously opted out of membership can opt back into the Scheme.

If you are a new employee who is eligible to join the LGPS you should be given a Starter Pack by your employer. Please read the information in the Starter Pack and complete and return the enclosed forms without delay. If you previously opted out of the LGPS you can elect to rejoin by completing an opt in form.

Check your payslip deductions to make sure you are in the Scheme.

(1) Increases or decreases in the cost of providing the scheme may, in future, need to be shared between members and employers, in accordance with government guidance.

(2) The contribution rate for those manual workers who joined the Scheme before 1 April 1998 and were protected to pay contributions at a rate of 5% will be brought into line with all other Scheme members on a phased basis by 1 April 2011.

(3) A civil partnership is a relationship between two people of the same sex (“civil partners”) which is formed when they legally register as civil partners of each other.

(4) In order to nominate a cohabiting partner, your relationship must meet certain conditions.

(5) Employees of designating bodies (e.g. employers such as Town or Parish Councils) and employees of admitted bodies (e.g. employers such as charitable organisations or contractors who have applied to participate in the Scheme) can only join if their employer nominates them for membership of the Scheme.

(6) An admitted body is an employer that chooses to participate in the Scheme under an admission agreement. These tend to be employers such as charities and contractors.

Wiltshire Pension Fund, Wiltshire Council - Bythesea Road,Trowbridge, Wiltshire, BA14 8JJ.
© 2009 Wiltshire Pension Fund.

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