Our knowledgeable advice team delves into the professional and safeguarding risks linked to going above and beyond for pupils and their families and provides the second instalment of our series on the Local Government Pension Scheme.
Unlocking the Local
Government Pension Scheme:
Benefits, discretions and resolution paths
KATE ATKINSON,
NAHT NATIONAL SECRETARY (ADVICE)
KATE ATKINSON,
NAHT NATIONAL SECRETARY (ADVICE)
This article is the second part in a series looking at the Local Government Pension Scheme (LGPS). It concentrates on how benefits build up, how employers can exercise certain discretions and how to complain if something has gone wrong. Did you miss part one? Read it here.
What sort of pension do I have?
The LGPS is what’s called a ‘defined benefit’ pension. The rules of the scheme set out the benefits you receive and the amount you need to pay to be a member – the rules of the LGPS are set out in a statutory instrument.
Your benefits will be based on the calculations outlined in the scheme's rules, so you don’t need to worry about how well your pension fund’s investments are doing because they are obligated to pay you the pension promised under the rules.
How are my benefits built up?
The LGPS is a career average scheme (this is a type of defined benefit scheme), which means your benefits are based on the pay you earn in each individual year. If you have historic benefits in the LGPS, they will have built up differently; however, the career average method governs current benefit accrual in the scheme.
You will receive a pension of 1/49th of your pensionable pay for each year of membership. At the end of each year, your pension is adjusted to take into account the cost of living. The same thing then happens for each year of membership.
So, very broadly, if you earn £40,000 in a scheme year, you will receive at your normal retirement age a pension of £816 (adjusted to take into account the cost of living) every year for life in respect of that historic year’s pension entitlement. ‘Normal retirement age’ is the state pension age.
You will also have the option of giving up some pension to provide a tax-free lump sum. You can convert £1 of pension into £12 of lump sum up to 25% of the capital value of your pension benefits.
50/50 section
Members of the LGPS can elect to pay 50% of their pension contributions into the pension scheme in exchange for 50% of the pension benefits.
This flexibility may be useful during financial hardship because it allows you to remain in the scheme, building up pension benefits as an alternative to opting out. However, it will mean that your pension will be less valuable when you retire.
Discretions
Your employer and pension fund can decide how to apply certain provisions in the LGPS – these are called discretions.
They must decide how to exercise these discretions and have a written policy. This means that your employer must have written guidelines on whether it will do the following:
• Allow flexible retirement
• Award additional pension
• Pay towards the cost of additional pension
• Waive any reductions if your pension is paid early.
Your employer and pension fund must act with ‘prudence and propriety’ in making their policies. They must keep those policies under review. You can ask your employer or your pension fund what their policy is concerning discretion.
Who can help you if you have a query or complaint?
If you are in any doubt about what you are entitled to in the LGPS or have a problem or question, contact your pension fund.
If you have a query about your contribution rate, contact your employer’s HR or payroll section. They can explain how they have decided which contribution band you are in.
If you are dissatisfied with any decision made about the LGPS or a failure to make a decision, you can complain. Your complaint will be reviewed under the scheme’s internal dispute resolution procedure. Other regulatory bodies may be able to help you too.