Employee contributions

Pension contributions are deducted from pay before tax. This means that for an employee who pays tax at 20%, every £1 contributed to the scheme actually only costs 80 pence of net pay. In addition prior to 6 April 2016 members paid a lower rate of National Insurance as the LGPS was contracted out of the State Second Pension (S2P) (formerly known as SERPS).

Everyone is entitled to receive the basic state pension, subject to the National Insurance contributions they have paid throughout their career, and any individual who pays national insurance contributions at the not-contracted-out A rate qualifies for a "top-up" to the basic state pension, from the State Second Pension (S2P). As previously mentioned, the LGPS is contracted-out of S2P. Instead of paying a higher rate of National Insurance contributions a member of the LGPS pays pension contributions in order to provide an alternative pension to that provided by S2P. The LGPS guarantees that the pension contributions paid will provide a LGPS pension at least equivalent to that provided by S2P and, in most cases, a good deal better than S2P.

Members of the Scheme between 6 April 1978 and 5 April 1997 accrued a Guaranteed Minimum Pension (GMP). The GMP is the minimum amount of pension that would have been paid by the additional part of the State Scheme (SERPS now S2P) had not-contracted-out National Insurance Contributions been made to the State Scheme instead of pension contributions being made to the LGPS.

A GMP becomes payable from State Pension Age and is split into 2 elements, pre 6 April 1988 and post 5 April 1988. The GMP is not an additional amount to the benefits paid by the LGPS but forms part of those benefits. All increases due on the pre 6 April 1988 GMP are paid by the Department of Work and Pensions (DWP) as part of the State benefit. Increases of up to 3% on the post 5 April 1988 are paid by the LGPS. Where the increase due is more than 3% the balance is paid by the DWP.

With effect from 6 April 2006 ("A" Day) a new tax system for all pension schemes, including the LGPS, was introduced. All previous tax rules and regulations have been replaced with a single set of rules giving pension scheme members greater choice and flexibility in how they wish to save for retirement. 

It is now possible for individuals to pay more towards their retirement and to save into more than one pension scheme at the same time. As a result of this change in tax rules the regulations governing the LGPS were amended to take account of over-riding tax legislation.