Upcoming telephone line downtime – 24 September
Please be advised that our telephone lines will be unavailable from 12:30pm on the afternoon of 24 September due to a scheduled staff training event. We appreciate your understanding.
Information on how changes in your job may affect your pension benefits
As a Career Averaged Revalued Earnings (CARE) pension scheme the pensionable pay received by a scheme member is crucial in determining the level of pension benefits that the member will receive. In addition, a member who contributed to the Scheme before 1 April 2014 will have their benefits built up to 31 March 2014 based on their final pay when they come to leave their pensionable employment or retire from the Scheme.
Whilst a scheme member's final pay will normally be the pensionable pay received during the last year of employment this is not always the case and in such instances, there are various options available to the scheme member as to how their final pay is calculated for the purposes of determining their pension benefits.
It is important to first refer to the scheme regulations with regard to the meaning of both pensionable and final pay.
The Local Government Pension Scheme Regulations 2013 sets out the meaning of pensionable pay:
An employee's pensionable pay is the total of:
a) all the salary, wages, fees and other payments paid to the employee, and
b) any benefit specified in the employee's contract of employment as being a pensionable emolument.
But an employee's pensionable pay does not include:
a) any sum which has not had income tax liability determined on it;
b) any travelling, subsistence or other allowance paid in respect of expenses incurred in relation to the employment;
c) any payment in consideration of loss of holidays;
d) any payment in lieu of notice to terminate a contract of employment;
e) any payment as an inducement not to terminate employment before the payment is made;
f) any amount treated as the money value to the employee of a provision of a motor vehicle or any amount paid in lieu of such provision;
g) any payment in consideration of loss of future pensionable payments or benefits;
h) any award of compensation (excluding any sum representing arrears of pay) for the purpose of achieving equal pay in relation to other employees;
i) any payment made by the Scheme employer to a member on reserve forces service leave;
j) returning officer, or acting returning officer fees other than fees paid in respect of:
(i) local government elections,
(ii) elections for the National Assembly for Wales,
(iii) Parliamentary elections, or
(iv) European Parliamentary elections.
As far as calculating the final pay linked to benefits built up before 1 April 2014 the conditions as set out in the Local Government Pension Scheme Regulations 2008 still apply as follows:
The options that are available do somewhat rely on the employee's own personal circumstances and this is by no means an exhaustive list:
Option 1 - Use the best final salary out of the last three years pay (regulation 8(2))
This option will be of particular importance to employees who are within three years of retirement, whether that be age 60 or Normal Pension Age or somewhere in between (subject to the 85-year rule). If a member is more than three years from retirement this option is of no use.
Option 2 - use the best consecutive three years in the last thirteen (regulation 10(4))
This option will be of interest to members who are within 10 years of retirement at the point from which their pay is reduced but more than 3 years from retirement. If they fall into this category the member can elect, in writing, to have a previous rate of pay used to calculate their benefits.
Option 3 - Defer accrued benefits to date and start again
If a scheme member will not be protected under options one and two above they can elect to defer their accrued benefit to date based on their pay before any reduction is applied and then continue to contribute to the scheme on their lower pay thereby accruing further benefits.
There are some considerations to take into account however, when choosing this option:
Where a member suffers a reduction in pay for whatever reason it would be advisable for the member to contact the pension team to discuss the options available to him. Each scheme member will have individual circumstances that only the pension administrators will have access to and which will be important to the member when making certain decisions.
LGPS benefits built up before 1 April 2014 are calculated using a member's full-time equivalent rate of pensionable pay. If a member reduces their hours but not their grade, their final pay will be unaffected.
The 85-year rule states that where a scheme member's age in whole years when added to scheme membership in whole years equals 85, that is the point from which benefits can be released without an actuarial reduction being applied. If the 85-year rule is achieved before the age of 60, the member must obtain their employer's consent to release their benefits immediately.
The 85-year rule does not apply to all scheme members and some scheme members have different protections under this rule to others.