Annual pension income
One of the main benefits of your local government, firefighter or police pension scheme is that it provides you with a guaranteed annual income at retirement.
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What is an annual pension income?
When you retire, you’ll receive a guaranteed pension income each year for life. This is a fixed income which isn’t affected by the stock market, so there is no danger of it ever going down. But it is reviewed each year to keep it in line with inflation, which means it will continue to go up with the cost of living.
How is my annual pension income calculated?
Your pension income is worked out based on your earnings and how long you’ve been a member. It’s also adjusted annually to keep up with inflation.
The way your pension benefits are calculated has changed over the years. So, it also depends on when you joined the scheme as this will determine whether you are a member of a final salary pension scheme, a CARE pension scheme or a combination of the two.
Full details on how your benefits are calculated are also available in the LGPS scheme guide, which is available to download on our Forms, documents and scheme information page.
If you joined the Local Government Pension Scheme before 31 March 2014 (or a Police or Firefighters’ scheme before 31 March 2015), you will have been a member of a final salary scheme. This means your annual pension income for this period is calculated using your final year’s salary or your highest annual salary within the last three years of employment (your full-time equivalent pay is used if you worked part-time).
Your final salary refers to your earnings in the final year you contribute to the scheme or at the point you retire if you’re still a scheme member.
If you joined (or continued to pay contributions to) a Local Government Pension Scheme after 1 April 2014 (or a Police or Firefighters’ scheme after 1 April 2015), you will have been a member of a CARE scheme. If you were already contributing to the final salary scheme before these dates, you will have been automatically moved into the CARE scheme.
In a CARE scheme, your benefits are worked out based on your average salary throughout your career:
- Each year, a percentage of your annual salary is allocated to your pension account.
- Over your membership, these annual amounts add up to form your annual pension.
- The balance in your pension account is adjusted (revalued) annually to match inflation (based on the Consumer Price Index).
- Your annual pension income is based on the total value of your pension account when you retire.
If you paid into a final salary scheme and transitioned to a CARE scheme on 1 April 2014 (or 1 April 2015 for Police and Firefighter members) where you continued to pay contributions, your annual pension income is worked out slightly differently.
Here’s how this affects your annual pension income:
- The part of your pension you built up before the transition date is calculated using the final salary scheme rules.
- The part of your pension you built up after the transition date is calculated based on the CARE scheme rules.
- When you retire, your total annual pension income will be a combination of final salary benefits and CARE benefits.
Click on your scheme below to see how it works
During this period, the LGPS was a final salary scheme.
- Your pension income is calculated based on 1/80th of your final pay for each year of membership (or your ‘full-time equivalent’ pay if part time).
- The highest pay figure from the last three years of employment is used for the above calculation.
- You are also entitled to an automatic lump sum equal to three times your annual pension income (based on your benefits built up before 1 April 2008 only).
During this period, the LGPS was a final salary scheme.
- Your pension benefits are calculated based on 1/60th of your final pay for each year of membership (or your ‘full-time equivalent’ pay if part time).
- The highest pay figure from the last three years of employment is used for the above calculation. Or, if it’s higher, the average of the best consecutive 3 years in the last 13 years of employment (after inflation adjustments).
- You are not entitled to an automatic lump sum during this period, but you have the option of converting up to 25 per cent of your pension benefits into a tax-free lump sum.
On 1 April 2014, the LGPS became a Career Average Revalued Earnings (CARE) scheme.
- Each year you pay into the LGPS, 1/49th of your pensionable pay is added to your pension account (or 1/98th if you are a member of the 50/50 section).
- If you have multiple jobs, you’ll have separate pension accounts for each employment.
- When you retire, the total amount of pension you have built up each year is added together to calculate your pension income.
- The balance in your pension account is adjusted annually to match inflation (based on the Consumer Price Index).
- You are not entitled to an automatic lump sum during this period, but you have the option of converting up to 25 per cent of your pension benefits into a tax-free lump sum.
In some situations, your employer may put protections in place to make sure your pension is not adversely affected by pay reductions.
The protections work in one of two ways. By taking your highest pay figure from the last three years of employment to calculate your Assumed Pensionable Pay (APP). Or, if it’s higher, by taking the average of the best consecutive three years in the last 13 years of employment (after inflation adjustments).
Examples of when pay protection may apply
- Your pay was reduced to ensure equal pay in relation to other employees of your employer.
- Your pay was reduced as a result of a job evaluation exercise.
- Your pay was reduced due to a change in your employment contract and payments or benefits (specified as pensionable emoluments) either ceased, reduce or were restricted.
- The rate at which your pay increased was restricted in a way that adversely affected your retirement pension.
Examples of when pay protection may not apply
- The reduction started more than 10 years before your last day as an active member (paying into the pension scheme).
- The reduction immediately followed the end of a temporary post on a higher rate of pay.
- The reduction was a choice made for the purpose of taking flexible retirement.
If your pay has been reduced due to sickness, the final pay figure used to calculate your pension is the pay you would have received had you not been sick.
Likewise, to prevent pension loss, an Assumed Pensionable Pay (APP) figure is used. This notional pay ensures that your pension benefits continue to accumulate as if you were working normally. The APP is calculated based on your average pensionable pay in the three months before any pay reduction.
Full details on how your benefits are calculated are available on the LGA website or in the FPS scheme guide.
The 1992 scheme is a final salary scheme.
- Your pension income is calculated based on 1/60th of your final pensionable pay for each year of membership (or your full-time equivalent pay if part time).
- After 20 years of paying into the scheme, this rate changes to 2/60ths each year (known as double accrual).
- Each day of membership (pensionable service) counts as 1/365th of a year. The maximum pensionable service that can be built up is 30 years.
- Usually, you also have the option of converting up to 25 per cent of your pension benefits into a tax-free lump sum. If you retire before age 55 with between 25 and 30 years of service, you can convert up to 2.25 times your annual pension income.
The 2006 scheme is a final salary scheme.
- Your pension income is calculated based on 1/60th of your final pensionable pay for each year of membership (or your full-time equivalent pay if part time).
- Each day of membership (pensionable service) counts as 1/365th of 1/60th. The maximum pensionable service that can be built up is 45 years.
- You also have the option of converting up to 25 per cent of your pension benefits into a tax-free lump sum.
The 2006 Special members scheme is a final salary scheme.
- Your pension income is calculated based on 1/45th of your final pensionable pay for each year of membership.
- Each day of membership (pensionable service) counts as 1/365th of 1/45th. The maximum pensionable service that can be built up is 30 years.
- You also have the option of converting up to 25 per cent of your pension benefits into a tax-free lump sum.
The 2015 scheme is a CARE scheme.
- Every year, 1/59.7 of your pensionable pay is added to your pension account.
- The balance in your pension account is adjusted (revalued) annually to match inflation (based on Average Weekly Earnings Index).
- When you retire, the total amount of pension you have built up each year is added together to calculate your pension income.
- You also have the option of converting up to 25 per cent of your pension benefits into a tax-free lump sum.
What if I moved or transitioned schemes?
If you moved into the 2015 scheme, you will receive a two-part pension – one part from your original final salary scheme (1992 or 2006) and the other from your 2015 scheme. The rules of each scheme apply separately to each part of your pension and there are some special transitional rules on how your benefits are calculated.
If you have 1992 or 2006 benefits, your retirement options are covered by the age discrimination remedy (McCloud). Learn more about Remedy here.
Full details on how your benefits are calculated are available in the PPS scheme guide.
For each year of membership up to 20 years, your pension income is based on 1/60th of your average pensionable pay.
- For each year over 20 years, your pension income is based on 2/60ths of your average pensionable pay (up to a maximum of 40/60ths).
- For any incomplete years, each day counts as 1/365th of a year in this calculation.
- Usually, you also have the option of converting up to 25 per cent of your pension benefits into a tax-free lump sum. If you retire before your compulsory retirement age with between 25 and 30 years of service, you can convert up to 2.25 times your annual pension income.
- For each year of membership, your pension is based on 1/70th of your average pensionable pay (up to a maximum of 35 years).
- For any incomplete years, each day counts as 1/365th of a year in this calculation.
- You are entitled to an automatic lump sum equal to four times your annual pension income.
- You also have the option to swap all or part of your lump sum to increase your annual pension income (known as inverse commutation).
The 2015 scheme is a CARE scheme.
- Each year, 1/55.3 of your pensionable pay is added to your pension account.
- The balance in your pension account is adjusted (revalued) annually to match inflation (based on the Consumer Price Index plus 1.25%).
- When you retire, the total amount of pension you have built up each year is added together to calculate your pension income.
- You also have the option of converting up to 25 per cent of your pension benefits into a tax-free lump sum.
Please note
If your pension benefits are affected by the age discrimination remedy (McCloud/Sargeant) judgement, your benefits will be re-calculated and we will contact you directly with your options.
For more information, please visit our dedicated remedy page
Can these calculations change?
We calculate your benefits based on information your employer passes to us. So, if they provide us with further information after the original calculation, (like changes to your working hours or pay), we adjust them accordingly.
After receiving your first pension payment, your pension benefits won’t change other than any inflation related increases.
How and when is my pension income paid?
Your pension income is paid monthly.
Depending on the day of the month you start to take your pension, you will receive your first payment either at the end of the current month or the following month. This will include any arrears dating back to your retirement date.
