How your pension builds up

The contributions you and your employer pay are used to fund your pension benefits, but they are not used to calculate your pension. The LGPS is a defined benefit pension scheme which means your pension is calculated according to a set formula and is based on your pay and how long you pay in.

The LGPS pension is calculated differently before and after 1 April 2014. For information about how you pension builds up before 1 April 2014, see if you were in the scheme before 2014.

Since 1 April 2014, the LGPS has been a Career Average Revalued Earnings (CARE) scheme.

CARE pension is calculated on an annual basis, using the following formula:

This is then added to your pension account, and the entire pension pot built up after 1 April 2014 is then adjusted according to cost of living.

Here is an example showing how LGPS pension builds up over a three-year period.

In year one, the pensionable pay is: £21,599

So we work out the pension build up for the year as:

1/49 x £21,599 = £440.80

This is then multiplied by the cost of living adjustment which is 1.7% for this year, giving us the final pension pot total:

£440.80 x 1.7% = £448.29

In year two, the pensionable pay is: £22,250

Once again, we work out the pension build up for the year:

1/49 x £22,250 = £ 454.08

This is then added to the balance from year one:

£448.29 + £454.08 = £902.37

The entire pension pot is then multiplied by the cost of living which is 1.1% for this year, giving us the final pension pot total:

£902.37 x 1.1% = £912.30

In year three, the pensionable pay is: £20,329

1/49 x £20,329 = £414.88

This is then added to the balance at the end of year two:

£912.30 + £414.88 = £1,327.18

The entire pension pot is then multiplied by the cost of living adjustment which is 2.4% for this year, giving us the final pension pot total:

£1,327.18 x 2.4% = £1,359.03

Your LGPS pension will continue to build up in this way until you stop paying into your pension.

As we use pay to work out your pension, if your pensionable pay increases, so will the amount that is added to your pension. If your pay reduces, perhaps because you decide to go part-time, you will build up less pension that you would going forward.

However, any pension you have already built up after 1 April 2014 before the pay change occurred will not be impacted by a change of pay.

For more information see how a pay drop affects your pension.

If you leave your employment, and don’t take your pension or have not yet reached pensionable age, your deferred pension will continue to be adjusted according to the cost of living until you start to take it.

The cost of living adjustment is linked to Consumer Price Index (CPI) and the adjustment varies each year. Though it doesn’t happen often, the revaluation can be a negative figure.

If you paid towards an Additional Pension Contributions (APC) plan, or had a previous pension which was transferred in, that additional pension will be added to your pension pot and also receive cost of living adjustment.