How we calculate your deferred benefits
The Local Government Pension Scheme (LGPS) is a defined benefit scheme. Your deferred benefits are calculated based on your pay and membership details. The contributions you and your employer paid in are used to fund the deferred benefits you will receive at retirement.
The exact method of working out your deferred benefits has changed over the years. This page explains how we calculate deferred benefits when you leave the scheme.
Deferred benefits built up after 1 April 2014
Since 1 April 2014, the LGPS has been a Career Average Revalued Earnings (CARE) scheme. Benefits built up before 1 April 2014 are only calculated when you leave the scheme or retire, but CARE benefits built up after 1 April 2014 are calculated and revalued each year.
CARE annual pension for membership built up after 1 April 2014 is worked out as 1/49th of your actual pensionable pay (or assumed pensionable pay if you were off sick or on certain child-related leave) for the year and adding it to your pension pot. The whole pot is then adjusted according to cost of living indices. This is called revaluation. This happens each year until your pension benefits are paid. The following example demonstrates how this works over a three-year period.
In year one, the actual pensionable pay was £21,599
£21,599 x 1/49 = £440.80
The cost of living adjustment for that year was 1.7%
We take the pension built up and multiply it by this figure.
The total at the end of the year is:
£440.80 x 1.7% = £448.29
In year two, the actual pensionable pay was £22,250
£22,250 x 1/49 = £ 454.08
Then we add this to year one’s balance:
£448.29 + 454.08 = £902.37
The cost of living adjustment for that year was 1.1%
So the total at the end of the year is:
£902.37 x 1.1% = £912.30
In year three, the actual pensionable pay was £20,329
£20,329 x 1/49 = £414.88
This is then added to year two’s balance
£912.30 + £414.88 = £1,327.18
The cost of living adjustment for that year was 2.4%
£1,327.18 x 2.4% = £1,359.03The total annual pension built up when the member leaves the scheme in year three is £1,359.03. This is the member’s deferred benefits.
When you leave, your deferred benefits built up after 1 April 2014 will continue to be revalued. The cost of living adjustment is linked to the 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 purchased APCs, or had a transfer in, those values will have been added to your deferred benefits and will also receive any cost of living adjustment. Your pension benefits built up after 1 April 2014 are payable without reductions at your State Pension Age.
Pension benefits built up before 1 April 2014
Deferred benefits built up before 1 April 2014 are calculated differently, this is because the LGPS was a final salary scheme and benefits were worked out according to final pay and membership. Benefits built up in the scheme before 1 April 2014 were only calculated when someone left the scheme or retired.
Calculating your membership for benefits built up before 1 April 2014
Membership was built up during your time as an active member paying into the scheme. If you worked part time, or term time only, you would not have built up membership as quickly as someone who worked full time. For example, if you worked for 1 year at 20 hours a week and your full-time hours were 37, we would calculate your membership as 365/37 x 20 = 197 days.
It is your employer’s responsibility to provide us with information about your hours and any changes which affect your membership build up. You can log into your My Pension Online account to check the hours we hold for you.
You may also build up membership because you have had a transfer into the scheme before 1 April 2014, or you purchased added years or additional pension.
Calculating your final salary
Your final salary is an average of your full-time equivalent pay for the period of 1 year up until your last date of employment plus any other pensionable pay under the regulations at the time. If you worked part time during your employment, this will not be reflected in the final salary figure.
For example, if your last day of employment was 31 October 2020, we use a final pay calculation for the period 1 November 2019 - 31 October 2020.
The full-time equivalent salary for the period 1 November 2019 - 31 March 2020 (5 months) was £23,200
We then proportion this by the months: 5/12 x £23,200 = £9,666.67
The full-time equivalent salary for the period 1 April - 31 October 2020 (7 months) was £24,500
We then proportion this by the months: 7/12 x £24,500 = £14,291.67
Then we add these two totals together:
£9,666.67 + £14,291.67 = £23,958.34
The final salary figure we would use in the calculation is £23,958.34.
It is the employer’s responsibility to provide us with your final pay. There are some additional protections to the final salary. We can use the highest of the last three year’s final pay, and if you had a pay drop after 1 April 2008, we can go back even further. This would have been performed when you left the scheme. Remember, a reduction in hours would not impact on the final pay, only a reduction in salary.
Calculating your final salary deferred benefits before 1 April 2008
Pension benefits before 1 April 2008 and between 1 April 2008 and 31 March 2014 are worked out differently.
Pension benefits built up before 1 April 2008 are calculated as: membership x final salary x 1/80
In addition to this, pension benefits before 1 April 2008, also included an automatic tax-free lump sum retirement grant.
For example, if you had 2 years and 30 days membership built up before 1 April 2008 and the final salary is £23,958.34, the pension benefits would be calculated as:
2 (years) + 30/365 (days) x £23,958.34 x 1/80 = £623.57
To calculate the lump sum retirement grant, you would multiply the annual pension figure by 3
Using the above example, this would be:
£623.57 x 3 = £1,870.71
The total annual pension built up before 1 April 2008 is £623.57 and the lump sum retirement grant is £1,870.71.
Calculating your final salary deferred benefits between 1 April 2008 and 1 April 2014
Pension benefits between 1 April 2008 - 31 March 2014 are calculated as:
membership x final salary x 1/60
For example, if you had 2 years and 30 days membership built up during this period, and the final salary is £23,958.34, the pension benefits would be calculated as:
2 (years) + 30/365 (days) x £23,958.34 x 1/60 = £831.43
The total annual pension built up between 1 April 2008 and 31 April 2014 is: £831.43
Cost of living adjustments will be made at retirement.
There is no automatic lump sum retirement grant attached to deferred benefits built up after 1 April 2008, but you may still be able to take one when you retire.
If you were actively paying into the scheme on 31 March 2012 and within 10 years of your Normal Pension Age and continued to pay in after 1 April 2014, your deferred benefits may have received underpin protection.
This protection was to ensure that when the scheme changed from a final salary scheme to a CARE scheme, you were no worse off under the new arrangements. Before calculating your deferred benefits, we would have checked if you were better off under the new scheme or the old scheme and worked out your deferred benefits using the method that was most beneficial for you.
The Underpin protection is due to change in the near future following a court of appeal ruling known as The McCloud Judgement which found these protections discriminated against age. The Underpin may now be extended to more members including those that have already left.
For the latest information on this situation, see The McCloud Judgement
Your total deferred benefits
The way pension benefits in the LGPS are calculated has changed over the years and your deferred benefits may have been calculated using one, two or three different methods depending on your dates of membership.
You can view the calculation of your deferred benefits using your My Pension Online account or look at your ‘notification of benefits’ statement supplied to you when you left.