Is the new scheme value for money for you?

The Local Government Pension Scheme (LGPS) changed on 1 April 2014. As well as factsheets, videos have been developed to explain the main changes to the LGPS. These can be found on your pension website as well as modellers for you to try out showing how pension accounts work and the contribution cost calculator.

Some members have considered the “value for money” aspect with the increased bandings, and the changed accrual (build up) rate and so overleaf are given a couple of examples for you to decide whether or not you feel this new scheme will give you an income in retirement that you feel is as affordable and “value for money”.

Remember, from 1 April 2014, the pension you acquire each year is “bought” as 1/49th of the salary you have earned and paid a pension contribution on.

Annual pension bought

If a member was on a salary of £24,500, they would pay 6.5% of their earnings which amounts to £1,592.50 per year before tax relief. - £1,274 after tax relief assuming they are a 20% tax payer.

The pension that would be “bought” each year would be 1/49 of the salary, and therefore equates to £500.

The pension in payment is guaranteed for 10 years.

Salary £24,500 X 1/49 = £500 payable per year

Cost = £24,500 X 6.5% =	£1,592.50
Less tax relief (£1592.50 X 20%	£  318.50
Actual cost =	£1,274.00

Guaranteed annual pension

If the annual pension is UNREDUCED:

£500 X 10 = £5,000

If the annual pension is REDUCED by 25% for early payment:

£375 X 10 = £3,750.00

Annual pension bought

If a member was on a salary of £17,500, they would pay 5.8% of their earnings which amounts to £1,015.00 per year before tax relief. - £812.00 after tax relief assuming they are a 20% tax payer.

The pension that would be “bought” each year would be 1/49 of the salary, and therefore equates to £357.14.

The pension in payment is guaranteed for 10 years.

Salary £17,500 X 1/49 = £357.14 payable per year

Cost = £17,500 X 5.8% =	£1,015.00
Less tax relief (£1015.00 X 20%)	£  203.00
Actual cost =	£  812.00

Guaranteed annual pension

If the annual pension is UNREDUCED:

£357.14 X 10 = £3,571.40

If the annual pension is REDUCED by 25%:

£267.86 X 10 = £2,678.60

It is for you as a scheme member to decide if you feel this scheme is the appropriate method for your "pension saving".

There are ways to increase the pension you will receive in retirement, and for those details please see the fact sheet Buying Additional Pension [add link?].