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The Local Government Pension Scheme (LGPS) is a statutory scheme, the provisions of which are under constant review. This site aims to keep you informed of the most recent developments to the Scheme, and to advise you of any expected developments. For further information see the pensions section of the employers organisation site at www.lge.gov.uk or the national LGPS site at www.lgps.org.uk or the Department for Communities and Local Government site at www.communities.gov.uk/lgps

Recent Changes to the Scheme

2011/12 Tax Restrictions and aggregation of benefits

Under HM Revenue and Customs rules, if the value of your pension savings increases in any one year by more than the Annual Allowance of £50,000 you may have to pay a tax charge.

However, you may be able to carry forward unused Annual Allowance from the last three tax years. This means that even if the value of your pension savings increase by more than £50,000 in a tax year you may not be liable to the Annual Allowance tax charge. To carry forward unused Annual Allowance from an earlier year you must have been a member of a tax registered pension scheme in that year.

Most people will not be affected by the Annual Allowance tax charge because the value of their pension savings will not increase in a tax year by more than £50,000 or, if it does, they are likely to have unused allowance from previous tax years that can be carried forward.

Further information on the Annual Allowance including examples of calculation is available in the document “Changes to Tax Controls on Pensions Savings” (Word - 462KB) and also available on the HMRC website at:

http://www.hmrc.gov.uk/pensionschemes/annual-allowance/index.htm

http://www.hmrc.gov.uk/pensionschemes/annual-allowance/guide.htm

http://www.hmrc.gov.uk/pensionschemes/annual-allowance/telling.htm

LGPS (Miscellaneous) Regulations 2010

The LGPS (Miscellaneous) Regulations 2010 were laid before Parliament 25th August 2010 and come into force on 30th September 2010. They make a number of amendments to the LGPS Regulations. Many are minor corrections or updates but there are four major developments. Those major changes are:

• Rejoining deferred members can now aggregate all LGPS deferred benefits not just the membership accrued in their immediately preceding local government employment
• There is a 12 month window for active members to bring in membership they were previously prohibited from aggregating
• Pension credit member benefits are now payable from age 60 with reductions
• There is an early payment option from 55 for suspended Tier 3 Ill-health retirees

Aggregation of deferred benefits

Currently new joiners to the LGPS can only opt to transfer in deferred benefits relating to scheme membership directly preceding the current employment. From 30.09.2010, new joiners can now opt to aggregate all of their previous membership. They have 12 months from joining to initiate the process by requesting an inter fund transfer from the previous fund(s).

Existing members, even those who have previously turned down the opportunity to aggregate on rejoining, will be able to make an option to aggregate up to 30.9.2011. Once this date has passed no new options outside the 12 month limit can be accepted without employer consent.

The benefits of aggregation (bringing all of your previous LGPS membership into your current fund) will depend on a number of factors including your pensionable pay. Information on the factors that a member needs to take into account is available in the document “Options if you have previous LGPS benefits” (PDF 461KB - opens new window).

Please contact the pensions section as soon as possible if you have deferred benefits you may want to transfer.

Previous Changes

A new-look LGPS scheme came into effect from 1 April 2008. It applies to individuals who were contributing members of the Local Government Pension Scheme on 1 April 2008 or who have since joined the Scheme. The rights of members who retired before that date with immediate payment of benefits or a deferred pension entitlement are those in force at their date of their retirement. Information about the changes to the scheme and about the new scheme regulations is available in the section “Scheme Details”.

In June 2006 the Minister for Local Government, Phil Woolas, announced a statutory consultation on proposals to extend the current levels of protection in the Scheme following the removal of the "85-year-rule". The draft proposals would involve amending the regulations to provide a full, rather than a tapered, protection to 2020 for members able to both achieve age 60 and satisfy the "85-year-rule" by 31st March 2020. The additional costs could be achieved either by increases in employee contributions, by reduction to an element of the new 2008 benefit structure or by some other means within the existing regulatory framework. If no agreed means of providing the necessary resources to extend the proposed level of protection emerge from the consultation, then it will be necessary to retain the present level of protection. We await the outcomes of the consultation process.

The most recent changes to the current LGPS which impact directly on scheme members are the Local Government Pension Scheme (Amendment No 2) which came into force on 21st June 2007. These included three significant changes to the regulations.

• A member may no longer elect to contribute more than 50% of his contributions to an in-house AVC fund. This change is backdated to 1st April 2007. The legislation also clarifies that AVCs must be paid in the form of a deduction from pay.

• The ability of administering authorities to commute small pensions to a lump sum payment is extended to include any members whose total pension benefits are less than 1% of the current lifetime allowance (pension benefits of under £1,600pa for 2007/8) or beneficiaries whose compounded pension from this scheme alone is less than 1% of the lifetime allowance”

• Employing authorities are now authorised to award scheme members up to ten years additional membership, where this is consistent with their published policy on augmentation.

Removal of the 85 year rule

For all leavers between 1 April 1998 and 30 September 2006 reductions on account of all early payment of benefits were calculated according to the 85 year rule. The 85 year rule allowed members to take unreduced benefits before normal retirement date when their Age + Membership = 85. If the 85 year rule was not met reductions applied. The reductions were be based on the shortfall to when the member would have achieved the 85 year rule.

The 85 year rule has been removed with effect from October 2006. Active members on 30th September retained some protections against the removal of the 85 year rule. In their case;

Benefits in respect of membership before April 2008 will be calculated in accordance with the 85 year rule.

For members aged 60, and able to achieve the 85 year rule, before 1st April 2016, all benefits in respect of  membership before April 2016 will be calculated in accordance with the  85 year rule.

For members aged 60 before 1st April 2020 benefits in respect of membership between April 2008 and March 2020 will be tapered, with greater protection given to those who would achieve the 85 year rule earlier.

“A-Day” changes

Various changes were made to the LGPS in April 2006 following the government’s “tax simplification” measures which took affect from 6th April 2006, known as “A-Day”.

The changes were mainly the removal of certain limits to contributions and benefits that existed before A-Day, in particular;

• The 15% limit on total contributions (including contributions to AVCs or to purchase added years)
  
• The ability to count no more than 40 years membership (at age 60) when calculating benefits (in some cases 45 years at 65)
  
• The capping, for pension purposes, of pay in excess of £105,600pa (as at 05/04/2006). 

Instead, the capital value of a member’s benefits must be compared to a Lifetime Allowance (LTA), initially of £1,500,000, but increased each April from 2007. Where the capital value of benefit payments exceed the LTA they become subject to excess taxation. To calculate the capital value of pension benefits the pension needs to be multiplied by 20 and added to the lump sum.

Example:

Annual Pension = £30,000pa                   
Lump Sum = £90,000

Capital value of benefits  = (£30,000 x 20) + £90,000 =  £690,000

Note that despite these being relatively high pension figures, the capital value of benefits remains well below the lifetime allowance.