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The new Local Government Pension Scheme (LGPS) opens for business on 1 April 2009. The current scheme will be closed and all existing members will be subject to the new scheme from 1 April 2009.
The draft terms of the new scheme have been agreed following extensive negotiations between unions, employers and Government. A final consultation on the draft proposals is under way and if you wish to comment you must do so by contacting the Scottish Public Pensions Agency (SPPA) before 27 March 2008.
Proposals
The proposals represent a significant makeover for the Scheme, so please read on as the proposed changes will affect both your take home pay and scheme entitlement.
The main features of the new scheme are as follows:
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LGPS to stay a final salary scheme.
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Benefits up to 1 April 2009 to be based on 1/80ths of pay with a fixed 3/80ths lump sum.
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Benefits from 1 April 2009 to be based on 1/60ths of pay with no automatic lump sum.
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Tiered Employee Contributions (see next section for more information).
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Minimum retirement age to increase from 50 to 55 from April, 2010, but pre 5/4/2006 members to retain possibility of retirement from age 50 on redundancy or business efficiency grounds.
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Two tier Ill Health provisions, but pre 1/4/2009 members to be no worse off than under the existing ill health provisions.
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Death in Service Lump Sum increased to three times pay.
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Pensions for unmarried partners.
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Long term spouse and childrens' pensions.
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Flexible retirement options.
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Topping up options – AVCs and buying additional pension.
Your take-home pay is likely to be affected by the introduction of tiered contributions.
Tiered Employee Contributions
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Current scheme members mostly contribute 6% of pay.
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Members employed in a manual capacity from before 1/4/1998 pay 5%.
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Under the new proposals, contributions will be paid on a 'tiered' basis so that members will pay a progressively higher contribution depending on their salary level, as follows:
Salary contributions
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Pensionable earnings
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Percentage rate
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On earnings up to and including £18,000
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5.5%
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On earnings above £18,000 up to £22,000
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7.25%
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On earnings above £22,000 up to £30,000
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8.5%
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On earnings above £30,000 up to £40,000
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9.5%
|
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On earnings above £40,000
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12%
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(So, if your salary is £25,000, you will pay 5.5% on the first £18,000, then 7.25% on the next £4,000 and then 8.5% on the remaining £3,000.)
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If you are part time, your rate of contribution will be based on your full time equivalent earnings (FTE). So if your FTE is £25,000 but you only earn £12,500 through working 50% of full time hours, your rate will not be 5.5%, but a mixture of 5.5%, 7.25% and 8.5%. In other words, the contribution will be calculated as if you were full time, and then adjusted to reflect your actual working arrangement.
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The table below shows the average rate of contribution you can expect to pay depending on your annual salary:
Average rates of contribution
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Full time pensionable annual salary
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Average contribution rate
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Full time pensionable annual salary
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Average contribution rate
|
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£10,000
|
5.50%
|
£55,000
|
8.56%
|
|
£15,000
|
5.50%
|
£60,000
|
9.09%
|
|
£20,000
|
5.67%
|
£65,000
|
8.85%
|
|
£25,000
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6.14%
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£70,000
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9.30%
|
|
£30,000
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6.53%
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£75,000
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9.48%
|
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£35,000
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6.96%
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£80,000
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9.64%
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£40,000
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7.27%
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£85,000
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9.78%
|
|
£45,000
|
7.80%
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£90,000
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9.90%
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£50,000
|
8.22%
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£100,000
|
10.11%
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(Please note: from 6 April 2008, tax relief on your pension contributions will be at the rate of 20% or 40% depending on your level of taxable earnings.)
Retirement benefits case study
Scheme member details:
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Age 65 on 31/3/2019
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Total membership: 30 years
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Membership at 31/3/2009: 20 years
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Membership from 1/4/2009 to 31/03/2019: 10 years
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Final pensionable pay: £25,000
Calculation of retirement benefits: current scheme
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Annual pension
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30 years x 1/80th x £25,000 = £9,375
|
|
Lump sum
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30 years x 3/80th x £25,000 = £28,125
|
|
Capital value
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£200,892
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(Your maximum tax free lump sum is 25% of the capital value.)
Calculation of retirement benefits: new scheme
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Annual pension
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20 years x 1/80th x £25,000 = £6,250
+ 10 years x 1/60th x £25,000 = £4,167
= £10,417
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Lump sum
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20 years x 3/80th x £25,000 = £18,750
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Capital value
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£205,363
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(Your maximum tax free lump sum is 25% of the capital value.)
Further information
More information about the new scheme is available on the SPPA website|.