A guide to the Local Government Pension Scheme

The Local Government Pension Scheme (LGPS) is a ‘defined benefits’ scheme that offers its members an inflation-linked, guaranteed income in retirement, much like the Teachers’ Pension Scheme (TPS).

People who work in education leadership or support roles outside of teaching, may be part of the LGPS if they are not eligible for the TPS.

If you’re a member of the LGPS you will pay into the scheme through monthly contributions taken directly from your salary and topped up by your employer.

Although the LGPS is a national scheme, it is administered at a local level by 86 pension funds in England and Wales, each with their own website for their specific locality.

How does the LGPS work?

If you work for a participating employer, you will automatically join the LGPS when you start your role. You can decide to opt out of the scheme at any point during your employment.

Much like the TPS and other public service pensions, the LGPS now has more than one part that members may be enrolled in. In fact, many members are actually part of three schemes – two final salary arrangements and one career average (CARE) scheme.

What are final salary arrangements?

Final salary arrangements are calculated using your final pensionable pay and length of service. Usually, your final salary will be based off what you earnt during your final year of service.

The first final salary arrangement is the 1/80^th scheme, which is the part that members would have joined pre-2008. Being part of this scheme means that for each year you pay in, you earn benefits equal to 1/80^th of your final pensionable pay and a tax free, pension commencement lump sum equal to three times the annual pension.

The second final salary arrangement, effective between 2008 and 2014, is referred to as the 1/60^th scheme. Being part of this arrangement means you will earn a pension equal to 1/60^th of your final pensionable pay.

The normal pension age for the two final salary schemes is protected. For the majority of members their normal pension age will be 65.

What is the career average (CARE) scheme?

Since 2014, all existing and any new members of the LGPS have been enrolled into the CARE 1/49^th scheme.

Unlike final salary arrangements where your pension is based on your final salary before retirement, the CARE scheme builds your pension based on your pensionable pay each year. So, 1/49^th of your pensionable pay each year gets added to your pension pot.

The retirement age for the CARE scheme is linked to your state pension age, which may increase over time.

The McCloud Judgement

When the CARE scheme was introduced in 2014, it included protection for older members who were closest to retirement. Younger members, however, did not receive the same protections and were automatically moved to the new scheme.

In 2018, it was ruled that these changes were discriminatory towards younger members who were not protected. In 2023, the McCloud remedy took effect meaning that younger members now also received protection.

This change does not impact all members of the LGPS. If you’re unsure whether McCloud impacts you, the central scheme website provides a useful tool to find out.

If you are impacted, you will not have to make a choice between the old and new schemes. Instead, the pension fund will calculate the benefits due under both schemes and will pay the higher of the two.

How much do I contribute to the LGPS?

Like most defined benefit pensions, the amount you pay into the scheme is usually tied to your salary. For the LGPS, this is currently between 5.5% and 12.5% of your pay before tax relief. The amount your employer contributes will vary depending on the pension fund that administers your scheme.

Contribution rates for Local Government Scheme members

You’ll also only make contributions to the scheme based on what you’re actually earning at the time. So, you won’t be expected to keep paying the same amount into your pension while on maternity or sick leave, for example. If you work part-time, your contributions will not be based on the full-time equivalent.

Can I change my contributions?

Yes, you can choose to increase or reduce your monthly contributions to the scheme.

If you want to reduce your monthly payments, you can choose to reduce the amount by 50%. So, if you’re going through a period of financial difficulty, you won’t need to leave the scheme and give up your pension and associated benefits. Although, you will only accrue new pension benefits at half the normal rate. You’ll also be able to keep your death in service and ill health cover.

Being able to reduce your pension contributions is also useful for high earners, who can choose to reduce what they pay in to avoid breaching the annual allowance.

Alternatively, if you'd like to increase your contributions, this will usually be done as an additional voluntary contribution (AVC) to build up extra cash.

The ability to change your contributions isn't available to TPS members, where you must make a set contribution based on your annual salary. Paying into the LGPS is generally cheaper for employers too.

How are my LGPS benefits calculated?

Career Average (CARE) scheme

Your CARE pension benefits are built up annually and calculated by multiplying your accrual rate (currently set at 1/49^th for the LGPS) by your pensionable pay.

For example, if your pensionable pay for the year is £40,000 you could calculate the pension you’ve earned for the year as £40,000 x 1/49 = £816.33. This will be revalued in line with inflation each year.

You would not receive an automatic lump sum but could apply for one by giving up part of your annual pension amount. This usually works out as £12 for every £1 of pension given up.

Final salary schemes

For final salary schemes, your benefits will be calculated using your final salary pay.

Your final salary is the pay you have received during your final year of making contributions to the scheme, or one of the previous two years if either of these are higher than the salary in your final year.

If you worked part-time for any of the final year, the full time pay that you would have received had you worked full time, will be used for the calculations.

It can be challenging to work out your benefit entitlement if you have a final salary part to your pension under the LGPS. That’s because you will have been automatically moved to the new part of the scheme. So, you won’t have continued to accrue benefits in the same way throughout your career.

For example, someone with 30 years’ service who entered the scheme on 1^st April 1995, would only ever have a maximum of six years in the 60^th final salary scheme. Thirteen of those years would be in the 80^th final salary scheme, with the balance of 11 years served in the CARE scheme.

Will I get a pension lump sum from the LGPS?

If you’re an 80ths final salary scheme member, you will receive an automatic tax-free lump sum upon retirement. This is calculated as three times your pension benefit entitlement.

You can also choose to apply for a bigger lump sum worth up to 25% of your pension by giving up some of your annual pension amount.

If you’re a member of the CARE scheme, you won’t receive an automatic lump sum. You can apply for a lump sum by swapping some of your pension.

When can I take my pension?

You can choose to retire and take your full pension benefits from the age of 65 provided you have been contributing to the scheme for at least two years.

However, if you decide to take early retirement from the age of 55, rising to 57 in 2028, your benefits will be adjusted from the figures shown on your benefit statement as you would not yet have reached the normal retirement date for your respective pension schemes.  The rate of reduction differs between final salary and career average on account of difference in normal retirement age.

If you need to retire early due to ill health, you should be able to do so provided you meet the criteria as set out by your local pension fund and have completed at least two years’ service.

If you have been contributing to the scheme for less than two years and have not yet reached retirement age, you will usually receive a letter from the LGPS asking what you would like to do with the contributions you have made.

What happens to my pension when I die?

Though no one really wants to think about what will happen when they’re no longer here, it can be comforting to know that a death in service grant will be paid to your loved ones.

If you haven’t already, you will need to nominate beneficiaries to receive the grant, which is calculated as three times your annual pensionable pay. In practice this means that someone who works part-time will only receive three times their actual earnings and not the full time equivalent.