Final salary rules

How is pension worked out for membership before 1 April 2014?

We work out your pension benefits for your membership before April 2014 based on your final pay and the length of your membership when you leave or retire.

The pay we use to work out your pension benefits on your membership before April 2014 is usually the pay you earned in your final year as a member, or one of the previous two years if that’s higher.

And if you’re working part-time when you leave the scheme, it’s the full-time pay you would’ve got, if you’d worked full time.

Final pay is made up of your normal salary plus any shift allowances, bonuses, contractual overtime and any other taxable benefit specified on your contract. It doesn’t include non contractual overtime or any additional hours worked above your contractual hours.

You can give up some of your pension to get a tax free lump sum. For every £1 of pension you give up, you’ll get £12 of tax-free lump sum (HM Revenue and Customs limits apply).

Pensionable pay

The pay we use to work out your pension benefits on membership before 1 April 2014 is usually your pay in your final year of scheme membership – or one of the previous two years if it’s higher.

If you work part-time when you leave the LGPS, your final pay is usually the full-time pay that you would have got if you’d worked full time. Your final pay will consist of normal salary plus any shift allowances, bonuses, contractual overtime and any other taxable benefit specified on your contract. But it won’t include any non-contractual overtime or any additional hours you worked on top of your contractual hours.

How are pension benefits I built up before 1 April 2014 affected if my pay goes down?

If your pay goes down, or increases to your pay are restricted in your last 10 years of continuous employment with your employer, you can have all your membership before April 2014 based on the average of any three consecutive years in the last 13 years (ending on a 31 March).

You can’t use your pay from earlier years to work out your pension benefits if your pay went down because you lost a temporary increase in pay.

If you got a certificate of protection from your employer for a reduction or restriction in pay before 1 April 2008 and you leave the LGPS within 10 years of the reduction or restriction occurring, this protection will continue to apply to your membership before April 2014.

Protected normal pension age

Your pension built up before 1 April 2014 has a protected Normal Pension Age, which for almost all is age 65. If you retire and draw all of your pension at your protected Normal Pension Age, the pension built up in the scheme before 1 April 2014 will be paid in full.

If you choose to take your pension before your protected Normal Pension Age the pension you have built up in the scheme before 1 April 2014 will normally be reduced, as it’s being paid earlier. If you take it later than your protected Normal Pension Age it will be increased because it’s being paid later.

The amount of any reduction or increase will be based on how many years earlier or later than your protected Normal Pension Age you draw the pension you have built up in the scheme to 31 March 2014.

The benefits you build up in the career average scheme from April 2014 have a Normal Pension Age linked to your State Pension Age (but with a minimum age of 65).

You cannot take your benefits built up to April 2014 separately from the benefits you build up from April 2014. All your pension would have to be drawn at the same time (except in the case of Flexible Retirement).

Rule of 85

If you have rule of 85 protection this will continue to apply from April 2014. The only occasion where this protection does not automatically apply is if you choose to voluntarily draw your pension on or after age 55 and before age 60, further information is below.

The rule of 85 protects some or all of your benefits from the normal early payment reduction. To have rule of 85 protection you must have been a member of the LGPS on 30 September 2006. The rule of 85 is satisfied if your age at the date when you draw your pension plus your Scheme membership (each in whole years) adds up to 85 years or more.

Working out how you are affected by the rule of 85 can be quite complex, but here is some information to help you work out your general position if you draw your benefits. For a more detailed understanding of your own position you should contact your pension fund directly.

• If you would not satisfy the 85 year rule by the time you are 65, then all your benefits are reduced if you choose to draw your pension before your Normal Pension Age. The reduction will be based on how many years before your Normal Pension Age (age 65 for pension built up to April 2014 and before your State Pension Age for pension built up from April 2014) you draw your benefits.
• If you will be age 60 or over by 31 March 2016 and choose to draw your pension before your Normal Pension Age, then, provided you satisfy the 85 year rule when you start to draw your pension, the benefits you build up to 31 March 2016 will not be reduced.
• If you will be under age 60 by 31 March 2016 and choose to draw your pension between age 60 and your protected Normal Pension Age, then,provided you satisfy the 85 year rule when you start to draw your pension, the benefits you’ve built up to 31 March 2008 will not be reduced. Also, if you will be aged 60 between 1 April 2016 and 31 March 2020 and meet the 85 year rule by 31 March 2020, some or all of the benefits you build up between 1 April 2008 and 31 March 2020 will not have a full reduction.

Rule of 85 and drawing your pension on or after age 55 and before age 60
From April 2014 there is a new option in the LGPS where you can choose to voluntarily draw your pension on or after age 55 and before age 60 without the need for your employer’s permission.

The rule of 85 will not automatically be applied if you decide to draw your benefits under this new option but your employer can exercise their discretion to apply it. If they do, and you meet the rule of 85 at the date of drawing your benefits, the rules set out in the second and third bullet points above will apply.

If your employer does not exercise the discretion to apply the rule of 85, the protections referred to in the second and third bullet points above do not apply in full. From April 2014 you will be able to ask your employer what their policy is on exercising the discretion to apply the rule of 85 to benefits drawn before age 60.