How is my pension calculated?
How your pension works – Video Transcript
Read transcript (83KB, PDF)Each year you contribute in the main section of the Scheme, 1/49th of your pensionable pay (and any assumed pensionable pay) is added to your pension account. Half this amount (1/98th) is added if you are in the 50/50 section. In addition, a revaluation amount is added at the beginning of every year to take into account the cost of living. From 1 April 2023, the date of revaluation moved from 1 April to 6 April.
Alice earns £20,000 per year and will build up pension savings in that year of:
1/49 x £20,000 = £408.16
The table below shows how her pension will build up over five years from 1 April 2023, assuming that the annual revaluation is 2%, her pensionable pay stays at £20,000 and she remains in the main section of the Scheme.
| Year | Opening Balance | Revaluation of 2% | New Pension Savings | Closing Balance |
|---|---|---|---|---|
| Year 1 | £0 | + £0 | + £408.16 | = £408.16 |
| Year 2 | £408.16 | + £8.16 | + £408.16 | = £824.48 |
| Year 3 | £824.48 | + £16.49 | + £408.16 | = £1,249.13 |
| Year 4 | £1,249.13 | + £24.98 | + £408.16 | = £1,682.27 |
| Year 5 | £1,682.27 | + £33.65 | + £408.16 | = £2,124.08 |
Total Pension: £2,124.08 per year
If Alice joined the 50/50 section of the scheme during years 3 and 4, then her pension from 1 April 2023 would be worked out as follows:
Yearly Pension savings –
Main Section – 1/49 x £20,000 = £408.16
50/50 Section – 1/98 x £20,000 = £204.08
| Year | Opening Balance | Revaluation of 2% | New Pension Savings | Closing Balance |
|---|---|---|---|---|
| Year 1 | £0 | + £0 | + £408.16 | = £408.16 |
| Year 2 | £408.16 | + £8.16 | + £408.16 | = £824.48 |
| Year 3 | £824.48 | + £16.49 | + £204.08 | = £1,045.05 |
| Year 4 | £1,045.05 | + £20.90 | + £204.08 | = £1,270.03 |
| Year 5 | £1,270.03 | + £25.40 | + £408.16 | = £1,703.59 |
Total Pension: £1,703.59 per year
Mark has been a member of the Scheme since April 2010. He has 5 years’ membership under the 2009 Scheme and if he retires in April 2017 he will have 2 years’ membership under the main section of the 2015 Scheme. When Mark decides to retire in April 2017 he earns £20,000 per year, and his salary has not changed since he joined the Scheme in 2010.
Membership from 2010 – 2015
Annual Pension=
(5 years x £20,000 x 1 / 60) = £1,666.67
Membership from 2015 – 2017
New pension savings per year – £20,000 / 49 = £408.16
| Year | Opening Balance | New Pension Savings | Total Pension Savings | Revaluation of 2% | Closing Balance |
|---|---|---|---|---|---|
| Year 1 | £0 | + £408.16 | = £408.16 | + £8.16 | = £416.32 |
| Year 2 | £416.32 | + £408.16 | = £824.48 | + £16.49 | = £840.97 |
Mark’s total annual pension can be calculated by adding these two totals together:
£1,666.67 + £840.97 = £2,507.64 per year
Mary has been a member of the Scheme since April 2000. She has 9 years’ membership before April 2009, and 6 years’ membership between 2009 and 2015 and if she retires in April 2019 she will have 4 years’ membership in the main section of the 2015 Scheme.
When Mary decides to retire in April 2019 she earns £22,000 per year, her salary has not changed since 1 April 2015. Her pre-2015 membership is still calculated on her final salary at retirement.
Mary’s pension is worked out in 3 stages as follows:
Membership before April 2009
Annual Pension =
(9 years x £22,000 x 1 / 80) = £2,475
Lump Sum =
(9 years x £22,000 x 3 / 80) = £7,425
Membership from April 2009 – March 2015
Annual Pension =
(6 years x £22,000 x 1 / 60) = £2,200
Membership from 2015 – 2019
New pension savings per year – £22,000 / 49 = £448.98
| Year | Opening Balance | New Pension Savings | Total Pension Savings | Revaluation of 2% | Closing Balance |
|---|---|---|---|---|---|
| Year 1 | £0 | + £448.98 | = £448.98 | + £8.98 | = £457.96 |
| Year 2 | £457.96 | + £448.98 | = £906.94 | + £18.14 | = £925.08 |
| Year 3 | £925.08 | + £448.98 | = £1,374.06 | + £27.48 | = £1,401.54 |
| Year 4 | £1,401.54 | + £448.98 | = £1,850.52 | + £37.01 | = £1,887.53 |
Mary’s total pension can be calculated by adding these three totals together:
£2,475 + £2,200 + £1,887.53 = £6,562.53 per year
As Mary has pre 2009 membership she will also receive a guaranteed lump sum of:
£7,425
Calculating pension FAQs
You can exchange part of your annual pension for a one-off tax-free cash lump sum. You can take up to 25% of the overall capital value of your pension benefits as a lump sum and you will receive £12 of lump sum for each £1 of pension you give up. The overall capital value of your pension benefits is calculated as:
Capital value of pension benefits = (Pension x 20) + lump sum + value of AVC fund (if any)
The total lump sum cannot exceed £268,275 (2022/23) less the value of any other pension rights you have in payment. Details of the maximum tax-free lump sum that you can take will be provided to you shortly before retirement and you can then choose how much lump sum you wish to take.
Example
Mary has an annual pension of £6,706.92 and a lump sum of £7,425. If she decides to give up £1,000 annual pension for an additional cash lump sum, then the reduced annual pension is:
£6,706.92 less £1,000 = £5,706.92
And she will get an additional tax-free lump sum of:
£1,000 x 12 = £12,000
Her total tax-free lump sum will now be –
£12,000 + £7,425 = £19,425
In the current climate of long life expectancies and low interest rates, members are reminded that the cash lump sum may not be enough to replace the pension given up. If you are considering this option, you are strongly recommended to contact an Independent Financial Adviser for advice.
If the value of your pension from the Local Government Pension Scheme (NI) is within the HMRC limits you may, when it is due for payment, be able to have it paid as a one-off taxable lump sum instead of a monthly pension. This is known as Trivial Commutation.
In March 2014 the HMRC limits increased, meaning that if the capital value of all pensions that you have (not just those with the LGPS (NI)) is less than £30,000, you may be able to receive them as a one-off lump sum.
NILGOSC will need information on all pensions that you have to check if your benefits are within the HMRC limits. This excludes a spouse’s pension, state pension and state pension credit.
It should be noted that;
- a pension can only be commuted after the age of 55 (or 65 for male members and 60 for female members who have a GMP payable).
- the commuted pension can only be paid when your lifetime allowance is available and your total crystallised amount, from all pensions, does not exceed £30,000.
- the commutation payment extinguishes all member’s rights to benefits e.g. no dependants’ benefits would be payable in the event of your death.
Members whose capital value of pension rights in the Local Government Pension Scheme (NI) is less than £10,000 may also trivially commute their pension rights.
If you would like to find out if you are eligible to commute your pension benefits, please advise the Pensions Administration Team when you are claiming payment of your benefits.
Membership after 31 March 2015
Each year, if you are in the main section of the Scheme 1/49th of your pensionable pay is added to your pension account (1/98th if you are in the 50/50 section) PLUS a revaluation amount so that your pension keeps up with the cost of living.
Pensionable pay includes your:
- basic pay
- overtime (contractual and non-contractual)
- additional hours
- shift allowance
- bonus
- acting up allowance, and
- any other taxable benefit specified in your contract as being pensionable.
It does not include:
- travelling or subsistence allowance
- pay in lieu of holidays
- any sum which has not had income tax liability determined on it
- payment as an inducement not to terminate employment
- payment in lieu of notice to terminate a contract of employment
- payment in consideration of loss of future pensionable payments or benefits
- compensation for the purposes of achieving equal pay in relation to other employees
- payment in consideration of loss of future pensionable payments or benefits
- any amount treated as the money value for the provision of a motor vehicle
- any pay paid by your employer if you go on reserve forces service leave, and
- any non-consolidated non-pensionable payment paid to a member as part of an annual pay award.
Protected final pay and benefits for membership before 1 April 2015
Your retirement benefits will normally be calculated on your final pensionable pay (2009 definition i.e. excluding non-contractual overtime and additional hours) at retirement (if you are part-time, your final pay is increased to what you would have received had you been full-time). However, your benefits can be calculated on one of the two previous years’ pay if better and, if you downgrade in your last ten years with your employer, you have the option to notify NILGOSC in writing, at least one month prior to your date of leaving, that you wish to have your benefits based on the average of any three consecutive years in the last ten years (ending on a 31 March).
On 6 April each year the CARE pension that you have built up to the 31st March that year is revalued in line with Orders made by the Department of Finance. This ensures that your pension keeps up with the cost of living. The benefits built up in the Scheme are revalued based on the year to year change in the Consumer Prices Index figure to the previous September. The cost of living adjustment can go down as well as up.
From 1 April 2023 the date of revaluation changed from 1 April to 6 April to align with the tax year.
The revaluation rates for 2021, 2022 and 2023 are shown below:
| Effective Date | CARE Revaluation |
|---|---|
| 6 April 2023 | 10.1% |
| 1 April 2022 | 3.1% |
| 1 April 2021 | 0.5% |