The LGPS: What you need to know

Paying into the Local Government Pension Scheme (LGPS) can be one of the best ways to safeguard your future. The LGPS is amongst the largest pension schemes in the UK and offers many unique benefits.

Whether you are already paying in, or are a prospective member considering joining us, this article aims to break down the buzzwords and delve into exactly what the LGPS is and what it can offer you.

What is the LGPS?

The LGPS is a defined benefit (DB) pension scheme, which means your pension is based on your earnings and how long you pay into the scheme.

Our team at the North East Scotland Pension Fund (NESPF) administers the LGPS in the north east of Scotland, with 78,000 members. There are 11 local pension funds based around Scotland administering the LGPS, mainly to public sector organisations, or smaller organisations that have been admitted into the LGPS.

Each local pension fund is responsible for making decisions about how funds are invested and how pensions are administered, in line with regulations set by wider government.

Whilst day to day work is carried out by fully trained pension staff, overall responsibility for the NESPF has been delegated to the Pensions Committee which carries out a role similar to that of trustees. The Committee is the key decision maker for all matters regarding administration and investment management. Each pension fund in the LGPS is also required to establish a Pension Board which deals with governance and compliance of regulations.

What are the benefits of joining?

One of the main benefits of this type of pension, is that you will receive a secure pension guaranteed for life, which is underwritten by government, meaning it is not affected by volatile investments or stock market fluctuations.

Your LGPS pension increases each year in line with inflation - as prices rise, so does your pension. Your employer will also pay in to your pension, and while their contributions don’t impact your pension value, they do cover a large proportion of the running costs of the pension scheme, which is an expense members of private pension schemes may have to cover themselves.

Another benefit is that pensions are available for a spouse, civil partner or eligible co-habiting partner and any eligible children in the event of your death and can include a tax free lump sum worth 3 times your salary should you die in service. The scheme also offers various options for retirement including early retirement, ill-health retirement, flexible and redundancy & efficiency retirements.

How do I join?

You can join the LGPS if:

  • You work for a local authority or employer who offers membership to the pension scheme and
  • You are under age 75, and
  • You are not eligible to join another public service pension scheme such as teachers, police or firefighters

Most individuals who join the pension scheme are automatically put into the LGPS - this is known as auto enrolment. Those who are automatically enrolled:

  • have a contract of employment of 3 months or more, and
  • earn at least £10,000 per year, and
  • are under age 75.

When you become a member of the NESPF you will see pension contributions being deducted from your salary on your pay slip. You will also receive written notification of your membership from your employer and the Fund.

How much do I pay?

How much you pay, is based on how much you earn. When you join the scheme and every April afterwards, your employer will compare your pay to the LGPS contribution rates set by the government. These rates are reviewed each year to keep up with any changes in the cost of living. If at any time your contribution rate changes, your employer will let you know.

You can use our Costs and Contributions Calculator to see your contribution rate.

How do I opt out?

If you want to leave the scheme, simply complete and return an ‘Opt Out’ form to your employer. Once you leave, you’ll need to decide what to do with your savings. You can transfer your pension to another provider or in certain circumstance you can leave your pension with us or have it refunded. We will let you know what options are available to you.

If you leave your pension with us, you will become a “Deferred Member.” Essentially your pension is on hold until it can be paid or you transfer it to another provider. We will calculate the value of your pension at the date of leaving and while your pension remains with us, we will increase it in line with the cost of living each year.

If I leave, can I re-join?

If you are working for an employer who offers the LGPS, you can rejoin at any time.

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