Accrual rate?

JonBristol123

Hi, please help. I am struggling to understand how my new pension works. It is a local government defined pension scheme. I have been told I get 1/49th of my salary. I just need an example of how I can calculate my pension for when I retire without taking into account inflation etc. Just a rough way of working it out so I understand it better.

So if I was earning £20,000 a year and I worked for 30 years. Would that be 30 years divided by 49, times 20,000? If that is it, then I guess it goes without saying that the state pension is not included in this?

Thanks for reading.:)

mgdavid

Correct, you've understood the arithmetic.
LGPS (or any other employer's or private pension scheme) is entirely separate from the State Pension.

JonBristol123

Thanks. :T That seems too good to be true to be honest! Can this 1/49th be changed at any point. I read it used to be 1/60th before 2014.

Andy_L

It used to be how mgdavid said, although with an accrual rate of 1/60.

Under the current scheme for each year you serve you accure a pension of 1/49th of that year servce. Then each subsequent year that ammount is increased to allow for inflation. In the LGPS I think the increase is equal to CPI

https://www.lgpsmember.org/arm/already-member-how.php

Andy_L

JonBristol123 wrote: »

Thanks. :T That seems too good to be true to be honest! Can this 1/49th be changed at any point. I read it used to be 1/60th before 2014.

Service you've accrued cannot be changed (ie a back-dated alteration is prohibited). Servcie going forward could have its terms changed

JonBristol123

Sorry to completely understand it. That final figure from that sum would be my pension per year amount?

Silvertabby

Yes, it is very generous.

Not only is it 1/49th, but each year's pension accrual is revalued by inflation (CPI)

AND, unlike the pre 2014 rules, which only counted contractual pay as pensionable pay, the post 2014 regs include extras such as overtime.

Any changes in the future won't be made retrospective.

k6chris

The other way to think about it is to add up 1/49th of the salary you earned for every year you work. So (for the sake of easy maths) if your earned £49,000 for 5 years, your annual pension would be £5,000 (1/49 * £49,000 * 5) each year from normal retirement age until you pop your clogs (not allowing for inflation). If in the 6th year you worked for 2.5 days a week rather than 5 (so earned half of £49,000 that year) then your final salary would go up by only £500 - so £5,500 each year. I'm not sure that's made it any clearer, but it how I got my head around it!!

hyubh

JonBristol123 wrote: »

Can this 1/49th be changed at any point.

Strictly speaking yes, though I wouldn't expect anything radical any time soon. In any case, if that is a concern, then the generous 'career average' structure is a positive since you aren't dependent on achieving late career promotions (with the scheme still going at that point) to maximise the benefit of earlier membership.

I read it used to be 1/60th before 2014.

That was on a 'final salary' rather than a 'career average' basis however, and with a normal pension age of 65 rather SPA (min. 65). That said, IIRC the official costing of the 2014 scheme had it no less expensive overall than the 2008 scheme it replaced.

Historically the LGPS for decades was slightly different again, 1/80ths final salary but with an automatic lump sum and (depending on length of membership) the potential to retire at 60 without a reduction for going early. Again though, when the 2008 scheme came in, this was intended to provide similar value overall.

JonBristol123

But if I only worked for 5 years earning 49,000. I would surely not then earn 5000 pa when I retire from just 5 years work?

k6chris

JonBristol123 wrote: »

But if I only worked for 5 years earning 49,000. I would surely not then earn 5000 pa when I retire from just 5 years work?

Yes you would, each year you are accruing 1/49th of £49,000 annual salary = £1,000 x 5 years = £5,000 pa at NRA. It's a good scheme!