Scheme Pays - LGPS

AlanP_2

There is a chance that a change of role could result in a significant salary rise for an LGPS member with 12+ years of pre-2014 service, so linked to Final Salary.

The rise could be in the region of £30k which by my rough calculations could lead to a £125k AA value in the first tax / pension year as there is little or no carry forward left to use.

At 40% tax rate this would lead to tax being due on £125k - £40k, so £85K which = £34,000 tax to pay.

How does Scheme Pay actually work? All I can find is that the tax bill is paid out of your benefits. I can see how that would work with a DC pot as easily turned into cash but how does it work with a DB scheme and what is the impact on overall benefits?

BTW - Yes, I really do appreciate that this is a nice problem to have and that we are fortunate. I also appreciate that there are some views that all public sector pension schemes should be scrapped but at the moment the schemes and the rules are what they are.

Thanks

greatkingrat

There is no simple formula - the actuaries will work out how much to deduct based on your individual circumstances. It is like a partial transfer out of your pension - if your CETV was 500k and the tax due was 50k then you would lose 10% of the pension accrued to date.