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LGPS Scheme Developments

The Local Government Pension Scheme (LGPS) is a statutory scheme, the provisions of which are under constant review. This site aims to keep you informed of the most recent developments to the Scheme, and to advise you of any expected developments. For further information see the pensions section of the employers organisation site at www.lge.gov.uk or the national lgps site at www.lgps.org.uk or the Department for Communities and Local Government site at www.communities.gov.uk/lgps

Latest changes

A new-look LGPS scheme has come into effect from 1 April 2008. It applies to individuals who are contributing members of the Local Government Pension Scheme on 1 April 2008 or who have since joined the Scheme. The rights of members who retired before that date with immediate payment of benefits or a preserved pension entitlement are those in force at their date of their retirement.  Information about the changes to the scheme and about the new scheme regulations is available in the sections ‘about the 2008 scheme’, ‘guide to the lgps 2008’ and in the ‘2008 scheme video’.

Nomination of Cohabiting Partners

The new Scheme introduces the provision for a dependant’s pension to be paid to a nominated, co-habiting partner. This option applies only to those who are or were active members of the LGPS on or after 1 April 2008 and is not available to deferred or pensioner members who left before that date. Such a pension would be based on your membership after 05/04/1988 and would be payable following your death to someone that you have nominated. To create a nomination, a written declaration signed by both the nominator and the nominee must be sent to the Administering Authority which states that for a period of at least two years, the following criteria have been met:

  • There is financial dependence by the nominee on the nominator, or interdependence between both parties
  • Both parties have been free to marry or enter into a civil partnership with each other
  • They have been co-habiting as husband and wife, or as civil partners

You can download a nomination form for cohabiting partners (PDF 49KB - opens new window)

Adobe reader can be download it from the Adobe Site to view PDF's.

Proposed Changes

In June 2006 the Minister for Local Government, Phil Woolas, announced a statutory consultation on proposals to extend the current levels of protection in the Scheme following the removal of the "85-year-rule". The draft proposals would involve amending the regulations to provide a full, rather than a tapered, protection to 2020 for members able to both achieve age 60 and satisfy the "85-year-rule" by 31st March 2020. The additional costs could be achieved either by increases in employee contributions, by reduction to an element of the new 2008 benefit structure or by some other means within the existing regulatory framework. If no agreed means of providing the necessary resources to extend the proposed level of protection emerge from the consultation, then it will be necessary to retain the present level of protection. We await the outcomes of the consultation process.

Other Recent changes

The most recent changes to the current LGPS which impact directly on scheme members are the Local Government Pension Scheme (Amendment No 2) which came into force on 21st June 2007. These included three significant changes to the regulations.

  • A member may no longer elect to contribute more than 50% of his contributions to an in-house AVC fund. This change is backdated to 1st April 2007. The legislation also clarifies that AVCs must be paid in the form of a deduction from pay.
  • The ability of administering authorities to commute small pensions to a lump sum payment is extended to include any members whose total pension benefits are less than 1% of the current lifetime allowance (pension benefits of under £16,000pa for 2007/8) or beneficiaries whose compounded pension from this scheme alone is less than 1% of the lifetime allowance”
  • Employing authorities are now authorised to award scheme members up to ten years additional membership, where this is consistent with their published policy on augmentation.

Removal of the 85 year rule

For all leavers between 1 April 1998 and 30 September 2006 reductions on account of all early payment of benefits were calculated according to the 85 year rule. The 85 year rule allowed members to take unreduced benefits before normal retirement date when their Age + Membership = 85. If the 85 year rule was not met reductions applied. The reductions were be based on the shortfall to when the member would have achieved the 85 year rule.

The 85 year rule has been removed with effect from October 2006. Active members on 30th September retained some protections against the removal of the 85 year rule. In their case;

Benefits in respect of membership before April 2008 will be calculated in accordance with the 85 year rule.

For members aged 60, and able to achieve the 85 year rule, before 1st April 2016, all benefits in respect of  membership before April 2016 will be calculated in accordance with the  85 year rule.

For members aged 60 before 1st April 2020 benefits in respect of membership between April 2008 and March 2020 will be tapered, with greater protection given to those who would achieve the 85 year rule earlier.

“A-Day” changes

Various changes were made to the LGPS in April 2006 following the government’s “tax simplification” measures which took affect from 6th April 2006, known as “A-Day”.

The changes were mainly the removal of certain limits to contributions and benefits that existed before A-Day, in particular;

  • The 15% limit on total contributions (including contributions to AVCs or to purchase added years)
  • The ability to count no more than 40 years membership (at age 60) when calculating benefits (in some cases 45 years at 65)
  • The capping, for pension purposes, of pay in excess of £105,600pa (as at 05/04/2006). 

Instead, the capital value of a member’s benefits must be compared to a Lifetime Allowance (LTA), initially of £1,500,000, but increased each April from 2007. Where the capital value of benefit payments exceed the LTA they become subject to excess taxation. To calculate the capital value of pension benefits the pension needs to be multiplied by 20 and added to the lump sum.

Example:

Annual Pension = £30,000pa                   
Lump Sum = £90,000

Capital value of benefits  = (£30,000 x 20) + £90,000 =  £690,000

Note that despite these being relatively high pension figures, the capital value of benefits remains well below the lifetime allowance.

Contacts    

Alan Piper
Pensions Specialist Manager
Alan.piper@lpfa.org.uk
020 7369 6063

Jacqui Lawrence
Technical Officer
Jacqui.lawrence@lpfa.org.uk
020 7369 2688  

                                             

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