Shropshire County Pension fund

Taking care of your Local Government Pension in Shropshire

How do the contributions I pay into the LGPS each month relate to the pension I build up?

Posted on by Admin-2

The pensions team are often asked by scheme members how the contributions they pay relate to the pension benefits they build up in the scheme.

The LGPS is a defined benefit scheme which means that your pension is based on your salary and length of membership. This is different to a defined contribution scheme where a pension is built up on the monetary contributions paid in by the scheme member and their employer which is then invested to generate returns. The LGPS is a statutory, funded pension scheme and as such it is very secure because its benefits are defined and set out in law.

The contributions you pay into the LGPS provide membership of the Scheme but do not cover the full cost of providing your benefits, as your employer pays the balance after taking into account investment returns. Your annual pension builds up at a rate of a 1/49th of your pensionable pay.

Every three years, an independent actuary calculates how much your employer should contribute to the Scheme. Your employer determines your contribution rate based on your pay and contribution rates are between 5.5% and 12.5%, as set by the regulations. If you are a tax payer you will receive tax relief on your contributions.

The LGPS offers a wide range of benefits in addition to the pension paid to you, such as life cover in the event of your death and survivors pensions. In some circumstances your pension can be paid early if you become ill or if your employer makes you redundant.

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