Understanding pensions

A pension is a source of regular income to live on when you retire.

Watch a short video describing what a pension is.

Qualifying workplace pension

As a result of automatic enrolment legislation, all employers have to offer their employees access to a workplace pension scheme that meets certain minimum standards. The LGPS meets these minimum standards and is, therefore, a qualifying workplace pension scheme.

You may also hear these schemes referred to as ‘occupational pension schemes’.

Personal pensions

Personal pensions are provided by insurance companies and banks and are popular with the self-employed who do not have access to a workplace pension.

Some employers offer personal pension plans to their employees and pay contributions into it.

Personal pensions offer investors a choice of investment funds to choose from. These investments are used to buy a pension at retirement. You could also choose to set up a self-invested personal pension or ‘SIPP’ which gives you greater control over your investment choices.

Stakeholder pensions

Stakeholder pensions are essentially low cost personal pension plans.

Given the changes to workplace pension schemes under automatic enrolment the future of employer sponsored stakeholder schemes are uncertain, as many will require amendment in order to meet the employer workplace pension duties.

Pension schemes, whether they are work based or personal pensions, allow members to take part of their benefits as a tax- free lump sum when they retire.

The LGPS can pay a tax free cash sum on retirement. It is dependent on your period of membership in the scheme whether the lump sum is paid automatically or if it is paid through giving up some of your pension.

An annuity converts your defined contribution pension scheme into an income for the rest of your life.

Annuities are sold by life insurance companies and you can add different options and get different types depending on your needs and circumstances.

The LGPS pays pensions straight from the Scheme, so you will not be required to buy an annuity if you join the Scheme. However, if you pay additional voluntary contributions (AVCs), this builds up on a money purchase basis, and you may wish to use your AVCs to buy an annuity when you retire.

In a CARE scheme, the pensionable pay for each year of membership is used to calculate a pension amount for that particular year. That pension amount is then revalued each year in line with inflation (it should be remembered that while your CARE pension might be expected to increase each year, the pension amount could be reduced should there be negative inflation).  Revaluation also applies whilst a member is deferred (meaning they have stopped paying into the scheme but haven’t yet taken their benefits) The rate of increase to CARE pensions is set by the government and has typically been the annual CPI increase in the previous September.   However, this is not guaranteed and can be changed by government.

For Pensioner members, your pension is increased with inflation each year and cannot go down in the event there was negative inflation. Pensions in payment have typically been increased by the previous September CPI figure, though that could also be changed by the government in the future.

For more information visit the section 'How a CARE scheme works'.

In these schemes, you build up a pension fund using your contributions and your employer's contributions (if they make any) plus investment returns (if any) and tax relief.

When you retire you can take a tax-free lump sum from your fund and use the rest to secure an income - usually in the form of an annuity.

Unlike in the LGPS, in defined contribution schemes there are no guarantees on how much you will receive. Most private sector employers offer their employees a defined contribution arrangement.

When you first start working, your retirement will seem like it’s a long way off.

Pensions savings build up over time

You may not have much spare money when you’re just starting out in the workforce, and saving for your retirement might not be high on your list of priorities.

Being able to join a scheme like the LGPS can be an advantage, helping you on your way to a reasonable level of income when you retire. However, the pension you eventually receive from the fund and any other pensions you might have built up may not be enough for you to retire comfortably on. Tools such as Pensions UK’s Retirement Living Standards can help you plan.

If you can afford it, you may wish to put away a bit extra into your pension each pay. It doesn’t even need to be much, but whatever you put in will build up over time and, you could be thanking yourself later on. Find out how you can pay extra into your pension.

Any decision to join a pension scheme or to pay extra in is an important one and you may wish to consider obtaining proper financial advice before making any decisions.  

Get your pension together

You should keep track of all your pension savings during your career and consider how much monthly income you think you will need in retirement.

The younger you are, the harder it will be to plan what you might need, but try to work it out and keep it under review. As you get older you will get a better idea of how much pension you think you will need and if you have planned well it will be easier to reach your goal.

The government are in the process of launching a national pensions dashboard, through which you will be able to see details of all the pension savings you have in one place, including an estimate of your state pension rights in retirement. To find out more, click here,

If you’re moving into a new job you will have important decisions to make.  

You will probably have the opportunity to join another company pension scheme with your new employer and may well be entered into that scheme automatically under automatic enrolment. Make sure you ask about your pension benefits when you are going through the recruitment process.

You will also need to decide if you want to keep your LGPS benefits in the Scheme or transfer them to your new employer's pension scheme.

Changing jobs is also a good time to make sure your pension is still on track for a healthy retirement. 

Small, regular amounts add up over time

When you move to a new job you may want to reconsider how much you contribute to your pension. If you are earning more you may be able to afford to contribute more. 

Whatever decisions you take about joining your new employer’s pension scheme or transferring what you have in the fund, you should make sure you get financial advice.

It can be a busy time having a family, with its own financial pressures. But it's important not to forget about the future and the security a pension can bring.

Make sure you’ve got your family covered

Your LGPS pension gives you security for you and your family. If you were to die whilst you were still working, a lump sum and pension can be paid to your family.

These are valuable benefits which give you and your family some security if the worst were to happen.

The 50/50 Section

With children running around it's hard to find time to make plans for the future, let alone things that seem as far off as retirement. . You may not have a lot of spare money, but don't forget the difference a small amount each week will make to your final retirement benefits.

If you are thinking of opting out because of the cost, you can stay in the Scheme but pay less. 

There is an option called the 50/50 Section that allows you to pay half of the contribution but only build up half the pension.

If you have more than one job you can make this choice in one, all or some of them.

In the event of your death, your survivors’ benefits would still be payable at the full rate.

Your employer will need you to make your choice in writing.

This is only meant to be a short-term solution and you will have to pay the full contribution rate again when your employer re-enrols you into the main section (which they must do every three years).

If you are away from work without pay due to sickness you will have to pay the full rate when your pay recommences.

Make extra contributions

Find out how you can pay extra into your pension.

You may wish to get financial advice before making any decision to pay more into your pension.

The decision on when to retire is a major life event, which can be a cause for worry.

The first thing you need to do is see whether you will have enough to fund the kind of retirement you want.

Consider your retirement options

As you approach retirement we will send you details of your options.

You need to make some important decisions about how you want to take your benefits. You can take the standard package, for most members that will be a pension with an option to choose to give up some of your pension for a lump sum. If you have Additional Voluntary Contributions these will give you even more options.

Get some advice

Before you make any major decisions it’s important to consider obtaining independent financial advice.

You can also contact us to talk about your retirement.

When you are first automatically enrolled or when you are re-enrolled you have important decisions to make about whether you choose to remain in the Scheme.

Pensions savings build up over time

You may not have much spare money when you are automatically enrolled or re-enrolled, and saving for your retirement might not be high on your list of priorities at that time.

Being able to join the LGPS can be an advantage, helping you on your way to a reasonable level of income when you retire. However, the pension you eventually receive and any other pensions you might have built up may not be enough for you to retire comfortably on. Tools such as Pensions UK’s Retirement Living Standards can help you plan.

If you can afford it, you may wish to put away a bit extra into your pension each pay day. It doesn't even need to be much, but whatever you put in will build up over time and, you could be thanking yourself later on.

Find out how you can pay extra into your pension.

Whatever decisions you reach about remaining in the Scheme or opting back out of it you may wish to consider obtaining proper financial advice before making any decisions.

Get your pension together

You should keep track of all your pension savings during your career and take time every now and then to plan how much monthly income you think you will need in retirement.

The younger you are, the harder it will be to plan what you might need, but try to work it out and keep it under review. As you get older you will get a better idea of how much pension you think you will need and if you have planned well it will be easier to reach your goal.

The government are in the process of launching a national pensions dashboard, through which you will be able to see details of all the pension savings you have in one place, including an estimate of your state pension rights in retirement. To find out more, click here.