Information for charities and contractors
How does the LGPS work?
The Local Government Pension Scheme (LGPS) is a defined benefit public sector pension scheme primarily for local government employees or those employed by companies working for or with local government.
The LGPS is one of the largest defined benefit schemes in the world with over 4.5 million members. Unlike other public sector schemes, the LGPS is a funded scheme, administered by 89 local pension funds, with total assets in excess of £200bn.
Each Fund is run by an 'administering authority' which has some discretion over how to administer the LGPS, locally, but the rules of the LGPS are largely set out in the following regulations:
- The Local Government Pension Scheme Regulations 2013
- The Local Government Pension Scheme Transitional Provisions, Savings and Amendment Regulations 2014
- The Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016
The LGPS is a funded scheme, meaning that the contributions recieved are invested to provide each Fund with assets which are used to pay benefits to members. These assets are held and invested at Fund level and each individual employer is given a notional asset allocation.
Upon joining the Fund you would take responsibility for funding the pension benefits of your members, refered to as your 'liabilities'. The value of your notional assets against the value of your liabilities is known as the your 'funding position'.
Every three years a 'health check' of the Fund, known as the 'valuation', is carried out to assess the level of assets and liabilities held by each employer, at the date of the valuation. If you do not have enough notional assets to fund your liabilities you will have a 'pension deficit' and will need to pay extra contributions to cover the short fall. Academies benefit from a stabilised contribution rate, set by the Administering Authority. This prudent long term approach has been set in the interests of stability and affordability for Academies, as advised by the Fund Actuary.
Cessation of Academies in the LGPS is assumed to not be generally possible, as Scheduled Bodies are legally obliged to participate in the scheme, however, should you have no choice but to leave the Fund, a final valuation will be carried out. If the valuation confirms you have a pension deficit at that time, you will be expected to pay a final contribution into the Fund to cover that deficit, this is known as an 'exit payment'.
Employer Pension contributions
The contributions paid into the Fund by employers varies from employer to employer and the contribution required from each is calculated by the Fund actuary.
When you first join the Fund, the actuary will calculate the contribution rate that you will be required to pay. These rates are calculated to ensure that you have enough notional assets to match your liabilities, and will be reassessed every three years, at the valuation. As stated above Academies benefit from a stabilised contribution rate, and so you will not be required to pay more than this rate.
The next valuation of the Fund will take place in 2019 and new employer contribution rates will apply from 1 April 2020.
The LGPS is a career average scheme meaning that a member's benefits are based the amount of pensionable pay they earn each year. However, this was not always the case; before 1 April 2014 benefits were calculated using a member's final salary at the point they left the scheme and this continues to be the case for any benefits built up before that date.
Members who joined the LGPS before 1 April 2014 could have their pension based on three different calculations. The following is a summary of these calculations and for what period of membership they apply.
Pension benefits built up before 1 April 2008
Pensions built up before this date are based on 1/80th of a member's final salary multiplied by their membership before 1 April 2008. In addition to this, the benefits a member receives will also include an automatic tax-free lump sum worth 3 times their pension.
Final salary / 80 x Membership
Pension benefits built up from 1 April 2008 to 31 March 2014
Benefits built up between these dates are based on 1/60th of a member's final salary multiplied by their membership between 1 April 2008 to 31 March 2014.
Final salary / 60 x Membership
Pension benefits built up from 1 April 2014
Benefits built up from 1 April 2014 are based on 1/49th of a member's pensionable pay, for each year of membership. At the end of each year, the benefits are then adjusted to take into account the cost of living. The same thing then happens for each year of membership.
Pensionable pay for the year / 49 + cost of living adjustment
Since 1 April, members have also had the option of joining the 50/50 section of the scheme. In this section of the scheme, benefits are based on 1/98th of a member's pensionable pay, for each year of membership in this section of the scheme. The benefits are still adjusted at the end of the year to take into account the cost of living.
Pensionable pay for the year / 98 + cost of living adjustment
As an employer in the Fund, you will play a major role in the administration of the LGPS. This means that you will have a number of responsibilities. Full details, including deadlines and expectations, will be provided as part of the application process you must ensure that you have arrangements in place to fullful these responsibilities.
We can only provide a quality service to you and your members if these responsibilities are fulfilled quickly and accurately.
Your main responsibilities are:
- determine the eligibility for scheme membership, bringing eligible employees into the LGPS and dealing with opt outs
- notify us of new pensionable employees
- notify us of any material changes to pensionable employees, such as changes in hours and absence information
- process leavers, including retirements and deaths in service
- process ill health cases
- provide accurate contribution and membership data
- collect and pay over employer and employee contributions and any additional voluntary contributions
- make appropriate decisions when required and fulfill the employer role within the internal dispute resolution process
- prepare, publish and periodically review your employer discretions policy.
How do I become an employer?
Who can become an Admitted Body employer in the Fund?
Who can and can’t become an employer in the LGPS is set out in Schedule 2 of the Local Government Pension Scheme Regulations 2013. Admitted bodies can be admitted if they fulfil one of the below criteria and an admission agreement is entered into:
|(a)||a body which provides a public service in the United Kingdom which operates otherwise than for the purposes of gain and has sufficient links with a Scheme employer for the body and the Scheme employer to be regarded as having a community of interest (whether because the operations of the body are dependent on the operations of the Scheme employer or otherwise);|
|(b)||a body, to the funds of which a Scheme employer contributes;|
|(c)||a body representative of-|
|(i)||any Scheme employers, or|
|(ii)||local authorities or officers of local authorities;|
|(d)||a body that is providing or will provide a service or assets in connection with the exercise of a function of a Scheme employer as a result of-|
|(i)||the transfer of the service or assets by means of a contract or other arrangement,|
|(ii)||a direction made under section 15 of the Local Government Act 1999 (Secretary of State’s powers),|
|(iii)||directions made under section 497A of the Education Act 1996 ;|
|(e)||a body which provides a public service in the United Kingdom and is approved in writing by the Secretary of State for the purpose of admission to the Scheme.|
What is the process for joining?
If you have been awarded a contract; soon to commence a contract or are considering bidding for a contract containing LGPS members, you will need to contact us as early as possible before the event.
We will need to collect data from you about your eligible employees, set a contribution rate for you and calculate the value of assets and liabilities that you will inherit. You will also need to enter into an admission agreement with the ceding employer, and once this agreement has been approved by the relevant fund’s Pensions Board you will be granted admitted body status.
If you are reading this page, it is probably already time to contact us. You can do so now by emailing email@example.com
Will it cost me anything to particpate in the LGPS?
Yes, as an employer in the LGPS you will need to pay a contribution towards your employees’ pensions. This is in addition to contributions paid by employees themselves. As part of the onboarding process, we will inform you what this contribution rate needs to be.
In addition to paying employer contributions, there are other costs associated with joining and participating in the LGPS. The contribution rate is set by the Fund’s actuary.
Throughout the duration of your admitted body status, there will be ongoing costs in regards to bond renewals, additional actuarial work and final cessation costs. We can advise you of this on enquiry.