all about your scheme

All about yourScheme

West Midlands Pension Fund

A Guide to the Local Government Pension Scheme

for Eligible Councillors in England and Wales

July 2009

PAS 208 Councillors 2009:Layout 1 9/7/09 08:55

Contents

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The information in this booklet is based on the Local Government PensionScheme Regulations 1997 and other relevant legislation. The booklet was up-to-date at the time of publication in July 2009. It is for general use andcannot cover every personal circumstance. In the event of any dispute overyour pension benefits, the appropriate legislation will prevail as this bookletdoes not confer any contractual or statutory rights and is provided for information purposes only.

The booklet explains the benefits available to you when you join the LocalGovernment Pension Scheme. It describes how the Scheme works, what itcosts to join and the financial protection that it offers to you and your family.

The national website for members of the LGPS can be found atwww.lgps.org.uk

Introduction

The Choice

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The Guide

6-46

The Index

47-49


Your pensions choice Your retirement is a goal to look forward to. However, if your retirement is to meet your expectations, you will need to planand secure your retirement income.

Your retirement income and benefits,over and above the basic flat-ratestate pension, will in general be provided by the state second pension(S2P) scheme, a personal pensionplan, a stakeholder pension schemeor by an occupational pensionscheme such as the Local Government Pension Scheme. These are described briefly below.

State second pension (S2P)The state second pension (S2P) ispart of the state pension payable in addition to the flat-rate old age pension. Benefits are paid by the Department for Work and Pensions(the old DSS) and cannot be paid before state pension age. Initially,S2P was an earnings-related pension,but from April 2009 it began buildingup as a flat-rate pension achievingfull flat-rate accrual by around 2030.

Personal pension plans andstakeholder pension schemesVarious institutions, such as banks,building societies and life assurance companies provide and administerpersonal pensions and stakeholder pension schemes. Your chosen organisation would invest your contributions and when you retirethe investments are cashed in andthe sum of money realised is used tobuy retirement benefits from the insurance market. Your benefits are,therefore, based on investment returns and are not guaranteed orlinked to your earnings. The age fromwhich you may receive them willvary according to the plan, but youmay not be able to receive that partwhich replaces the S2P before statepension age.

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The Choice


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Local Government PensionScheme The Local Government PensionScheme (LGPS) is a statutory, fundedpension scheme. As such it is verysecure because its benefits are defined and set out in law. The LGPSis contracted-out of the S2P andmust, in general, provide benefits atleast as good as most memberswould have received had they beenmembers of S2P.

Highlights of the LGPS are:

• a tax-free lump-sum when you retire

• a pension based on your career average pay

• the ability to increase your pension by paying additional voluntary contributions

• voluntary retirement from age 60

• retirement from age 50 with yourauthority’s consent

• an ill-health pension from any age

• a death in service lump-sum oftwo times’ career average pay

• a widow's, widower's or civil partner’s pension

• children's pensions

• the index-linking of benefits to ensure that they keep pace withinflation.

In addition, as a member of theLGPS, your contributions will attracttax relief at the time they are deducted from your allowances and,up to state pension age, you will also pay lower national insurancecontributions on earnings betweenthe lower earnings limit and upperaccruals point unless you have optedto pay the married woman’s/widow’sreduced rate of national insurance.


Who can join?The LGPS is available to all councillors and elected mayors of an English county council, districtcouncil or London borough councilor of a Welsh county council orcounty borough council who are offered membership of the Schemeunder the council’s scheme of allowances and who are under age75. Those who are offered membership are termed eligiblecouncillors. If you have been offeredmembership of the Scheme it will befor you to decide whether or not toopt to join the Scheme. If you makean election to do so you will becomea member of the LGPS from the beginning of the first pay period following the receipt of your option(but see the special rules for previousoptants out on page 30).

How do I ensure that I havebecome a member of theLGPS?To secure your entitlement to theScheme benefits it is important thatyou complete and return the joiningform if you wish to opt into membership of the Scheme. On receipt of your form, relevantrecords will be set up and an officialnotification of your membership ofthe Scheme will be sent to you. In addition, you should check yourallowance payments to ensure thatpension contributions are being deducted.

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The GuideJoining the Local GovernmentPension Scheme (LGPS)


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Can I join the LGPS if I already have a personal pension or stakeholder pension scheme?If you currently contribute to a personal pension plan or stakeholderpension scheme and decide to jointhe LGPS, you can, if you wish, stillcontinue to make your own contributions to the personal pension or stakeholder pensionscheme from your earnings as acouncillor.

You can, if you wish, pay up to 100% of your taxable earnings inany one tax year (or £3,600 ifgreater) into any number of pensionarrangements of your choice and be eligible for tax relief on thosecontributions. However, unless youhave enhanced protection, there willbe a tax charge if in any year, otherthan the year in which all your pension benefits have becomepayable, the value of your pensionsavings increases by more than theannual allowance. There will also bea tax charge if, when you draw yourbenefits, the value of all your pension savings exceeds the lifetime

allowance (or, if you have opted forit, the primary lifetime allowanceprotection or enhanced protection).Tax will be payable on any excessamount. Most Scheme memberspension savings will be significantlyless than the lifetime and annual allowances. From 22 April 2009, aspecial annual allowance charge hasbeen introduced for 2009/2010 and2010/2011. Most Scheme memberswill not be affected by this. The lifetime, annual and special annual allowances cover any pension benefits you may have in alltax-registered pension arrangements– not just the LGPS – but excludesthe state pension.

I'm already receiving anLGPS pension – will it be affected if I join again?If you become a councillor whereyour council offers you membershipof the LGPS, you must tell the LGPSfund that pays your pension aboutyour new position, regardless ofwhether you join the Scheme in yournew position or not. They will thencheck to see whether the pensionthey are paying should be reduced.


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What do I pay?Your contribution is 6% of the payyou receive.

Your contributions are very secure.As the LGPS is set up by statute,payment of benefits to its membersis guaranteed by law.

What does the council pay?The council pays the balance of thecost of providing your benefits aftertaking into account investment returns. Every three years, an independent actuary calculates howmuch the council should contributeto the Scheme. The amount will vary, but the present underlying assumption is that you contributeapproximately one third of theScheme's costs and the council contributes the remainder.

Do I receive tax relief on mycontributions?The Scheme is fully approved by HM Revenue and Customs, whichmeans that you receive tax relief onyour contributions. To achieve this,your contributions are deductedfrom your allowances before you paytax. So, for example, if you pay tax atthe rate of 20%, every £1 that youcontribute to the Scheme only costsyou 80p net.

What about my national insurance contributions?As the Scheme is contracted-out ofthe S2P you will, up to state pensionage, pay reduced national insurancecontributions on your allowances between the lower earnings limitand upper accruals point, unless youhave opted to pay the marriedwoman’s/widow’s reduced rate ofnational insurance.

Can I make extra contributions to increase my benefits? Members are able to increase theirbenefits by making additional voluntary contributions (AVCs). Additionally, you may paycontributions into a personal pension plan or a stakeholder pension scheme. These options areexplained in more detail on pages 22 to 24.

Is there a limit to how muchI can contribute?At the present time there is no overall limit on the amount of contributions you can pay (althoughthere is a limit on the amount youcan pay into the Scheme’s AVCarrangement – see page 22). However, tax relief will only be givenon contributions up to 100% of your

Contributions


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taxable earnings. Additionally, unlessyou have enhanced protection, therewill be a tax charge if in any year,other than the year in which all yourpension benefits have becomepayable, the value of your pensionsavings has increased in excess ofthe annual allowance. There will alsobe a tax charge if, when you drawyour benefits, the value of all yourpension savings exceeds the lifetimeallowance (or, if you have opted forit, the primary lifetime allowanceprotection or enhanced protection).Tax will be payable on any excessamount.

From 22 April 2009 a special annual allowance charge has beenintroduced for 2009/2010 and2010/2011. Most Scheme memberswill not be affected by this.

Can I transfer pension rightsinto my current LGPS fundfrom a previous pensionscheme?The rules of the Scheme do not permit you to transfer pension rightsinto the LGPS from another pensionscheme or, indeed, from anotherlocal authority pension fund.

Points to Note• If you have a deferred benefit

from a previous period of councillor membership in thesame LGPS Fund, you may opt toaggregate the earlier councillormembership with the current period of councillor membership,but only if you opt to do so within12 months of rejoining theScheme or such longer period asyour council allows. This is a council discretion; you can askyour council what their policy ison this matter. Pension rights builtup as an employee in England orWales cannot be joined withrights built up a councillor ormayor in England or Wales andvice versa.


When can I retire?You can retire and receive your LGPS benefits in full once you haveattained age 65. The Scheme alsomakes provisions for the early payment of your LGPS benefits andthese are detailed in the sections onIll-Health and Early Retirement onpages 13 to 16.

The state pension age is 65 for menand 60 for women. However, fromthe year 2020, the Government willhave equalised the state pension agefor both men and women at 65. The increase in the state pension age for women will be phased ingradually from the year 2010 asshown on page 45. The state pensionage will be increased further from 65to 68 between 2024 and 2046.

What are my retirementbenefits? When you retire, you will receive apension and a tax-free lump-sumfrom the LGPS. At state pension ageyou will also receive the basic flat-rate state pension if you havepaid sufficient national insurancecontributions during your workinglife.

How much will my pensionbe?Your pension is based on your totalmembership and your career averagepay. The example below shows howyour pension is calculated by dividing your career average pay into80ths and multiplying this figure byyour total membership to give youyour annual pension.

How much will my lump-sum be?The lump-sum automatically paid on retirement is three times your annual pension and is tax-free. Like your pension, it is based on yourcareer average pay and your totalmembership. The calculation for thelump-sum is 3/80ths of your careeraverage pay for every year of totalmembership. When you draw yourbenefits you will be able to exchangesome of your pension to receive abigger tax-free lump-sum – furtherinformation on giving up some ofyour pension to increase your lump-sum is provided on page 11.

Retirement Benefits

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Example pension and lump-sum calculation

On retirement at age 65, a Schememember has 30 years and 204 days’total membership and has a careeraverage pay of £16,200.

The annual pension is therefore:1/80 x £16,200 x 30 204/365 =£6,188.18

The tax-free lump-sum automaticallypaid is therefore:3/80 x £16,200 x 30 204/365 =£18,564.53

Can I give up some of mypension to increase mylump-sum?You will be able to exchange some ofyour pension for a bigger tax-freelump-sum. You will be able to takeup to a maximum of 25% of thecapital value of your pension benefits as a tax-free lump-sum or, if lower, 25% of the lifetime allowance less an adjustment for the value of any other pension benefits you are already drawing. The lump-sum automatically paid on retirement as detailed aboveroughly equates to 15% of the capital value. Any amount you takeas a lump-sum above the automaticlump-sum would be achieved by exchanging part of your annual

pension for a one-off tax-free cashpayment – for each £1 annual pension given up you will receive£12 lump-sum.

An option to take extra lump-sumhas to be made in writing beforeyour benefits are paid. So that youhave plenty of time to make up yourmind and seek financial advice if youwish, it is important you contactyour administering authority well inadvance of your intended retirementdate so they can provide you withmore details.

Your pension will be reduced in accordance with any election youmake to receive extra lump-sum. Any subsequent widow’s, widower’s,civil partner’s and children’s long-term pensions will not be affected if you decide to exchangepart of your pension for extra lump-sum.

How will my pension bepaid?Monthly pension payments will bemade direct into your bank or building society account. Similararrangements can also be made topay your pension into your accountshould you move abroad. Further information regarding payment ofpensions is provided on retirement.

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Will my pension increase?After age 55, members’ pensions inpayment will be increased each yearin line with the retail prices index(RPI). If you retire before age 55, theaccumulated effect of inflation sinceyou retired will be added to yourpension when you reach age 55 (butsee page 14 regarding the increasingof ill-health pensions.)

Points to Note• If your pension benefits are

subject to a pension sharing orderissued by the court following a divorce or annulment of marriageor the making of an order for thedissolution or nullity of a civilpartnership, or are subject to aqualifying agreement in Scotland,your benefits will be reduced inaccordance with the court orderor agreement (see pages 32 and33 for further details).

• Under HM Revenue and Customsrules, if the capital value of yourLGPS retirement benefits togetherwith other pension benefits youare receiving (not including anystate retirement pension, statepension credit or any spouse’s,civil partner’s or dependant’s pension you may be entitled to)exceeds the lifetime allowance (oryour primary lifetime allowanceprotection or enhanced protectionif you have opted for it), the excess will be subject to a

recovery tax charge. Your administering authority will letyou know what the value of yourLGPS benefits on retirement isand ask you about any other pensions you may have in payment, so they can work outwhether or not to deduct a recovery tax charge. If you do not provide this informationpromptly it could delay the payment of your pension. MostScheme member’s pension savingswill be significantly less than thelifetime allowance.

• Under HM Revenue and Customrules, if the LGPS makes an unauthorised payment or if youpay some or all of your LGPSlump-sum back into a pensionarrangement, there will be a taxcharge.

• If, after retiring, you return to employment or office within localgovernment or employment withanother organisation that participates in the LGPS, yourpension may be reduced or suspended in accordance with the policy adopted by your administering authority. Under the LGPS, this is an administeringauthority discretion and their policy with regard to it must beincluded in a policy statement.Further details will be provided onrequest.


What happens if I have toretire early due to ill-health?If you have at least three months’total membership and an administering authority-approved independent registered medical practitioner certifies that you havebecome permanently unable (untilyour 65th birthday) to perform theduties of your office efficiently because of ill-health or infirmity ofmind or body, you will receive yourpension and lump-sum immediately.The medical practitioner must bequalified in occupational healthmedicine and must not have previously been involved in yourcase.

How is an ill-health pensionand lump-sum calculated?Ill-health pensions and lump-sumsare calculated in the same way asdetailed in the section on RetirementBenefits, except that the total membership used in the calculationwill be increased if your total membership is five years or more.This is to reflect that you are havingto retire early. The amount by whichit will be increased is shown in thetable below.

Ill-Health Retirement

Total membership Total membership after increase awarded

Less than 5 years Actual total membership only

Between 5 and 10 years Total membership doubled

Between 10 and 131/3 years Total membership increased to 20 years

Over 13 1/3 years Total membership increased by 62/3 years

Your increased membership, however, must not exceed the total membershipyou would have accrued had you continued in service until age 65.

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What if I do not qualify foran ill-health pension andlump-sum?If you have less than three months’total membership you will receive arefund of your contributions.

Points to Note• If your pension benefits are

subject to a pension sharing orderissued by the court following a divorce or annulment of marriageor the making of an order for thedissolution or nullity of a civilpartnership, or are subject to aqualifying agreement in Scotland,your benefits will be reduced inaccordance with the court orderor agreement (see pages 32 and33 for further details).

• Your pension benefits will not beincreased if you have previouslybeen awarded an ill-health pension under the Scheme.

• When, at the date of retirement,the administering authority is satisfied that there is a life expectancy of less than a year, the administering authority maycommute the pension into a lump-sum equal to a lump-sum offive times the annual amount ofpension given up.

• Ill-health pensions are increasedeach year in line with the RPI regardless of age.

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Can I retire early?If you have at least three months’total membership you can retirefrom office and receive payment ofyour benefits at any time from age60 onwards.

If you are aged 50 to 59 you may be able to retire from office and receive payment of your benefits immediately but payment of benefits before age 60 is only possible with your council’s consent.This is a council discretion and underthe LGPS your council’s policy withregard to this must be included ontheir policy statement.

Will my pension and lump-sumbe reduced if I retire early?

If you join the LGPS after 30 September 2006, retire and electto receive benefits before age 65your pension and lump-sum, initially

calculated as detailed in the sectionon Retirement Benefits, will be reduced to take account of beingpaid for longer. How much your benefits are reduced by depends onhow early you draw them.

The reduction is calculated in accordance with guidance issued by the Government Actuary’s Department from time to time. The reduction is based on the lengthof time (in years and days) that you retire early – ie, the period betweenthe date your benefits are paid toage 65. The earlier you retire, thegreater the reduction.

As a guide, the percentage reductions,issued in October 2006, for retirements up to five years early between and including the ages of 55and 65 are shown in the table below.Where the number of years is notexact, the reduction percentages areadjusted accordingly.

Early Retirement

No. of years Pensions reduction Lump-sumpaid early Men Women reduction

0 0% 0% 0%1 6% 5% 2%2 11% 10% 5%3 16% 15% 7%4 20% 19% 9%5 24% 23% 12%

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If you are contributing to theScheme on 30 September 2006some or all of your benefits paidearly could be protected from the reduction if you are a protectedmember.

Your council can agree not to makeany reduction on compassionategrounds. This is a council discretion;you can ask your council what theirpolicy is on this matter.

If you voluntarily retire before age 65 you do not have to receive immediate payment of your benefitsand can defer them within the LGPSfor payment at a later date as detailed on page 26.

Points to Note• If your council gives consent to

immediate early retirement benefits on or after age 50 andbefore age 60, your pension willbe increased each year in line withthe RPI except that if the benefitsare paid before age 55, your pension will be paid at a flat-rateuntil age 55. At that time it will be increased by the accumulated effect of inflation since you retired.

• If your pension benefits are subject to a pension sharing orderissued by the court following a divorce or annulment of marriageor the making of an order for thedissolution or nullity of a civilpartnership, or are subject to aqualifying agreement in Scotland,your benefits will be reduced inaccordance with the court orderor agreement (see pages 32 and33 for further details).

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What if I carry on workingafter age 65? If you carry on in office after age 65you will continue to pay into theScheme, building up further benefits.You can receive your pension whenyou retire, or when you reach theeve of your 75th birthday, whicheveroccurs first.

If you draw your pension after age65, the pension you have built up toage 65 will be increased to reflectthe fact that it will be paid for ashorter time.

Your pension has to be paid beforeyour 75th birthday.

If your pension benefits are subjectto a pension sharing order issued bythe court following a divorce or annulment of marriage or the making of an order for the dissolution or nullity of a civil partnership, or are subject to a qualifying agreement in Scotland,your benefits will be reduced in accordance with the court order oragreement (see pages 32 and 33 for further details).

Late Retirement

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What benefits will be paid ifI die in service? If you die in service as a member ofthe LGPS, subject to the qualifyingconditions detailed, the benefitsshown below are payable.

• A lump-sum death grant A lump-sum death grant of twotimes your career average pay ispayable no matter how long youhave been a member of the LGPS,provided you are under age 75 atthe date of death.

• A widow's, widower’s or civilpartner’s pensionA short-term pension, at an annual rate equal to your careeraverage pay, is paid to your widow,widower or civil partner for threemonths immediately followingyour death, no matter how longyou have been a member of theLGPS. If there are eligible children(any of whom are in the care ofyour widow, widower or civil partner) this pension is paid for six months.

If you should die in service havingbuilt up three months’ total membership then the LGPS willalso pay a long-term pension toyour widow, widower or civil partner commencing when the

short-term pension ends. The long-term pension is generallyhalf the pension you would havereceived if you had retired earlydue to ill-health on the date ofdeath.

• Pensions for eligible childrenChildren's pensions are payable forso long as eligible children remainfollowing your death, no matterhow long you have been a member of the LGPS. Eligible children are your children. Theymust, at the date of your death:

• be under 18 and be wholly ormainly dependant on you, or

• be aged 18 or over and under 23,be dependent on you, and be infull-time education or undertakingvocational training (although adependant child who commencesfull-time education or vocationaltraining after the date of yourdeath may be treated as an eligible child up to age 23), or

• in come cases, a dependant childof any age who is disabled may beclassed as an eligible child.

In all cases, the children musthave been born before or within ayear of your death.

Protection for Your Family

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A long-term pension is payable atthe rate of one quarter of yournotional pension entitlement ifthere is one child or at the rate ofone-half if there are two or morechildren. If no widow’s, widower’sor civil partner’s long-term pension is payable, the pension ispayable at the rate of one-thirdwhere there is one eligible childand at the rate of two-thirdswhere there is more than one eligible child. The pension may bereduced if a child is receiving payover and above a set level while infull-time training for a trade, profession or vocation.

Your notional pension entitlementis calculated by reference to thelesser of the total membershipyou would otherwise have accruedby age 65, or 10 years. If at thedate of death you have alreadybuilt up five or more years’ totalmembership, and you had not previously retired from the LGPSon health grounds, the notionalamount will, if higher, be calculated by reference to thetotal membership you would have had if you had retired due to ill-health.

Normally, payment of the children's long-term pension willcommence when the widow's,widower's or civil partner’s short-term pension ceases. If nowidow's, widower's or civil partner’s short-term pension ispayable, however, a children'sshort-term pension, equal to theamount that would have beenpaid to a widow, widower or civilpartner, is paid for six months. Ifthe children are not in the care ofthe surviving spouse or civil partner, a children’s short-termpension is paid for three months.In both cases, commencement ofthe children's long-term pension is normally deferred until theshort-term pension ceases.

What benefits will be paid if I die after retiring on pension?If you die after retiring on pension,your benefits will no longer bepayable. Your widow, widower, civilpartner, next-of-kin or person dealing with your estate must immediately inform the Fundwhose address is given on the backpage of this booklet of your date ofdeath as otherwise an overpaymentcould occur.

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The following benefits may then bepayable:

• A lump-sum death grant A lump-sum death grant will bepayable if the death occurs in thefirst five years on pension and youare under age 75 at the date ofdeath. The sum payable will befive times your annual pension reduced by the pension alreadypaid to you up to the date ofdeath.

• A widow's, widower’s or civilpartner’s pensionA widow, widower or civil partnerwill receive a short-term pensionfor the three months followingyour death, or six months if one ormore eligible dependent childrenare in the widow’s, widower’s orcivil partner’s care. This will beequal to the pension you were receiving or would have receivedbut for a reduction as a result ofearly retirement or had it notbeen paid as a lump-sum due toexceptional ill-health. After thatthe widow, widower or civil partner will receive a long-termpension generally equal to half thepension you were receiving orwould have received but for a reduction as a result of early retirement or as a result of an exchange of pension for an increased lump-sum, or had it notbeen paid as a lump-sum due toexceptional ill-health. If you

married after retirement and youhad retired on the grounds of permanent ill-health, the widow’sor widower’s pension will only bebased on half of your basic pension, ie, excluding any enhancement to your pension onaccount of ill-health retirement(see page 13). If you entered into a civil partnership after retirement, the civil partner’s pension will be half your pension.

• Pensions for eligible childrenChildren's pensions are payable forso long as eligible children remainfollowing your death, as detailed on page 18. The pension is not calculated, however, against a notional entitlement. It is calculated instead against thepension you were receiving at thedate of your death or would havereceived but for a reduction as aresult of early retirement or as aresult of an exchange of pensionfor an increased lump-sum, or hadit not been paid as a lump-sumdue to exceptional ill-health. If your pension was originally calculated on a total membershipof less than the shorter of tenyears or the amount you couldhave accrued had you continuedworking to age 65, this amount isused to increase your pension forthe purpose of calculating thechildren’s pension only.

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Points to Note• Your administering authority has

the discretion to pay the lump-sum death grant to your nominee or personal representatives or to any personwho appears, at any time, to havebeen your relative or dependant.The LGPS allows you to expressyour wish as to who you wouldlike any death grant to be paid toby completing and returning anexpression of wish form. If anypart of the death grant has notbeen paid by the second anniversary of your death, it must be paid to your personalrepresentatives, ie, to your estate.If you have not already made yourwishes known, or you wish tochange a previous expression ofwish, a form is available from youradministering authority.

• Your personal representatives willneed to inform HM Revenue andCustoms if, with the lump-sumdeath grant, the value of all yourpension benefits (not includingany spouse’s, civil partner’s or dependant’s pensions) exceedsthe HM Revenue and Customslifetime allowance (or primarylifetime allowance protection ifyou have opted for it). Under HMRevenue and Customs rules, anyexcess will be subject to a recovery tax charge. Most Scheme

members’ pension savings will be significantly less than the allowance.

• Widows', widowers', civil partners’and children's pensions are increased each year in line withthe RPI regardless of age.

• Widow's, widower's and civil partner’s pensions are payable forlife even if your widow, widoweror civil partner remarries, entersinto a new civil partnership or cohabits.

• If your pension benefits are subject to a pension sharing order issued by the court following a divorce or annulmentof marriage or the making of anorder for the dissolution or nullityof a civil partnership, or are subject to a qualifying agreementin Scotland, your benefits will bereduced in accordance with thecourt order or agreement. In consequence, if you remarry or enter into a new civil partnership, any spouse's pensionor civil partner’s pension payablefollowing your death will also bereduced (see pages 32 and 33 forfurther details). Benefits payableto eligible children will not, however, be reduced because of apension share.

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How can I increase my benefits? To increase the value of the benefitsthat you and your dependants receive, you may:

• make an additional voluntarycontributions (AVC) arrangement. All local government pensionfunds have an in-house AVCscheme where you can investmoney, deducted directly fromyour allowances, through an AVCprovider (often an insurance company or building society).

If you choose to pay AVCs under the LGPS, the AVCs are invested separately, in funds managed bythe AVC provider. You have yourown personal account that, overtime, builds up with your contributions and the returns onyour investment, and will be available to you when you retire.You can often choose which investment route you prefer.

You decide how much you can afford to pay. You can pay up to50% of your taxable earnings intoan in-house AVC in each officeyou hold where you pay into theLGPS.

AVCs are deducted from your allowances, just like your normalcontributions. Your LGPS and AVCcontributions are deducted beforeyour tax is worked out, so, if youpay tax, you receive tax relief(normally at your highest rate)automatically through the payroll.You qualify for tax relief on allpension contributions up to 100%of your taxable earnings, includingyour normal contributions. Deductions start from the next available pay day after your election has been accepted andyou may vary or cease payment atany time while you are payinginto the LGPS.

At retirement any of your AVCfund which you do not take as alump-sum is used to buy you an annuity. An insurance company,bank or building society of yourchoice takes your AVC fund andpays you a pension in return. You can do this at the same timeyou draw your LGPS benefits oryou can choose to defer buying anannuity until any time up to tothe eve of your 75th birthday. If you carry on paying into theLGPS after age 65 you cannot buy an annuity until you retire, oryou reach the eve of your 75thbirthday if this is earlier.

Increasing Your Benefits

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An annuity is paid completelyseparately from your LGPS benefits.The amount of annuitydepends on several factors, suchas interest rates and your age. You also have some choice overthe type of annuity, for examplewhether you want a flat-rate pension or one that increases eachyear, and whether you also wantto provide for dependants’ benefits in the event of yourdeath.

Annuities are subject to annuityrates which in turn are affected byinterest rates. When interest ratesrise, the organisation selling annuities is able to obtain agreater income from each poundin your AVC fund, and thereforecan provide a higher pension. A fall in interest rates reduces thepension which can be purchased.

If you draw your AVCs at the sametime as your LGPS pension, youmay be able to take some or all ofyour AVCs as a tax-free lump-sum,provided when added to the automatic LGPS lump-sum as detailed on page 11 it does not exceed 25% of the overall value of your LGPS benefits (includingyour AVC fund) or, if less, 25% ofthe lifetime allowance less an adjustment for the value of anyother pension benefits you are already drawing. If you retire anddecide to draw your AVCs later,

you can normally only have up to25% of your AVC fund as a lump-sum.

You can also pay AVCs to increaseyour death in service lump-sumcover over and above the twotimes career average pay providedby the LGPS, or to provide additional dependants’ benefits.

• contribute to a concurrent personal pension plan or stakeholder pension schemeYou may be able to make yourown arrangements to pay into apersonal pension plan or stakeholder pension scheme atthe same time as paying into theLGPS. With these arrangements,you choose a provider, usually aninsurance company. You may want to consider their charges, alternative investments and pastperformance when you do this.

You choose how much to pay intothe arrangement. You can pay upto 100% of your total taxableearnings in any one tax year (or£3,600 if greater) into any number of concurrent pensionarrangements of your choice andbe eligible for tax relief on thosecontributions.

If you pay into a personal pensionplan or stakeholder pensionscheme, the contributions youmake to it are invested in fund

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managed by an insurance company.You have your own personal accountthat, over time, builds up with yourcontributions and the returns on yourinvestment, and will be available laterin your life to convert into additionalbenefits. You can often choose whichinvestment route you prefer.

When the benefits are paid, you willbe able to take up to 25% of yourFund as a tax-free lump-sum, provided the lump-sum does not exceed 25% of the lifetime allowanceless the value of any other pensionrights you have in payment, with theremainder available to buy you anannuity from an insurance company,bank or building society (but you candefer purchasing an annuity until theday before your 75th birthday at thelatest).

The amount of annuity depends onseveral factors, such as interest ratesand your age. You also have somechoice over the type of annuity, forexample whether you want a flat-rate pension or one that increases each year, and whether you also want to provide for dependants’ benefits in the event of your death.

Annuities are subject to annuity rateswhich are affected by interest rates.When interest rates rise, the organisation selling annuities is ableto obtain a greater income from each pound in your AVC fund, and

therefore can provide a higherpension. Conversely, a fall in interestrates reduces the pension which canbe purchased.

Points to Note• You can, if you wish, pay up to

100% of your taxable earnings inany one tax year (or £3,600 ifgreater) into any number of pension arrangements of yourchoice and be eligible for tax reliefon those contributions. However,there are controls on the pensionsavings you can have before youpay extra tax (see page 7 for details) and the maximum amountof Scheme AVCs you can pay is50% of your taxable earnings ineach office you hold where youare a member of the LGPS.

• Providing the contribution limitsabove are not exceeded, your contributions will qualify for taxrelief.

• If you elect to pay AVCs for additional death benefits, you maybe required to satisfy certain medical conditions. You may beasked to complete a medical questionnaire and may be asked toundergo a medical examination atyour own expense before yourelection is accepted.

• Further information on increasingyour Scheme benefits is availableby contacting the Fund

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What happens to my benefits if I cease to be a councillorparticipating in the LGPS?In these circumstances you may choose, from a number of options, whathappens to the benefits you have accrued in the LGPS. The options availableto you are described in the table below.

Ceasing to be a Councillor Before Retirement

If you have:Less than three months’ total membership

EitherTo take a refund of your contributionsless a deduction for tax and the cost, ifany, of buying you back into the statesecond pension scheme (S2P).

OrTo transfer an amount equal to the cashequivalent of your pension benefits intoyour new employer’s scheme providedthey are willing and able to accept it,into a personal pension plan, into a ‘buy-out’ insurance policy or into astakeholder pension scheme (but not the LGPS in England or Wales unless you again participate in the same LGPSfund as a councillor member).

OrTo defer making a decision until you either rejoin the same LGPS fund as acouncillor member, or join a new pension scheme, or want to take a refund of contributions.

At least three months’ total membership

EitherTo leave your accrued benefits in theLGPS. Your pension and lump-sum willbe calculated as described in the sectionon Retirement Benefits using the lengthof your total membership up to the datethat you left the Scheme. This is knownas having deferred benefits

OrTo transfer an amount equal to thecashequivalent of your pension benefitsinto your new employer’s scheme provided they are willing and able to accept it, into a personal pension plan,into a stakeholder pension scheme, orinto a ‘buy-out’ insurance policy (butnot to the LGPS in England or Wales unless you again participate in the sameLGPS fund as a councillor member).

Note: it may be possible to make a transfer payment to an overseas pensionscheme or arrangement that meets HM Revenue and Customs conditions.

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What will happen to mybenefits if I choose to deferthem?Deferred benefits are where we workout the value of your benefits whenyou leave the LGPS and hold them inthe LGPS for you until either you decide to transfer them to anotherpension scheme, or they are due tobe paid.

Deferred benefits become payable atage 65 (unless you opt to defer payment beyond that age), but maybe put into payment at any age earlier than 65 in the event of ill-health, without reduction. You canalso elect to receive your benefitsearly, on or after age 50 and beforeage 60 with your council’s consentas detailed on page 15, or at or afterage 60, without your council’s consent. Your benefits (unless beingpaid on the grounds of permanent ill-health) will be reduced as detailedon page 15 if paid before age 65 totake account of early payment (although some or all of your benefits could be protected from the reduction if you were contributing to the Scheme on 30 September 2006 and you are aprotected member). Your formercouncil can agree not to make anyreduction on compassionategrounds. The percentages will differfrom those shown where benefits are paid with the former council’sconsent before age 55. Please

contact the Fund for details of thepercentage reductions that applywhen deferred benefits are put intopayment before age 55 for reasonsother than ill-health.

What will happen if I die before receiving payment ofmy deferred benefits?Should you die while your benefitsare deferred your retirement lump-sum will be paid as a death grant.Payment will be made as detailed onpage 21.

A widow's, widower's or civil partner’s long-term pension will also become payable. The widow's,widower’s or civil partner’s pensionis payable at the rate of one-half ofyour deferred pension.

Long-term children's pensions will be payable for so long as eligiblechildren remain following yourdeath, as detailed on page 18. The pension is not calculated, however, against a notional entitlement. It is calculated insteadagainst the pension you would havereceived had your deferred benefitsbeen put into payment on the dateof your death. If your pension wouldhave been calculated on a totalmembership of less than the shorterof ten years or the amount youcould have accrued had you continued in office to age 65, thatamount is used to increase your

26


pension for the purpose of calculating the children’s pensiononly.

What will happen if I wish to transfer my LGPS pension benefits to another(non-LGPS) scheme?If you are interested in transferringthe value of your LGPS pensionrights to another occupational pension scheme (outside of the Local Government Pension Schemein England and Wales), to a personalpension plan, to a stakeholder pension scheme or to a buy-out insurance policy you can ask for atransfer value quotation to be provided (known as the ‘cash equivalent’ transfer value). Underprovisions introduced by the Pensions Act 1995, a quotation mustbe guaranteed for a period of threemonths from the date on which itwas calculated (the ‘guarantee date’).A written option to proceed with theguaranteed transfer value must bereceived within the three monthguaranteed period. If you opt to proceed, the normal time limit forthe Scheme to pay the guaranteedtransfer value will be six monthsfrom the ‘guarantee date’. If theScheme does not make paymentwithin this period it will need to recalculate the value as at the actualdate of payment and pay the recalculated value or, if it is greater,the original value plus interest.

Transfer values are calculated in accordance with the terms and conditions of the Local GovernmentPension Scheme Regulations 1997(as amended) which comply with requirements of the PensionsSchemes Act 1993.

Points to Note• A refund of contributions cannot

be paid if you already have a deferred benefit in the LGPS inEngland or Wales.

• Only Scheme members who leavemore than one year before age 65can transfer their pension rights.The latest an option to transfercan be made is one year beforeage 65 or six months after leavingthe Scheme, if this is later.

• You may wish to obtain independent financial advice before you make a decision totransfer your deferred benefits to a personal pension plan, stakeholder pension scheme orbuy-out insurance policy, as youwill be bearing all of the investment risk, which could significantly affect your futurepension benefits.

• When you draw your benefits you will be given the option to exchange some of your pensionfor a bigger tax-free lump-sum(see page 11 for further details).

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• Under HM Revenue and Customsrules, if the capital value of yourdeferred benefits on payment together with other pension benefits you are receiving (not including any state retirementpension, state pension credit orany spouse’s, civil partner’s or dependant’s pension you may beentitled to) exceeds the lifetimeallowance (or your primary lifetime allowance protection orenhanced protection if you haveopted for it), the excess will besubject to a recovery tax charge.When your deferred benefits become payable your administering authority will letyou know their value and ask youabout any other pensions youmay have in payment, so they canwork out whether or not todeduct a recovery tax charge. If you do not provide this information promptly it coulddelay the payment of your pension. Most Scheme memberspension savings will be significantly less than the lifetimeallowance.

• Deferred benefits (including thelump-sum benefits) are increasedannually in line with the RPI.However, should your deferredbenefits be brought into paymentbefore age 55 on the grounds ofpermanent ill-health, pensions

increase is only payable beforeyour 55th birthday if you are certified as being incapable of engaging in any regular full-timework; if you are not so certified, oryour deferred benefits are broughtinto payment with your formerauthority's consent before age 55,the benefits will be paid at a flat-rate until age 55. Then, at age 55,the benefits will be increased bythe accumulated effect of inflation since they were broughtinto payment.

• Under HM Revenue and Customsrules your pension savings in allyour pension arrangements canincrease in any one year up to theannual allowance without incurring an extra tax charge. Unless you have enhanced protection, any increase in thevalue of your deferred benefitswill be taken into account in assessing whether you exceed theannual allowance (other than inthe year in which they becomepayable). Most Scheme members’benefits will not exceed the annual allowance.

• Widow's, widower's and civil partner’s pensions are payable forlife even if your widow, widoweror civil partner remarries, entersinto a new civil partnership or cohabits.

28


• Widows', widowers', civil partner’sand children's pensions are increased each year in line withthe RPI regardless of age.

• If your pension benefits are subject to a pension sharing orderissued by the court following a divorce or annulment of marriageor the making of an order for thedissolution or nullity of a civilpartnership, or are subject to aqualifying agreement in Scotland,your benefits will be reduced inaccordance with the court orderor agreement. In consequence, ifyou have deferred benefits andyou remarry or enter into a newcivil partnership, any spouse's orcivil partner’s pension payable following your death will also bereduced (see pages 32 and 33 forfurther details) but benefitspayable to eligible children willnot be reduced because of a pension share.

• Further information on the options available on leaving theLGPS will be sent to you on leaving.

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Can I opt-out of the LGPS? You can leave the LGPS at any timeby giving your council notice in writing. An election to opt-out becomes effective from the end ofthe payment period during whichyou gave notification, unless yournotification specifies a later date. You are recommended to obtain advice before opting-out of theLGPS.

If you opt-out the same options areavailable to you as detailed in thesection on Ceasing to be a Councillorbefore Retirement (except that deferred benefits cannot be paiduntil you have ceased to be a councillor or, if earlier, age 75).

Can I rejoin the LGPS at alater date?If you opt-out once, you can rejointhe LGPS at any time while you remain an eligible councillor.

If you opt-out of the LGPS morethan once, unless you elect to rejointhe Scheme within three months ofcommencing as an eligible councillorwith a new council, you will only beallowed to rejoin at the discretion ofyour council. You can ask your council what their policy is on thismatter.

Points to Note• You may wish to obtain

independent financial advice before you make a decision toopt-out of the LGPS.

Opting-Out of the LGPS

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The LGPS requires your administering authority to:

• pay interest on lump-sum benefitsthat are paid more than onemonth after they should havebeen paid.

• pay interest on pensions that arepaid more than a year after theyshould have been paid.

• pay interest on refunds of contributions that are paid morethan a year after the date you leftthe LGPS.

• issue annual benefits statementsto Scheme members (other thanto pensioners).

• have a statement setting out theirpolicy on communicating withScheme members, members’ representatives, prospective members and employers.

The LGPS allows your administering authority to:

• commute small pensions into single lump-sum payments. The circumstances where this mayhappen are restrictive, particularlyif you have other pension benefits.

The LGPS allows your authority to:

• reduce pension benefits if a LGPSmember leaves as a result of acriminal, negligent or fraudulentact, or omission as a result ofwhich you have incurred somemonetary obligation to your employer.

• forfeit a LGPS member’s pensionrights if the Secretary of State for Communities and Local Government agrees and the member has been convicted of aserious offence connected withtheir office.

The LGPS does not allow you to:

• assign your benefits. Your LGPSbenefits are strictly personal andcannot be assigned to anyone elseor used as security for a loan.

Some Other LGPS Provisions

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Under the LGPS, if you get divorcedor a civil partnership is dissolved, youmay wish to note that:

• your ex-wife, ex-husband or ex-civil partner will cease to beentitled to a widow’s, widower’sor civil partner’s pension shouldyou predecease them.

• any children’s pension payable inthe event of your death will notbe affected by your divorce.

• if you have said that you wouldlike your ex-wife, ex-husband orex-civil partner to receive anylump-sum death grant payable onyour death by completing and returning an expression of wishform, this will remain in place unless you change it. The courtmay, however, issue an earmarkingorder stating that all or part ofany lump-sum death grant ispayable to your ex-spouse or ex-civil partner.

You should also note that in proceedings for divorce, judicial separation or nullity of marriage, orfor dissolution, separation or nullityof a civil partnership, you will be required to obtain the cash equivalent value of your pension

rights from the administering authority which the court will takeinto account in the divorce or dissolution settlement. In Scottishdivorces/dissolution, only the pension rights built up during the period of the marriage/civil partnership are taken into account.

The court may offset the value ofyour pension rights against yourother assets in the divorce/dissolution settlement or it mayissue a pension sharing order or anearmarking order against your pension.

If the court issues an earmarkingorder, the order may require thatwhen your benefits come into payment your ex-spouse/ex-civilpartner should receive one, or acombination, of the following benefits:

• all, or part, of your pension (thisdoes not apply to divorces/dissolutions in Scotland)

• all, or part, of your lump-sum retirement grant

• all, or part, of any lump-sum paidin the event of your death.

Pensions and Divorce or Dissolutionof a Civil Partnership

32


An earmarking order against pensionpayments, but not lump-sums (unless the order directs otherwise),will automatically lapse if your former spouse or civil partner remarries or enters into a civil partnership and the full pensionwould be restored to you. Pensionpayments to your former spouse orcivil partner would cease on yourdeath.

If the court issues an earmarkingorder, or you are subject to a qualifying agreement in Scotland,part of your benefits are transferredto your ex-spouse or ex-civil partner.Your pension, your lump-sum andthe contingent spouse's/civil partner’s pension, but not the contingent children's pensions, willbe reduced accordingly, and your ex-spouse/ex-civil partner will holdbenefits in his/her own right whichcan be left in the Scheme to bepayable from, normally, age 65 ortransferred to another qualifyingpension scheme. The reduction toyour benefits is known as a ‘pensiondebit’. The amount of the pensiondebit will be increased in line withthe rise in the RPI between the datethe debit was first calculated and thedate your benefits become payable.When your benefits become payable,the revalued amount of the pensiondebit will be deducted from your retirement benefits. In assessing thevalue of your benefits against yourlifetime allowance or primary

lifetime allowance protection, the reduced value after the pension debitwill be used, but any primary lifetimeallowance protection will be lost ifthe debit reduces it to below thestandard lifetime allowance. You maybe able to pay additional voluntarycontributions, or contribute to a concurrent personal pension plan orstakeholder pension scheme in orderto make up for the benefits 'lost' following a pension share.

A separate leaflet providing more information is available from the the administering authority upon request.

All correspondence received by theadministering authority in connection with divorce or dissolution proceedings will be acknowledged in writing. If no acknowledgement is received, youshould contact the Fund to ensurethat your correspondence has beenreceived.

The cost of supplying informationand complying with any court orderimposing obligations on the LGPSwill be recovered from you and/oryour ex-spouse or ex-civil partner inaccordance with a schedule ofcharges published by the Fund.

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Who runs the LGPS?The LGPS is run by administeringauthorities, for example, countycouncils, in accordance with regulations approved by Parliament.Each administers their own fund,into which all contributions are paid.Every three years, independent actuaries carry out a valuation ofeach Fund and set the rate at whichthe participating employers mustcontribute to fully fund the paymentof Scheme benefits for that fund'smembership.

How is the Schemeamended? The Scheme regulations are madeunder the Superannuation Act 1972.Changes to the rules are discussed at national level by employee andemployer representatives but canonly be amended with the approvalof Parliament. Your administering authority must keep you informed ofany changes that are made.

Are the Scheme benefitsprotected?As the Scheme is set up by statute,payment of the Scheme benefits isguaranteed by law.

What other legislation applies to the Scheme?The Scheme is a registered publicservice scheme under Chapter 2 ofPart 4 of the Finance Act 2004. Itachieved automatic registration byvirtue of Part 1 of Schedule 36 ofthat Act (because the Scheme was,immediately before 6th April 2006,both a retirement benefits schemeapproved under Chapter I of Part XIVof the Income and Corporation taxesAct 1988 and a relevant statutoryscheme under section 611A of thatAct). This means, for example, thatyou receive tax relief on your contributions. It complies with therelevant provisions of the PensionSchemes Act 1993, the Pensions Act1995 and the Pensions Act 2004.

Scheme Administration

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How can I check the accuracy of my pensionrecords?To maintain the security of any information about you, your administering authority is registeredunder the current Data ProtectionAct. You can check that your computerised personal record is accurate, although we may charge asmall fee.

What other information am I entitled to?You are entitled to obtain a copy ofthe Local Government PensionScheme Regulations 1997 (StatutoryInstrument Number 1997 No.1612)and subsequent amendments.

The regulations are available fromThe Stationery Office.

A current version, including allamendments, is available on theLocal Government Employers' website at http://timeline.lge.gov.uk/

A copy of the regulations may be inspected at the offices of your administering authority. In addition,you are entitled to view and takecopies of your administering authority’s annual report and accounts.

35


Who can help me if I have aquery or complaint?If you are in any doubt about yourbenefit entitlements, or have a problem or question about your LGPSmembership or benefits, please contact the Fund at the addressshown on the back page of this shortguide. They will seek to clarify or putright any misunderstandings or inaccuracies as quickly and efficiently as possible.

If you are still dissatisfied with any decision made in relation to theScheme, you have the right to haveyour complaint independently reviewed under the internal disputesresolution procedure (IDRP). Thereare also a number of other regulatorybodies that may be able to assist you.The various ways you can ask for helpwith a pension problem are:

Internal disputes resolution procedure (IDRP)In the first instance, you should writeto the person nominated by thecouncil that made the decisionabout which you wish to appeal. You must do this within six monthsof the date of the notification of thedecision or the act or omission aboutwhich you are complaining (or suchlonger period that the nominatedperson considers reasonable).

The nominated person will consideryour complaint and notify you ofhis/her decision. If you are still dissatisfied with that person’s decision (or their failure to make adecision), you may, within sixmonths of the date of the decisionapply to the administering authorityto have the decision reconsidered.

A leaflet explaining the IDRP and relevant time limits in detail is available on request from the Fund.

To avoid any unnecessary effort onyour behalf, we would welcome theopportunity to attempt to resolvewith you the matter with which youare dissatisfied before you resort to aformal complaint.

The Pensions Advisory Service(TPAS) TPAS is available at any time to assist members and beneficiaries ofthe Scheme in connection with anypensions query they may have orany difficulty which they cannot resolve with their Scheme administrators. TPAS can be contacted at:

11 Belgrave RoadLondonSW1V 1RBTel: 0845 601 2923

Help with Pension Problems

36


Pensions OmbudsmanIn cases where a complaint or dispute cannot be resolved after theintervention of TPAS, an applicationcan be made, within three years ofthe event, to the Pensions Ombudsman for an adjudication. The ombudsman can investigate anddetermine any complaint or disputeinvolving maladministration of theScheme or matters of fact or lawand his or her decision is final andbinding. Matters where legal proceedings have already startedcannot be investigated. The PensionsOmbudsman can be contacted at:

11 Belgrave RoadLondonSW1V 1RBTel: 0207 630 2200

The Pensions RegulatorThis is the regulator of work-basedpension schemes. The Pensions Regulator has powers to protectmembers of work-based pensionschemes and a wide range of powersto help put matters right, whereneeded. In extreme cases, the regulator is able to fine trustees oremployers, and remove trustees froma scheme. You can contact the Pensions Regulator at:

Napier HouseTrafalgar PlaceBrightonBN1 4DW Tel: 0870 606 3636

How can I trace my pensionrights?The Pension Tracing Service holds details of pension schemes, includingthe LGPS, together with relevantcontact addresses. It provides a tracing service for ex-members ofschemes with pension entitlements(and their dependants), who havelost touch with previous schemes. All occupational and personal pension schemes have to register ifthe pension scheme has currentmembers contributing into theirscheme or people expecting benefitsfrom the scheme. If you need to usethis tracing service please write to:

The Pension Tracing ServiceThe Pension ServiceTyneview ParkWhitley RoadNewcastle upon TyneNE98 1BA Tel: 0845 600 2537

Also, don’t forget to keep yourpension providers up to date withany change in your home address.

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Administering authorityWolverhampton City Council is theadministering authority for the WestMidlands Pension Fund (the Fund).

West Midlands Pension FundPO Box 3948WolverhamptonWV1 1XP

Annual Allowance and Special Annual Allowance The annual allowance is the amountby which the value of your pensionbenefits may increase in any one year(disregarding any increase in thevalue of any benefits in the year thatthey become payable) without youhaving to pay a tax charge. Years runfrom 1 April to 31 March. The annualallowance is set by the Treasury andfor 2009/2010 is £245,000. MostScheme members will not be affected by the annual allowance. The assessment covers any pensionbenefits you may have in all tax-registered pension arrangements– not just the LGPS. If you exceed theannual allowance in any year (otherthan the year that all your benefitsbecome payable) you are responsiblefor reporting this to HM Revenue andCustoms on your self-assessment tax return and for paying the annual allowance tax charge. Your administering authority will be ableto give you the information you require on the increase in the value

of your LGPS benefits including anyadditional voluntary contribution(AVC) arrangement you may have.The annual allowance tax charge is40% of any increase in benefitsabove the annual allowance. The taxcharge will not apply if you have registered to have enhanced protection but only if you keep enhanced protection throughout therelevant tax year.

From 22 April 2009 a special annualallowance charge has been introduced for 2009/2010 and2010/2011. Most Scheme memberswill not be affected by this. The special annual allowance chargewill apply only if you increase thelevel of your pension savings on orafter 22 April 2009 beyond your normal, ongoing regular pension savings and the value of the additional pension savings is greaterthan £20,000 and, in the year you increase the level of your pensionsavings, or one of the previous twotax years, you have an annual incomeof £150,000 or more.

If the special annual allowancecharge applies, then the value of theadditional pension savings above£20,000 will be subject to a specialannual allowance tax charge to recover tax relief given at above basicrate. The basic rate in 2009/2010 is20%.

Pension Terms Defined

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Career average payCareer average pay is the pay foreach year or part-year ending 31 March adjusted (other than thefinal year’s pay) by the change in theRPI between the end of the relevantyear and the last day of the month inwhich the councillor member’s active

membership of the Scheme ends. The aggregate of each year’s revaluedpay is then divided by the total number of years and part-years to arrive at the career average pay. This is the figure used to calculateyour pension benefits.

Example:Assume that a councillor has been in the Scheme for three years from 1 May2003 to 30 April 2006. The average pay calculation would be calculated as follows:

Pay from 1 May 2003 to 31 March 2004£8,250 plus inflation from 1 April 2004 to 30 April 2006 = £8,781

Pay from 1 April 2004 to 31 March 2005£9,300 plus inflation from 1 April 2005 to 30 April 2006 = £9,592

Pay from 1 April 2005 to 31 March 2006£9,500 plus inflation from 1 April 2006 to 30 April 2006 = £9,573

Pay from 1 April 2006 to 30 April 2006£800 = £800

Career average pay = £8,781 + £9,592 + £9,573 + £800 divided by 3 = £9,582

Should you reach age 65 and continue in employment, please refer to page 17.

Civil PartnershipA civil partnership is a relationshipbetween two people of the same sex(‘civil partners’) which is formedwhen they register as civil partners ofeach other.

Contracted-outThe LGPS is contracted-out of thestate second pension (S2P) scheme.This means that, up to state pensionage, you pay reduced national insurance contributions between thelower earnings limit and the upperaccruals point, unless you have optedto pay the married woman’s/widow’s

39


reduced rate of national insurance,and that you do not earn a pensionunder S2P. Instead, the LGPS mustguarantee to pay you a pension thatin general is as high as you wouldhave earned had you been in the S2P. The LGPS must meet a minimumreference scheme test prescribedunder the Pensions Act 1995.

DiscretionThis is the power given by the LGPSto enable your council or your administering authority to choosehow they will apply the Scheme inrespect of certain provisions. Underthe LGPS your council or your administering authority are obligedto consider how to exercise their discretion and, in respect of some(but not all) of these discretionaryprovisions, to have a written policystatement on how they will applytheir discretion. They have a responsibility to act with ‘prudenceand propriety’ in formulating theirpolicies and must keep them underreview. You may ask your council oryour administering authority whattheir policy is in relation to a discretion. See also ‘Policy statement’ on page 41.

Eligible councillorThis is a councillor or an electedmayor (other than the Mayor of London) who is eligible for membership of the LGPS in accordance with the scheme of allowances published by an Englishcounty council, district council or

London borough council or by aWelsh county council or county borough council.

Enhanced protectionSee under Primary lifetime allowanceprotection.

Lifetime allowanceThis is the total capital value of allpension benefits you can have without triggering an excess benefitstax charge. If the value of your pension benefits when you drawthem (not including any state retirement pension, state pensioncredit or any spouse’s, civil partner’sor dependant’s pension you may beentitled to) is more than the lifetimeallowance, or more than any primarylifetime allowance protection or enhanced protection you may have,you will have to pay tax on the excess benefits. The lifetime allowance is set by the Treasury andfor 2009/2010 is £1.75million. The lifetime allowance covers anypension benefits you may have in alltax-registered pension arrangements– not just the LGPS. Most Schememembers pension savings will be significantly less than the lifetime allowance.

When any LGPS benefit, or any otherpension arrangement you may have,is brought into payment you use upsome of your lifetime allowance – so even if your pensions are smalland will not exceed the lifetime allowance you should keep a record

40


of any pensions you receive. If youhave a pension in payment before 6 April 2006, this will be treated ashaving used up part of your lifetimeallowance.

When you draw your LGPS pensionyour administering authority will letyou know the value of your LGPSbenefits and ask you about any otherpensions you may have in payment,so they can work out whether or notto deduct a recovery tax charge. If you do not provide this informationpromptly, it could delay the paymentof your pension.

If your LGPS benefits exceed yourlifetime allowance or, if you have registered for them, your primary lifetime allowance protection or enhanced protection, a recovery taxcharge will be made against the excess. If excess benefits are paid as apension the charge will be 25%, withincome tax deducted on the ongoingpension payments; if the excess benefits are taken as a lump-sum theexcess will be taxed once only at55%.

Lower earnings limit This is the amount of pay that youcan receive before you pay any national insurance contributions. The lower earnings limit for 2009/2010 is £95 per week. It is usually increased annually by Parliament.

PayIn England, this is your basic allowance or special responsibility allowance, or both, which is specifiedas being pensionable in your council’sscheme of allowances. In Wales, it isyour basic and special responsibilityallowance. It does not include any dependants’ carers’ allowance, travelling and subsistence allowance,or co-optees’ allowance.

Policy statementThis is a statement that your counciland your administering authoritymust publish, setting out how theyhave chosen to exercise certain discretions under the LGPS. Otherdiscretions may also be included. You may ask your council and youradministering authority for the latestcopy of their policy statements.

Primary lifetime allowance protection and enhanced protectionTo have primary lifetime allowanceprotection or enhanced protection,you must have registered for thiswith HM Revenue and Customs by 5 April 2009.

Primary protection is aimed at protecting benefits earned up to 5 April 2006 in respect of those highearners affected by the introductionof the lifetime allowance from 6 April2006. Under HM Revenue and Customs rules, if the value of yourpension benefits at 5 April 2006 wasmore than the 2006/2007 lifetime

41


allowance of £1.5million, and youhave registered for primary protection, you have an individuallifetime allowance based on howmuch your benefits at 5 April 2006exceeded the value of the 2006/2007standard lifetime allowance. Your individual lifetime allowance increases at the same rate as thestandard lifetime allowance.

You could register for enhanced protection, as well as primary protection, if the value of your pension benefits at 5 April 2006 exceeded the 2006/2007 lifetime allowance of £1.5million. You couldalso register for enhanced protectionif you believed the value of thosebenefits might in the future be morethan the standard lifetime allowanceor if you believed your pension benefits in any one year would increase by more than the annual allowance.

Under enhanced protection you willnot pay tax on benefits in excess ofthe lifetime allowance provided yourbenefits at retirement do not exceedthe value of your benefits at 5 April2006 as increased after then, in general terms, by the greater of 5%per annum, the increase in the RPI orincreases in your pensionable pay. If the limit is exceeded you will paytax on the excess. You will lose enhanced protection if you pay

contributions into a money purchasepension arrangement (eg, pay intothe LGPS in house AVC facility1) or if you start a new pension arrangement, or if you transfer yourLGPS benefits to another definedbenefit pension scheme. You can also voluntarily give up enhancedprotection by giving notice that youno longer wish to keep it. If you loseenhanced protection you must notifyHM Revenue and Customs within 90 days. Failure to do so could resultin a fine of up to £3,000.

Protected member If you were contributing to theScheme on 30 September 2006, youmay have protected rights regardingearly payment of your benefits.

• If you will be age 60 or over by31 March 2016 and choose to retire before age 65 (with employer’s consent if retiring before age 60), you may havesome protection from the reductions applied to benefits voluntarily drawn before age 65, as explained below:

- If you satisfy the 85-year rule when you start to draw your pension, the benefits you have accrued up to 31 March 2016 will not be reduced. However, the benefits built up after 31 March 2016 will be reduced

1 You will not lose enhanced protection if you are paying AVCs at 5 April 2006 purely for extra lifecover and carry on doing so after that date, provided the terms are not varied significantly fromthose that applied under the policy at 5 April 2006 so as to increase the level of life cover or extend the period during which such benefits are payable, eg, you do not adjust the premiums topurchase increased life cover.

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by the factor shown in the tableon page 15 which relates to the number of years the benefits arebeing paid earlier than age 65.

- If you do not satisfy the 85-yearrule when you start to draw your pension, but would have satisfied the rule if you had remained in employment until age 65, the calculation of your benefits is split into two parts. Firstly, all the benefits you have built up in the Scheme up to 31 March 2016 will be reduced by the factor shown in the tableon page 15 which relates to the number of years the benefits arebeing paid earlier than the date you would have met the 85- year rule. Secondly, any benefits you have built up in the Schemeafter 31 March 2016 will be reduced by the appropriate factor shown in the table on page 15 which relates to the number of years the benefits arebeing paid earlier than age 65.

- If you do not satisfy the 85-yearrule when you start to draw your pension, and would not have satisfied the rule if you hadremained in employment until age 65, all the benefits you havebuilt up in the Scheme will be reduced by the appropriate factor shown in the table on page 15 which relates to the number of years the benefits arebeing paid earlier than age 65.

• If you will be under age 60 by 31 March 2016 and will not be60 by 31 March 2020 and chooseto retire before age 65 (with employer’s consent if retiring before age 60), you may havesome protection from the reductions applied to benefits voluntarily drawn before age 65, as explained below:

- If you satisfy the 85-year rule when you start to draw your pension, the benefits you have accrued up to 31 March 2008 will not be reduced. However, the benefits built up after 31 March 2008 will be reduced by the factor shown in the tableon page 15 which relates to the number of years the benefits arebeing paid earlier than age 65.

- If you do not satisfy the 85-yearrule when you start to draw your pension, but would have satisfied the rule if you had remained in employment until age 65, the calculation of your benefits is split into two parts. Firstly, all the benefits you have built up in the Scheme up to 31 March 2008 will be reduced by the factor shown in the tableon page 15 which relates to the number of years the benefits arebeing paid earlier than the date you would have met the 85- year rule. Secondly, any benefits you have built up in the Schemeafter 31 March 2008 will be reduced by the appropriate

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factor shown in the table on page 15 which relates to the number of years the benefits arebeing paid earlier than age 65.

- If you do not satisfy the 85-yearrule when you start to draw your pension, and would not have satisfied the rule if you hadremained in employment until age 65, all the benefits you havebuilt up in the Scheme will be reduced by the appropriate factor shown in the table on page 15 which relates to the number of years the benefits arebeing paid earlier than age 65.

• If you will be aged 60 between 1 April 2016 and 31 March 2020and choose to retire before age 65(with employer’s consent if retiringbefore age 60), you may havesome protection from the reductions applied to benefits voluntarily drawn before age 65, as explained below:

- If you satisfy the 85-year rulewhen you start to draw your pension, the benefits you have accrued up to 31 March 2008 will not be reduced. However, the benefits built up after 31 March 2008 will, if you do not meet the 85-year rule by 31 March 2020, be reduced by the factor shown in the table onpage 15 which relates to the number of years the benefits arebeing paid earlier than age 65. If you do meet the 85-year rule by 31 March 2020 a smaller

reduction factor than that shown on page 15 will be applied to the benefits built up between 1 April 2008 and 31 March 2020.

- If you do not satisfy the 85-yearrule when you start to draw your pension, but would have satisfied the rule if you had remained in employment until age 65, the calculation of your benefits is split into two parts. Firstly, all the benefits you have built up in the Scheme up to 31 March 2008 will be reduced by the factor shown in the tableon page 15 which relates to the number of years the benefits arebeing paid earlier than the date you would have met the 85-year rule. Secondly, any benefits you have built up in the Scheme after 31 March 2008 will, if you would not meet the 85-year rule by 31 March 2020, be reduced by the appropriate factor shown in the table on page 15 which relates to the number of years the benefits arebeing paid earlier than age 65. If you would meet the 85-year rule by 31 March 2020, a smaller reduction factor than that shown on page 12 will be applied to the benefits built up between 1 April 2008 and 31 March 2020.

- If you do not satisfy the 85-yearrule when you start to draw your pension, and would not have satisfied the rule if you had

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remained in employment until age 65, all the benefits you havebuilt up in the Scheme will be reduced by the appropriate factor shown in the table on page 15 which relates to the number of years the benefits arebeing paid earlier than age 65.

How do I know if I will satisfy the85-year rule? The rule is satisfied if your membership (as defined below) andage (each in whole years) adds up to 85.

Membership that counts in working out the 85-year ruleThe number of years that you havebeen a LGPS member as a councilloror elected mayor plus, for deferredbenefits, the period between the dateof leaving and the date benefits areto be bought into payment, but excluding any membership in respectof which you are already in receipt ofa local government pension, or in respect of which you hold an earlierlocal government deferred pension

which relates to an earlier period ofmembership of the Scheme as acouncillor or elected mayor, or in respect of any other earlier period ofmembership of the Scheme as acouncillor or elected mayor whichhas not been aggregated with yourcurrent period of membership.

Retail prices index (RPI)This shows the changes in the cost ofliving. It reflects the movement ofprices covering a range of goods andservices over time. The amount bywhich pensions are increased annually is based on movement inthe RPI during the 12 months to September.

State pension ageThis is the earliest age you can receive state basic pension and is currently age 65 for men and 60 forwomen, but from 2010 it will change for women as shown in the tablebelow, so that by 2020 state pensionage will have been equalised at age65.

Date of birth State pension age

Before 6 April 1950 606 April 1950 - 5 April 1951 Between 60 & 616 April 1951 - 5 April 1952 Between 61 & 626 April 1952 - 5 April 1953 Between 62 & 636 April 1953 - 5 April 1954 Between 63 & 646 April 1954 - 5 April 1955 Between 64 & 65After 5 April 1955 65

The state pension age will be increased further from 65 to 68 between 2024 and 2046.

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Total membership This is the amount of membershipthat counts, as detailed below, for:

• working out whether you areentitled to a benefit- the number of years and days

that you have been a LGPSmember as a councillor orelected mayor.

• working out the amount of yourpersonal benefits - the number of years and days

that you have been a LGPS member as a councillor or elected mayor, but excluding any membership in respect ofwhich you are already in receipt of a local government pension,or in respect of which you hold a local government deferred pension which relates to an earlier period of membership of the Scheme as a councillor orelected mayor, or in respect ofany other earlier period ofmembership of the Scheme as acouncillor or elected mayorwhich has not been aggregatedwith your current period ofmembership.

- any membership granted byway of ill-health enhancement(see page 13)

Upper accruals point This is the amount of pay beyondwhich you cease to pay the, lower,contracted-out rate of national insurance contributions. The upperaccruals point for 2009/2010 is £770per week. It is usually increased annually by Parliament. On earningsabove the upper accruals point andup to the upper earnings limit of£884 per week you pay the full 11%national insurance contribution andon earnings above the upper earningslimit you pay a 1% national insurance contribution.

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Introduction 3

The ChoiceYour pensions choice 4State second pension scheme (S2P) 4Personal pension plans and stakeholder pension schemes 4Local Government Pension Scheme 5

The GuideJoining the Local Government Pension Scheme (LGPS)Who can join? 6How do I ensure that I have become a member of the LGPS? 6Can I join the LGPS if I already have a personal pension or 7stakeholder pension scheme?I'm already receiving an LGPS pension – will it be affected 7 if I join again?

Contributions 8What do I pay? 8What does the council pay? 8Do I receive tax relief on my contributions? 8What about my national insurance contributions? 8Can I make extra contributions to increase my benefits? 8Is there a limit to how much I can contribute? 8Can I transfer pension rights into my current LGPS fund from a previous 9pension scheme?Points to Note 9

Retirement Benefits 10When can I retire? 10What are my retirement benefits? 10How much will my pension be? 10 How much will my lump-sum be? 10

The Index

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Example pension and lump-sum calculation 11Can I give up some of my pension to increase my lump-sum? 11How will my pension be paid? 11Will my pension increase? 12Points to Note 12

Ill-Health Retirement 13What happens if I have to retire early due to ill-health? 13How is an ill-health pension and lump-sum calculated? 13What if I do not qualify for an ill-health pension and lump-sum? 14Points to Note 14

Early Retirement 15Can I retire early? 15Will my pension and lump-sum be reduced if I retire early? 15Points to Note 16

Late Retirement 17What if I carry on working after age 65? 17

Protection for Your Family 18What benefits will be paid if I die in service? 18What benefits will be paid if I die after retiring on pension? 19Points to Note 21

Increasing Your Benefits 22How can I increase my benefits? 22Points to Note 24

Ceasing to be a Councillor Before Retirement 25What happens to my benefits if I cease to be a councillor 25 participating in the LGPS?What will happen to my benefits if I choose to defer them? 26What will happen if I die before receiving payment of my 26 deferred benefits?

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What will happen if I wish to transfer my LGPS pension benefits 27to another (non-LGPS) scheme? Points to Note 27

Opting-Out of the LGPS 30Can I opt-out of the LGPS? 30Can I rejoin the LGPS at a later date? 30Points to Note 30

Some Other LGPS Provisions 31

Pensions and Divorce or Dissolution of a Civil Partnership 32

Scheme Administration 34Who runs the LGPS? 34How is the Scheme amended? 34Are the Scheme benefits protected? 34What other legislation applies to the Scheme? 34How can I check the accuracy of my pension records? 35What other information am I entitled to? 35

Help with Pension Problems 36Who can help me if I have a query or complaint? 36How can I trace my pension rights? 37

Pension Terms Defined 38

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Information produced by the Fund can be made available in several formats

including large sight text, Braille and several community languages. If you have

any special requirements or would like to speak face to face with a member of

staff, please contact us to arrange how we may best meet your needs.

Please remember that special requirements may take a little longer than normal

to organise, but you have our assurance that we will do our best to ensure you

receive the information in the most appropriate and efficient manner possible.

Data Protection

To protect any personal information held on computer, Wolverhampton City Council

is registered under the Data Protection Act 1998. This allows members to check that their

details held are accurate. The Fund may, if it chooses, pass certain details to a third party,

if the third party is carrying out an administrative function of the Fund, for example, the

Fund’s AVC provider. Members who wish to apply to access their data on Data Protection

Act grounds should contact the City Council’s Data Protection Officer on (01902) 554498,

via e-mail at [email protected]

This authority is under a duty to protect the public funds it administers, and to this end

may use information for the prevention and detection of fraud. It may also share this

information with other bodies administering public funds solely for these purposes.

Text printed on FSC Greencoat Silk 130gsm, 80% recycled post-consumer fibre, 10% TCF (Totally Chlorine Free) virgin fibre 10% ECF (Elemental chlorine free) fibre


Write to us at:West Midlands Pension FundPO Box 3948WolverhamptonWV1 1XP

Contact information

Email us on:[email protected]

Telephone our Helpdesk on:

0300 111 1665

Visit our website at:wmpfonline.com

Fax us on:

0845 230 1565

Minicom/Typetalk:

01902 554607

Send us a text on:Text WMPF + your message to 60066Standard short code network charges apply

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Lines are open during the following times:8:30am to 5.00pm Monday-Thursday8:30am to 4.30pm Friday

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Visits can be made to the Fund's offices on the 5th Floor, Mander House, Wolverhampton8.30am to 5.00pm Monday - Thursday 8.30am to 4.30pm Friday


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