How does a Pension Account work?

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Each scheme year the amount of pension you have built up during the year is worked out and this amount is added into your active pension account.
 
Adjustments may be made to your account during the scheme year to take account of any transfer of pension rights into the account during the year, any additional pension you may have decided to purchase during the year, any reduction due to a Pension Sharing
 
Order or qualifying agreement in Scotland (following a divorce or dissolution of a civil partnership) and any reduction due to an Annual Allowance tax charge that you have asked the Scheme to pay on your behalf.
 
Your account is then revalued to take account of the cost of living. This adjustment is applied each April in line with the HM Treasury Revaluation Order index which, currently, is the rate of the Consumer Prices Index (CPI).
 
You will have a separate pension account for each employment. That pension account will hold the entire pension built-up for that employment.

In addition to an active member’s pension account there are also:

  • a deferred member’s pension account;
  • a deferred refund account;
  • a retirement pension account;
  • a flexible retirement pension account;
  • a deferred pensioner member’s account;
  • a pension credit account; and
  • a survivor member’s account.
 
These accounts will be adjusted by any debits for any Pension Sharing Order or qualifying agreement in Scotland (following a divorce or dissolution of a civil partnership) and for any Annual Allowance tax charge that you have asked the scheme to pay on your behalf.

 

Example: How does a pension build up in the LGPS?

A member joined the LGPS on 1 April 2014 with pensionable pay of £25,200 per year.
 
At the end of their 7th year of scheme membership (31 March 2021), their pay has increased to £28,500 per year. Their Pension Account looks like this:
 
Year
Opening Balance
Pension built up in that year
Total
at 31 March
Cost of Living
Updated
Total Amount
1 £0 £25,200/49 = £514.29 £514.29 £10.28 (2%) £524.57
2 £524.57 £25,700/49 = £524.49 £1,049.06 £10.49 (1%) £1,059.55
3 £1,059.55 £26,000/49 = £530.61 £1,590.16 £7.95 (0.5%) £1,598.11
4 £1,598.11 £26,500/49 = £540.82 £2,138.93 £42.78 (2%) £2,181.71
5 £2,181.71 £27,000/49 = £551.02 £2,732.73 £81.98 (3%) £2,814.71
6 £2,814.71 £28,000/49 = £571.43 £3,386.14 £67.72 (2%) £3,453.86
7 £3,453.86 £28,500/49 = £581.63 £4,035.49 £60.53 (1.5%) £4,096.02