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February 2011 Update

There have been recent changes affecting employees who are members of the Local Government Pension Scheme (LGPS) and developments to pension provisions that may impact on members of the LGPS.

 

LGPS Contributions – updated pay bands from April 2011

For information on the revised pay bands and the contribution rates that apply from April 2011: 

Updated pay bands for employees in England and Wales

Updated pay bands in Scotland

State pension age

This is the earliest age you can receive the state basic pension.

State pension age is currently age 65 for men. State pension age for women is currently being increased to be equalised with that for men.

The Government has announced that it will speed up the pace of State pension age equalisation for women, so that women’s State pension age will reach 65 by November 2018.  

State pension age equalisation timetable for women 

Date of Birth New State Pension Age
Before 6 April 1950 60
6 April 1950 - 5 April 1951 In the range 60 - 61
6 April 1951 - 5 April 1952 In the range 61 - 62
6 April 1952 - 5 April 1953 In the range 62 - 63
6 April 1953 - 5 August 1953 In the range 63 - 64

6 August 1953 -  5 December 1953                 

In the range 64 - 65

The State pension age will then increase to 66 for both men and women from December 2018 to April 2020.

 Increase in State pension age from 65 to 66 for men and women

Date of Birth New State Pension Age
6 December 1953 - 5 April 1954 In the range 65 - 66
After 5 April 1954 66

Under current legislation the State pension age is due to rise to 68 between 2034 and 2046.  

Restricting tax relief on pension contributions

The Government has announced that from 6 April 2011 it will restrict the amount of tax relief available on pension contributions by reducing the amount the value of your pension savings can increase by in any one year before you become liable to a tax charge. This is called the annual allowance.

For the tax year 2011 / 2012, the annual allowance will reduce from £255,000 to £50,000.

The new annual allowance covers any pension saving you make in tax-registered pension arrangements – not just the LGPS.

Unlike at present, the new annual allowance will also apply in the year you take your benefits, although there will be an exemption in the case of serious ill health retirement or death.

You would only be subject to an annual allowance tax charge if the value of your pension savings in a tax year increase by more than £50,000. However, there will be a three year carry forward rule that allows you to carry forward unused annual allowance from the last three tax years. This means that if the value of your pension savings increase by more than £50,000 in a tax year you may not be liable to the annual allowance tax charge.

For example, if the value of your pension savings in a tax year increase by £60,000 (i.e. by £10,000 more than the annual allowance) but in the three previous years had increased by £35,000, £38,000 and £40,000, then the amount by which each of these previous years fell short of £50,000 would more than offset the £10,000 excess pension saving in the current year. There would be no annual allowance tax charge to pay in this case.

Most people will not be affected by the annual allowance tax charge because the value of their pension saving will not increase in a tax year by more than £50,000 or, if it does, they are likely to have unused allowance from previous tax years that can be carried forward.

If, however, you are affected you will be liable to a tax charge (at your marginal rate) on the amount by which the value of your pension savings in the tax year, less any unused allowance from the previous three years, exceeds £50,000.

If you exceed the annual allowance in any year you are responsible for reporting this to HMRC on your self-assessment tax return. Your Pension Fund administrator will be able to tell you how much the value of your LGPS benefits, including any Additional Voluntary Contribution (AVC) arrangement you may have, has increased.

From 6 April 2011 the exemption from the annual allowance for the relatively small number of scheme members who applied to HMRC for, and received, an enhanced protection certificate will cease.

Default Retirement Age

The Government has confirmed that it will remove the default retirement age so that people have more choice when to stop working. Currently the default retirement age enables employers to make staff retire at 65 regardless of their ability or desire to continue working, but the Government is changing this so that employees will have more choice on whether to retire on reaching pensionable age or to continue working.

The Government plans to phase out the default retirement age between 6 April and 1 October 2011.

The Local Government Pension Scheme (LGPS) already allows eligible employees to be in the scheme up to age 75. If you carry on working after age 65 you will continue to pay into the scheme, building up further benefits. If you draw your pension after age 65, it will be paid at an increased rate to reflect the fact that it will be paid for a shorter time. Your pension has to be paid by your 75th birthday.

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