Glossary · UK
What is Local Government Pension Scheme (LGPS)?
A defined benefit occupational pension scheme for UK local council and related public sector employees, now run on a Career Average Revalued Earnings basis.
Full Definition
The Local Government Pension Scheme (LGPS) is one of the largest defined benefit occupational pension schemes in the UK, covering employees of local councils and a range of related public sector and charitable employers (though not teachers, NHS staff, police or firefighters, who have their own separate public service schemes). Since 2014 the LGPS has operated on a Career Average Revalued Earnings (CARE) basis rather than a final salary basis: each year a member builds up a pension equal to a fraction of that year's pensionable pay (1/49th in England and Wales), and each year's accrued amount is then revalued in line with inflation until retirement, rather than being based on salary at or near retirement. Members contribute a percentage of pay on a tiered scale that rises with earnings, and employers pay a much larger contribution on top, with any shortfall in the fund met by the sponsoring employer following periodic actuarial valuations. Members can normally take up to 25% of the value of their benefits as a tax-free lump sum by commuting some pension, and the scheme also provides valuable death-in-service and ill-health retirement benefits. Because LGPS benefits are defined by a formula rather than by investment performance, transferring out to a defined contribution pension is generally discouraged and, for larger transfer values, requires regulated financial advice by law.