Paying into a pension scheme is a great way to save for your future retirement provision and it may cost less than you think.
This is because when you pay into the Local Government Pension Scheme your contributions are deducted before income tax is applied to your earnings, meaning you pay less tax while also building a retirement income.
Contribution rates
The rate of contributions you pay is based on how much you earn. When you join the scheme and every April afterwards your employer will determine your contribution rate based on the table below*.
| If your actual pensionable pay is: | You pay a contribution rate of: |
| Up to £17,600 | 5.5 per cent |
| £17,601 to £27,600 | 5.8 per cent |
| £27,601 to £44,900 | 6.5 per cent |
| £44,901 to £56,800 | 6.8 per cent |
| £56,801 to £79,700 | 8.5 per cent |
| £79,701 to £112,900 | 9.9 per cent |
| £112,901 to £133,100 | 10.5 per cent |
| £133,101 to £199,700 | 11.4 per cent |
| £199,701 or more | 12.5 per cent |
So, if your salary is £22,000 per annum you would pay 5.8% of this, or £1,276 per annum (£106.33 per month) as your pension contribution.
If your pay changes during the year, due to a promotion for example, your employer may decide to review your contribution rate, as it is based on your pensionable pay or they may decide to review this at the end of the scheme year (31st March).
If you’re in the 50/50 section of the scheme, you would pay half the rates shown in the table above.
Tax relief
Contributions are deducted from your salary before you pay tax. So, if you pay tax at the rate of 20%, every £1 that you contribute to the scheme only costs you 80p net.
Employer contributions
Here’s where things get even better!
When you pay into the pension scheme your employer does too, this means that your employer is helping to contribute to your future pension provision.
The amount your employer pays varies from employer to employer. Every three years an independent actuary calculates how much your employer should contribute to the Scheme to pay the balance of the cost of providing your benefits in the LGPS. The amount will vary, but generally you contribute approximately one third of the Scheme’s costs and your employer contributes the remainder.