Salary changes
Your pension is worked out using your pay. If your pay changes it can impact on your pension. If your pay increases, your pension will also increase. This may lead to an increase in your employee contribution rate . If your pay decreases your pension could also decrease. This may lead to a decrease in your employee contribution rate.
Your pension is worked out differently before and after 1 April 2014.
How a drop in pay impacts on pension after 1 April 2014 (CARE pension only)
If your pensionable pay goes down, because you reduce your hours, or move to a lower grade, it will mean that you will build up less pension. It will not impact the pension you’ve already built up after 1 April 2014.
Protections for time away from work
If your pay reduces because you’re away from work because of:
- sickness
- injury, or
- certain types of child-related leave
your pension will be worked out using the pay you’d normally get.
If your pay reduces because you’re away from work for another reason, you may be able to buy back the ‘lost pension’ to make sure the reduction in pay doesn’t impact your pension.
How a drop in pay impacts on pension built up before 1 April 2014 (final salary pension)
All the pension you built up before 1 April 2014 will only be worked out when you leave the scheme or retire. If you’ve been in the scheme for a long time, a large part of your pension may be final salary. So a drop in pay could have a considerable impact on your pension overall.
To work out final salary pension benefits we use ‘final pay’. If your take home pay changes because you go part time or start working term-time only, this will not impact on your ‘final pay’ and the calculation of your pension. This is because ‘final pay’ is an average full-time equivalent figure and doesn’t represent your actual earnings. Full-time equivalent means the pay you would have got if you worked full-time and not part-time and/or term-time only.
If your full-time equivalent salary reduces, because you moved to a lower grade, this could impact on your final salary pension. You can find more information in our ‘Reduced pensionable pay’ guide.
Final pay protections
There are two protections in the LGPS that can protect your final salary pension if you have a drop in your full-time equivalent pay.
Best of last three – under the regulations, we can use the highest ‘final pay’ of the three years before your leaving date.
Three in ten – you may also qualify for a calculation that will allow us to use an even earlier pay to work out your pension. If you qualify for this protection, we can use the best average ‘final pay’ for any three consecutive years, going back 12 years before 31 March before your last day of service.
