What is a pension?
A pension is a source of regular income to live on when you
What are the different types of pension
Qualifying workplace pension
As a result of automatic-enrolment legislation, all employers
will eventually have to offer their employees access to a workplace
pension scheme that meets certain minimum standards. The LGPS meets
these minimum standards and is, therefore, a qualifying workplace
National Employment Savings Trust (NEST)
NEST is the Government's workplace pension scheme set up for
automatic-enrolment. Where an employer does not provide access to a
workplace pension of its own they can use NEST to meet their
workplace pension duties, no matter how large or small their
organisation. They can use NEST on its own or alongside a scheme
they already have in place.
Personal pensions are provided by insurance companies and banks
and are popular with the self-employed who do not have access to a
workplace pension. Some employers offer personal pension plans to
their employees and pay contributions into it. Personal pensions
offer investors a choice of investment funds to choose from. These
investments are used to buy a pension at retirement.
Stakeholder pensions are essentially low cost personal pension
Given the changes to workplace pension schemes under
automatic-enrolment the future of employer sponsored stakeholder
schemes are uncertain, as many will require amendment in order to
meet the employer workplace pension duties.
Company (occupational) pensions
An occupational or company pension is another term for a
workplace pension scheme. It is usually used to describe schemes
run by private sector employers.
What is a tax free lump sum?
Pension schemes, whether they are work based or personal
pensions, allow members to take part of their benefits as tax free
lump sum when they retire. The LGPS can pay a tax free cash sum on
retirement. Dependant on your period of membership in the scheme
will determine whether this is paid automatically or if it is paid
through giving up some of your pension.
What is an annuity?
An annuity converts your money purchase pension into an income
for the rest of your life.
Annuities are sold by life insurance companies and you can add
different options and get different types depending on your needs
and circumstances. LGPS pays pensions straight from the Scheme and
so you will not be required to buy an annuity if you join the
How do Career Average Revalued Earnings (or CARE)
In a CARE scheme the pensionable pay for each year of membership
is used, in order to calculate a pension amount for that particular
year. That pension amount is then increased (revalued) each year in
line with inflation. These individual pension amounts are then
added together to arrive at the total pension payable from the
For more information visit the section How a CARE scheme
How do defined contribution/money purchase schemes
You build up a pension fund using your contributions and your
employer's contributions (if they make any) plus investment returns
(if any) and tax relief.
When you retire you can take a tax free lump sum from your fund
and use the rest to secure an income - usually in the form of an
Unlike LGPS there are no guarantees on how much you will
receive. Most private sector employers offer their employees a
defined contribution arrangement.