Local Government Pension Scheme – Huge change to Pension Sharing Credits

May 21, 2014

The Local Government Pension Scheme changed from a Final Salary basis to a Career Average Revalued Earnings “CARE” basis for pensions accrued from 1st April 2014.

This means that over time the cost of providing defined benefit pensions should reduce as the final pension is calculated based on an average earnings over someone’s career rather than based on their final salary at retirement. Good for taxpayers but not so good for members and definitely as you will see pension credit members.

This is one of those changes which could easily be overlooked and you might think so what? But this change will cause major issues when pension sharing because of the way that pension credits are subsequently applied.

What was unexpected is that pension credits from pension sharing orders actioned by the Local Government Pension Scheme on or after 1st April 2014 will be implemented by a pension credit in the new CARE scheme, irrespective of the basis on which the “donor” benefits were accrued. So the ex of a member with 30 years service who gets divorced will only receive benefits in the CARE pension scheme.

This could mean pension sharing orders intended to equalise incomes or properly actuarially calculated market consistent pension values and actioned by the scheme administrators post 1st April ‘14 will not necessarily achieve the desired objective.

Be careful out there.

Category: pension sharing

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