You will receive a pension for life.
How your pension is calculated
For each scheme year during which you are an active member of the 2015 Scheme the amount of earned pension you accrue is 1/55.3th of your pensionable earnings for that year. This goes into your pot of earned pension, which builds up each year as more earned pension is added.
The amount of accrued earned pension in the pension pot is uprated each year in line with the Consumer Price Index (CPI) + 1.25% whilst you are still an active member and in line with CPI after you leave the 2015 Scheme.
The retirement earned pension payable to you from the 2015 Scheme is calculated based on the amount of accrued earned pension in the pension pot when you retire.
The diagram below illustrates how your pension builds up over your career to provide you with an income at retirement.
A 30-year-old active member works full-time and earns £21,000 per year. His/her earned pension accrued over his/her first scheme year as an active member is calculated as follows:
Pensionable earnings over the year: £21,000
Earned pension pot at end of year 1: £379.75 (=£21,000/55.3)
Assume that in the next year, the member’s pensionable earnings have increased by 1% to £21,210, and that over the last year price inflation (as measured by CPI) increased by 2%. His/her total pension in the second scheme year will then be calculated as follows:
As s/he has remained an active member, his/her accrued earned pension pot from the previous year will increase in line with CPI + 1.25% at the start of the scheme year (as CPI growth was 2%, this would result in an increase of 3.25%).
Increased year 1 earned pension pot: £392.09 (= £379.75 × 1.0325)
His/her accrued earned pension over this year is then calculated as per year 1:
Pensionable earnings over the year: £21,210 (= £21,000 × 1.01)
Addition to earned pension pot: £383.54 (=£21,210/55.3)
His/her total earned pension accrued at the end of year 2 is the sum of the
increased year 1 earned pension pot and the earned pension accrued over the second year:
Total earned pension pot at end of year 2: £775.63 (= £392.09 + £383.54)
This process continues for each scheme year during which s/he remains an active member (assuming that s/he remains an active member for 30 years).
The below shows what happens to the earned pension over the last year during which s/he is an active member.
If his/her pensionable earnings continue to grow at 1% per year, and CPI growth stays at 2% per year throughout his/her career his/her total earned pension pot at the end of year 29 will be £20,146.80.
Increased year 29 earned pension pot: £20,801.57 (= £20,146.80 × 1.0325)
His/her accrued earned pension in Year 30 will then be calculated as follows:
Pensionable earnings over the year: £28,024.58 (= £21,000 × 1.01(29))
Addition to earned pension pot: £506.77 (=£28,024.58/55.3)
Total earned pension pot at end of Year 30: £21,308.34 (= £20,801.57 + £506.77)
In the April following retirement the total earned pension accrued at retirement will increase in line with CPI + 1.25% to around £22,000 per year. After that, the earned pension will increase in line with CPI throughout the period of payment.
At retirement, the member has the option to commute pension for lump sum at a rate of £12 of lump sum for every £1 of pension given up. The commutation lump sum cannot be larger than 25% of the value of the member’s pension.
For example, if the member was to commute 25% of his/her pension income, s/he would be eligible for a lump sum of £63,925.02 (=25% x £21,308.34 x 12) and a revised pension at retirement of £15,981.26 (=75% x £21,308.34).