Merseyside Pension Fund is one of 86 local pension funds which administers the Local Government Pension Scheme (LGPS) across England and Wales. and Wales.
The LGPS is a ‘defined benefit’ pension scheme. The benefits you receive from a defined benefit pension scheme are set out in the rules of the Scheme. The amount you need to pay in as a member is also set out in these rules.
The following short video explains how pension accounts work and what happens if you leave the LGPS before you take your pension.
Video: How your pension works 01:40
How does a defined benefit scheme work?
The benefits that you receive from a defined benefit scheme, like the LGPS, are determined by a set formula.
Your pension is based on your annual salary and how long you pay into the Scheme. What you and your employer pay into the Scheme doesn’t affect the amount you receive when you come to take your benefits. Your pension is also not affected by how well investments perform.
The LGPS provides you with a secure and guaranteed income every year when you stop working.
How does a defined contribution scheme work?
You may have also heard of defined contribution pension schemes. Defined contribution pension schemes are more common than defined benefit ones. They are also known as money purchase schemes.
These schemes work in a different way to the LGPS.
In a defined contribution scheme, your pension provider will invest the money you pay in. Your contributions and investment income give you a pension pot. Your employer may pay in too. When you join or set up the pension, you will need to decide how and where you want to invest your money. Your pension pot can go up or down because investments can go up or down.
When you want to draw your benefits, you can choose from a number of options. If you have a defined contribution pension, your pension scheme will provide you with details. You can also find out more by contacting Pension Wise a government service from MoneyHelper.
What is a ‘funded’ scheme?
This is the term used for schemes that invest the contributions they receive. Investment income helps to pay for the pension benefits due.
The LGPS is a funded pension scheme.
Merseyside Pension Fund invests locally and around the globe to generate investment income. The value of our investments can change regularly, but the amounts of pensions we pay are not affected because the LGPS is a defined benefit pension scheme.
