Local Government Pension Scheme LGPS UK 2026/27: Tiers, Rule of 85, AVC

The Local Government Pension Scheme (LGPS) is the UK's largest funded defined-benefit pension scheme, covering ~6 million members across local authorities, schools (non-teaching staff), police staff, fire authorities, the BBC, universities, and many charities. Unlike NHS / Teachers / Civil Service schemes, LGPS is funded (assets are invested) rather than pay-as-you-go. This guide covers the 2026/27 position.

At a glance

• Type: Defined Benefit (CARE - Career Average Revalued Earnings since 2014).
• Accrual rate: 1/49 of pensionable pay per year.
• Revaluation: CPI during active service.
• Employer contribution: variable by Fund (typically 18-30% of pensionable pay).
• Employee contribution: tiered 5.5% to 12.5% based on actual earnings.
• Normal Pension Age: linked to State Pension Age (currently 66, rising to 67).
• Pre-2014 service: final salary basis (Rule of 85 may apply).

Contribution tiers (2025/26)

Pensionable salary	Contribution rate
Up to £17,600	5.50%
£17,601 to £27,600	5.80%
£27,601 to £44,900	6.50%
£44,901 to £56,800	6.80%
£56,801 to £79,500	8.50%
£79,501 to £112,600	9.90%
£112,601 to £132,800	10.50%
£132,801 to £199,200	11.40%
Above £199,201	12.50%

As with other public-sector schemes, the whole earnings are charged at the tier rate. LGPS tiers are reviewed annually based on CPI and average earnings.

Two parts to most LGPS members' pension

If you have pre-2014 LGPS membership, your benefits are split into:

1. Pre-2014 service: paid on a final salary basis using the salary at the date you leave (or April 2014 figure, whichever is higher).
2. Post-2014 service: paid on a CARE basis using your career-average pensionable pay revalued by CPI.

This split affects calculations at retirement - your pension is the sum of both components.

Rule of 85 - the protected feature

For pre-2008 LGPS members, the Rule of 85 provides a powerful early-retirement option: if your age + LGPS service years = 85+, you can retire with no actuarial reduction.

Worked example: someone born 1965, joined LGPS in 1990, considering retirement in 2025.

Current age: 60
LGPS service: 35 years
Sum: 95 - well above the Rule of 85 threshold

Pre-2008 service: pension paid at 60 with no reduction
Post-2008 service: pension paid at 60 with actuarial reduction
                   to age 65 (the protected NRA)
2014+ CARE service: pension paid at SPA-linked age (66)

The Rule of 85 is a major retention factor for older LGPS members. It does not apply to anyone who joined LGPS after 1 October 2006 (a transitional cut-off date).

Additional Voluntary Contributions (AVC)

LGPS members can contribute to a Shared Cost AVC (SCAVC) in addition to their main scheme. SCAVCs are typically:

• Defined Contribution (DC) money-purchase arrangements run by Prudential or Scottish Widows.
• Tax-relieved at source at the marginal rate.
• Used to take additional tax-free cash at retirement (under the 25% Pension Commencement Lump Sum allowance).

The most powerful AVC use case: someone with 5+ years to retirement maxing out tax-free cash via AVC contributions. Worked example for higher-rate taxpayer:

£10,000 AVC contribution = £4,000 income tax saved + £800 NI saved
At retirement: take the £10,000 + main pension lump sum,
                 all tax-free up to 25% of total scheme value.

This converts £10,000 of pre-tax income into £10,000 of tax-free cash at retirement - a ~50% tax saving for higher-rate taxpayers.

The McCloud remedy

The 2018 McCloud judgment applied to LGPS as well as other public-sector schemes. LGPS members who were active on 31 March 2012 are affected by the underpinned protection that was originally limited to older members.

The LGPS-specific approach to McCloud is the Underpinning Test: at retirement, your benefits are calculated under both:

• Final Salary basis (legacy scheme rules), and
• CARE basis (post-2014 rules).

You receive whichever is higher. This approach is similar in principle to the choice given in NHS / Teachers / Civil Service schemes but is automated rather than requiring an active election.

Annual Allowance for senior LGPS members

Senior local-government managers (Chief Executive, Section 151 Officer, Director-level grades) routinely face Annual Allowance issues. The mechanics mirror NHS senior clinicians:

• A pay rise increases your Pension Input Amount (PIA) by 16x the inflation-adjusted increase in accrued benefits.
• Promotion (e.g. Head of Service to Director) triggers a substantial PIA spike.
• Combined with high CPI, the PIA can exceed the £60,000 standard Annual Allowance.

LGPS allows Scheme Pays for AA charges above £2,000.

Death-in-service benefits

LGPS includes:

• Lump sum: 3 times pensionable salary (tax-free).
• Spouse/partner survivor pension: typically 50% of your accrued pension.
• Children's pensions: tiered support for dependent children.

For LGPS members in physical-risk roles (firefighters, refuse collection), the death-in-service value is substantial.

Common opt-out scenarios

LGPS members sometimes opt out for:

• Cashflow during early career - the 5.5% contribution at SCP 1 (£24,404) is around £110/month off take-home.
• Heavy AA charges at Director levels.
• Plan to leave LG within 2 years - value of accrual is small over short periods.
• Already have substantial private pension wealth.

For most LGPS members under £55,000, staying in is the right call. The employer contribution alone (18-30% of pay) makes LGPS one of the most valuable pension schemes in the UK.

How LGPS shows on your payslip

A correctly-structured Local Government payslip shows:

• Pensionable pay - your basic + permanent allowances.
• Pension contribution - the tiered % of pensionable pay deducted before income tax (net pay arrangement).
• AVC contribution (if you've started one) - separately itemised.
• LGPS member reference number - your unique scheme identifier.

The pension deduction reduces your gross pay for income tax purposes, giving automatic tax relief at your marginal rate.

When to talk to a pension specialist

For routine LGPS membership, no specialist advice is needed. A regulated pension adviser earns their fee when:

• You're a senior LGPS member facing repeated AA charges.
• You're approaching Rule of 85 retirement and need timing guidance.
• You're considering transferring out of LGPS (usually wrong, but sometimes considered after leaving).
• You have pre-2014 service with complex final salary calculations.
• You're considering AVC top-ups for tax-free cash at retirement.

LGPS is administered locally by approximately 88 LGPS funds across the UK. Contact your specific Fund administrator for member-specific information. For regulated advice, an FCA-authorised pension adviser experienced with LGPS is essential.

Disclaimer

PayslipIQ provides automated educational guidance based on the figures you supply. It is not regulated pension or financial advice. LGPS rules are technical and interact with multiple legacy scheme provisions via McCloud + Rule of 85 - for substantial decisions especially around early retirement, AVCs, AA charges, or transfer out, consult a regulated FCA-authorised pension adviser experienced with LGPS.