How do Contributions affect Income Tax and NI?
As a member of the LGPS, your contributions will attract tax relief at the time they are deducted from your pay. This means that you pay less tax.
For example, let's assume your gross pay per month is £1,600 and you pay pension contributions at the rate of 6.5%. Your actual contributions will be £104. This is deducted from the £1,600 before income tax is taken. The amount you can earn before paying tax, based on the current personal tax allowance as set by HMRC, is £623 per month. Therefore, in this example there will be a tax saving of £20.80.
Also as a member of the LGPS you will be contracted out of the State Second Pension scheme (S2P). For the duration of your membership of the LGPS, prior to State Pension Age, you will pay reduced National Insurance contributions and will not earn any benefits under the State Second Pension scheme. However, the LGPS guarantees benefits that are at least equivalent to, and normally much better than, the pension provided by the State Second Pension scheme. From State Pension Age you are not required to pay National Insurance contributions.
