How your pension is calculated
If you retire at normal retirement age, your pension is worked out like this:
You earn a yearly pension of 1/60 of your pensionable earnings between the two levels in each plan year of pensionable service.
This yearly amount then increases in line with inflation up to 5% a year until you retire at age 65. Your total pension is made up of all these "year's worth" of pension added together (up to a maximum of 40 years' pensionable service).
This example shows how your pension might build up over a four-year period. It assumes that inflation is 4% each plan year.
First plan year
Example
Your pensionable earnings are £24,000 – so, the earnings figure used to work out your pension is £24,000 less the lower level of £5,032 = £18,968.
1/60 x £18,968 = £316 a year.
This is your first plan year's worth of pension.
Second plan year
Example
Your pensionable earnings are now £25,000 and the lower level has gone up to £5,100 – so, the earnings figure used to work out your pension is £25,000 – £5,100 = £19,900.
1/60 x £19,900 = £331.
This is your second plan year's worth of pension.
Your first plan year's worth of pension receives a 4% increase immediately after the end of the second plan year (in line with inflation that year). 4% of £316 = £12, so your new 'first year' pension amount is £316 + £12 = £328.
Your total pension so far is £328 (your increased 'first year' pension) + £331 (your 'second year' pension) = £659 a year.
Third plan year
Example
Your pensionable earnings are now £26,000 and the lower level has gone up to £5,200 – so, the earnings figure used to work out your pension is £26,000 – £5,200 = £20,800.
1/60 x £20,800 = £346.
This is your third plan year's worth of pension
Your first and second plan years' pension receives a 4% increase immediately after the end of your third plan year (again, in line with inflation): £659 + £26 = £685
Your new total pension is £346 + £685 = £1,031 a year.
Fourth plan year
Example
Your pensionable earnings are now £27,100 and the lower level has gone up to £5,300 – so, the earnings figure used to work out your pension is £27,100 – £5,300 = £21,800.
1/60 x £21,800 = £363.
This is your fourth plan year's worth of pension.
Your first three plan years' pension receives a 4% increase immediately after the end of your fourth plan year: £1,031 + £41 = £1,072.
Your new total pension is £363 + £1,072 = £1,435 a year.
What if you join part way through the year?
Pay is normally reviewed each 1 April – which means there is a 'pay year' of 1 April to 31 March (which is the same as the plan year). So, you may start and end your membership with 'part years' where you earn that level of pay for only a few months. If this is the case, your pensionable earnings are adjusted in line with the proportion of the year you work.
Example
For example, if you join on a 1 January, you will have pensionable earnings at that level for three out the twelve months of that 'pay year'. If your pensionable earnings are £24,000 – taking away the lower level (say it is still £5,032) gives £18,968.
3 / 12 x £18,968 = £4,742 (your pensionable earnings adjusted for those three months).
1/60 x £4,742 = £79 is the amount of pension built up in those three months only.