How reducing your hours affects your pension

If you’re thinking about cutting down your working hours and you’re in the LGPS, it’s important to know how this might change your pension.

 

What happens when you reduce your hours

When you work fewer hours:

• Your pensionable pay will usually go down because you are earning less.
• Your pension is based on your pensionable pay each year, so if your pay goes down, the amount of pension you build up that year will also be lower.
• If you want to take some or all of your pension while you keep working (called flexible retirement), your employer must agree. Your pension may also be reduced if you take it early.

 

Things you should check

Before reducing your hours, make sure you look into:

• Whether your full-time equivalent (FTE) salary changes. Even if you work part-time, your pension uses the FTE amount for any service you hold pre 1st April 2014.
• How many pensionable hours you will be building up after you reduce your hours. Working less means building up less pension.
• If you are 55 or over, you may be able to take part of your pension while working fewer hours but it may be paid at a reduced rate if you take it early.
• Your future pension will be based on your reduced hours unless you increase them again.
• Check with your employer and the Pension Fund that your hours, pay, and contributions are recorded correctly. Mistakes can affect your pension later.

 

Example

You currently work full-time (37 hours a week) and earn £30,000 a year.

From the start of the new scheme year, you reduce your hours to 18.5 hours a week (50%). Your yearly pay would then be £15,000.

Your pay halves because your hours halve.

• For the part of the year you worked full-time, you build pension based on the full-time pay (£30,000).
• After reducing your hours, you build pension on your new lower pay (£15,000).
• This means the total pension you build up that year is less than you would have built if you stayed full-time.
• In future years, you will continue to build pension on the lower salary unless your hours change again.

This doesn’t mean you shouldn’t reduce your hours just be aware that it has a direct impact on your pension.

 

What you should do next

• Speak to HR or payroll and ask how reducing your hours will affect your pensionable pay and contribution rate.
• Ask Bedfordshire Pension Fund for an estimate showing how your pension will change after reducing your hours.
• If you’re 55 or over, ask whether flexible retirement is an option and what it would mean for your pension.
• Keep copies of your new contract or any letters showing your change in hours and salary.

 

Final thought

Reducing your hours can be a good choice for your wellbeing, your family, or as a step towards retirement. Just remember that it will affect how much pension you build up. Understanding this now will help you make the right decision for your future.

For more information you can always contact Bedfordshire pension fund directly.