Example - Post 1 April 2014

An employee is in the scheme from 1 April 2014 and earns £24,500 in the scheme year up to 31 March 2015. The amount which is added to their pension account is calculated as follows:

£24,500 / 49 = £500

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So, at the end of the scheme year, £500 is added to their Pension Account. To make sure the amount keeps its value, the total in the Pension Account will be adjusted in line with the cost of living. If inflation was, say, 3%, the £500 in Susan’s account at the end of the scheme year (31 March 2015) would be increased on 1 April 2015 to £515.

In the following scheme year from 1 April 2015 to 31 March 2016 the employee earns £25,333, which means that the following amount is added to their pension account:

£25,333 / 49 = £517

This brings the total to £1,032. As before, to make sure the amount keeps it value, the total in the Pension Account will be adjusted in line with the cost of living. If inflation was, say, 3.1%, the £1,032 in the account at 31 March 2016 would be increased on 1 April 2016 to £1,064. If the employee were to retire on 1 April 2016 they would receive a £1,064 per year pension.

Our Jargon Buster may help with pensions terminology.