Changes to Scottish Water & Business Stream Pensionable Pay

For current employees of Scottish Water and Business Stream, future performance related payments will be pensionable. This will start from June 2026 for Business Stream and July 2026 for Scottish Water. 

All Scottish Water and Business Stream employees who are or were contributing members of the three Local Government Pension Scheme (Scotland) funds involved are affected by the change. 

Your pension is safe.

If you’re a pensioner, the payments you receive each month will continue as usual.

If you’re a deferred member, the pension benefits you’ve accrued so far are intact and secure.

AOIP is Scottish Water’s annual performance-related payment. It is linked to how well the organisation performs against a range of agreed targets covering areas such as customer service, financial performance, investment delivery and environmental performance. All eligible employees receive this payment.  
The Business Stream equivalent is an annual performance related bonus scheme, which covers aspects of business performance and personal performance.

I am retiring in the next couple of months (after August 2027) - what will this mean for me? 

This will not prevent you from retiring at your nominated retiral date and the calculation will be based on the information available at this time. Should there be any changes as a result of this process, your Pension Fund will be in touch when they have more information.  
 
Individual calculations will be available in due course, Due to the age and complexity of these records, it will be some time before we are able to provide an individual assessment of what this means for your pension. It is anticipated that individual calculations will not be available until 2027.    
 
We will keep you updated as we make progress on this jointly with the pension funds.

What happens if I’m not paying into a Local Government Pension Scheme (LGPS) and never have done? 

Why have you changed your pensions policy?

An internal review identified that a limited number of performance related payments, including past and future annual outperformance incentive payments (AOIP) or annual performance related bonus payments, should be included in pensionable pay, in line with LGPS regulations.

When did you become aware of this matter?

The position that AOIP, Annual Performance Related Bonus and GEM payments should be treated as pensionable pay was formally approved by the Scottish Water Board on 21 May 2026.

Why was this matter not identified sooner?

Pensionable pay was not viewed as an issue until a specific question was asked regarding the interpretation adopted by Scottish Water versus the LGPS Regulations. 

The definition of pensionable pay has been based on a consistent organisational and stakeholder interpretation that it was defined within employment contracts and by consolidated pay as opposed to by the LGPS Regulations. 

Performance incentive payments were described as non-pensionable within the Regional Water Authority employment contracts. Detailing the pensionable treatment within an employment contract or within pay policies can be determinative for many pension schemes; however, for the Local Government Pension Scheme, the LGPS Regulations dictate the definition of pensionable pay.  

Business performance, continuous improvement and delivery of objectives have been the focus when reviewing the Annual Outperformance Incentive Plans. 

Audit and assurance activities focused on the design and operational effectiveness of the control framework were based on the same interpretation and the correct accounting treatment. No assurance was carried out on the design effectiveness against the LGPS Regulations and the definition of pensionable pay. 

The interpretation became embedded as a consistent organisational understanding, and custom and practice, and was maintained and reinforced over the years through organisational changes, pay and reward discussions, and revisions of the Regulations. 

Scottish Water, Business Stream and the pension funds are notifying current and former members of the three Local Government Pension Scheme funds involved and their beneficiaries of this change.

We will provide regular updates on our dedicated webpage and individuals will receive communications from their pension fund in due course. It is likely to take some time before the individual calculations are available.

We are reviewing individual records going back over 20 years. It will be some time before we are able to give everyone individual calculations of what this means for their pension benefits. We envisage this will take the rest of this year to work this through. 

The work of updating the records and pension calculations is being managed jointly by Scottish Water, Business Stream and the three Local Government Pension Scheme funds involved. Due to the complexities of reviewing what this means for individual pensions it will be several months and almost certainly 2027 before this information will be available. 

In the meantime, your pension fund will contact you directly if they require any information from you. They’ll also send updates as they have more information. 

Pensionable pay is the part of your pay that counts towards your pension. It is used to calculate how much goes into your pension from you and your employer.

Local Government Pension Scheme (Scotland) regulations require us to include the Scottish Water Annual Outperformance Incentive Payment (AOIP) and Business Stream annual performance related bonus in pensionable pay calculations. There are no exceptions and no individual opt-outs.

This also applies to members in the 50:50 section of LGPS.  It will be some time before we are able to give everyone individual calculations of what this means for their pension benefits.

No. Additional Voluntary Contributions are entirely separate.

No, all three pension funds are administered under Local Government Pension Scheme (Scotland) regulations. Employee contributions and benefits are the same whichever scheme you are a member of.

If I pass away before any pension correction is worked out, will my spouse or dependants still receive any money owed? 

If the Pension Funds find that your pension needs to be increased after reviewing their records, this will apply to both your payments and any benefits for your spouse or dependants. If you die before any adjustments or back payments are made, any amount owed will be included in the benefits paid to your spouse or dependants. 

I am planning to transfer my pension, what does this mean for me?

This will not prevent you from transferring your pension and the transfer value will be based on the information available at this time. Should there be any changes as a result of this process, your Pension Fund will be in touch when they have more information. 

I have already transferred my pension, what does this mean for me? 

We’re sorry that we can’t yet give you a clear answer and appreciate that this period of uncertainty may be difficult. Thank you for your patience and understanding while this is carefully considered.   

Should there be any changes as a result of this process, your Pension Fund will be in touch when they have more information.  

Will this have an impact on the tax I pay?

This matter is very complex, and everyone’s circumstances will be different. We’re sorry that we can’t yet give you a clear answer and appreciate that this period of uncertainty may be difficult.  

The Pension Funds have begun the process to review and amend members records to ensure they accurately reflect their pensionable earnings including any AOIP, Annual Performance Related Bonus and GEM payments. This is known as benefits rectification.  

As we are reviewing members records going back many years, this process will take time. To manage this effectively, the work is being carried out in phases. Once this work is completed, you will receive a letter to confirm your pension record now accurately reflects your pensionable earnings. 

The records need to be reviewed for the last 6 years to comply with Annual Allowance regulations.  If your pension savings, including any pension benefits outside of your Local Government Pension Scheme, are more than the Annual Allowance for any of these six years, you may be subject to a tax charge.  

If you have not yet received a letter from your pension fund to confirm they have updated your record, your benefits have not yet been rectified and there is nothing you need to do just now. 

Will I see any updates in this year’s Annual Benefit Statement?

Each year members who’re paying into or have previously paid into the Local Government Pension Scheme through Scottish Water or Business Stream receive an annual benefit statement. It contains the latest information about your pension including the value of your current benefits and your estimated projected benefits at State Pension Age.

This year’s statement won’t include any information about Annual Outperformance Incentive Payment (AOIP) or annual performance related bonus payments and any change this might make to your pensionable pay.

Are retired and deferred pension scheme members being informed of this?

Yes. We are writing to all scheme members at the same time.

If you’re a deferred member (you’ve left Scottish Water/Business Stream but haven’t started receiving pension payments yet), the pension benefits you’ve accrued so far are intact and secure and will continue to increase each year in line with inflation.
If it’s found that your deferred pension should be higher, your pension will be adjusted up to the correct level. That means that when you retire and start taking your pension, it will reflect the higher amount.
If you decide to retire before the review is complete, any increase you’re entitled to will still be applied and backdated to the start of your pension.

All eligible employees of Scottish Water and Business Stream, who are part of the LGPS, received the Annual Outperformance Incentive Payment (AOIP), or annual performance related bonus.
If you’re unsure:

• Check your records: Look at your payslips or P60s from your time with the company. AOIP payments started in the early 2000s and would appear as a separate item on your payslip in the years they were paid. If you never saw a an AOIP payment listed, it’s likely you didn’t meet the eligibility criteria

• We’re in the process of reviewing all member records and if you’re impacted, your pension fund will let you know and adjust your benefits.

I have recently left Scottish Water or Business Stream - what does this mean for me? 

We’re sorry that we can’t yet give you a clear answer and appreciate that this period of uncertainty may be difficult. Your pension is secure and the pension funds are well-funded. 

Thank you for your patience and understanding while this is carefully considered.  Your pension fund will send updates as they have more information. 

If I'm retired and receive a lump sum for past underpayments, could this push me into a higher tax band. How will this be handled? 

If your pension is increased after a review, this could affect the tax you pay. Pension schemes must apply the tax code given by HMRC, so they can't adjust this themselves. It may be beneficial for you to contact HMRC directly to discuss your situation once the review is concluded.  

Which regulations apply to Scottish Water and Business Stream? 

We are bound to follow the Local Government Pension Scheme (Scotland) regulations. 

Does my pension deduction come off before or after tax?

Pension contributions are deducted from your pay before income tax.

Has Scottish Water taken sufficient independent legal and pension advice, and are regulators or ombudsman bodies involved? 

Yes, Scottish Water brought in specialist external advisers covering actuarial, tax and legal advice. Scottish Water also proactively informed The Pensions Regulator (TPR) about this situation. TPR is aware that steps are being taken to correct the issue and together with the pension funds we are keeping TPR and the Scottish Public Pensions Agency informed. Your pension fund will keep you informed in line with TPR guidelines and they’re committed to ensuring their communications are clear, fair, and accurate.
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I've run a retirement estimate on my pension fund's online platform, after I received my bonus, but it's not correct.

I want to update the contact details held by my Pension Fund - how do I do this?

You can update your contact details by accessing the online portal for your pension fund, or by contacting them directly.

Please note, if you are a member currently paying into the scheme, you should notify your employer of any changes to personal details, as your employer provides details on a monthly basis which can overwrite changes you make via the portal.

I’ve received unexpected contact about my pension – what should I do and how can I stay safe?

A recent email/letter was sent out by Scottish Water, Business Stream and the three Local Government Pension schemes (LGPS) - Lothian Pension Fund, Strathclyde Pension Fund and North East Scotland Pension Fund. This was to update you that Scottish Water recently recognised that certain types of payment, including their Annual Outperformance Incentive Payment (AOIP) and the Business Stream annual performance related bonus, weren’t being counted as pensionable pay in the past when they should have been under the pension scheme’s rules. 
 
It will be some time before the three LGPS' are able to provide an individual assessment of what this means for your pension. It is anticipated that individual calculations will not be available until 2027. We will provide regular updates on our dedicated webpage in the meantime 
 
If you have any concerns about the validity of communications from your pension fund, get in touch with them directly. They will take you through the usual verification process and confirm any communications that have been sent. 
 
We have not reached out to anyone by phone. Cold calls about pensions are illegal, which means they are often scams. Please be careful if someone offers you: 
 
* a free pension review 
* high or guaranteed returns 
* to make a transfer  
 
If you get an unexpected email or phone call like this, hang up and get in touch with the company directly using a contact method you already know or details you find independently on official correspondence or online. There’s lots of helpful information at How to spot fraud - Stop! Think Fraud to help keep yourself safe from scams.

What is the annual allowance?

The Annual Allowance is the total amount all your pension savings can increase by in a year without you having to pay tax. If your savings increase by more than the annual allowance, you will have to pay tax on the excess.  

The current standard annual allowance is £60,000.  For the tax years 2019/20 to 2022/23 the standard allowance was £40,000. The Annual Allowance is reduced if income levels exceed specified HMRC limits tapering to a minimum level of £10,000.

I have pensions and/or other financial investments elsewhere, what might that mean for the Annual Allowance?

The annual allowance applies to all pension schemes, not just the Local Government Pension Scheme (LGPS).  

Your LGPS pension fund must tell you if your pensions savings in their pension scheme exceed the annual allowance in a tax year.  

If you pay into more than one pension scheme in a year, you will need to find out if the total increase in pension savings across all schemes exceeds the annual allowance. 

How do I find out if the total increase in all my pension contributions exceeds the Annual Allowance? 

Do I need to do anything in relation to personal tax?

You do not need to take any action with respect to your personal tax until your benefits have been rectified. This is because tax and NI were treated correctly in your previous payroll for the way AOIP, Annual Performance Related Bonus and GEM payments were treated at that time. 

Once your benefits have been rectified, you will receive a letter from your Pension Fund which will let you know if there is any action you may need to take in relation to your Annual Allowance. This is the limit of pension you can build up in a year without paying any tax.  

Due to the age and complexity of these records, it will be some time before the Pension Funds are able to provide rectified benefits statements for every member. The Pension Funds will also provide an individual assessment of the annual pensions savings increases over the last 6 tax years where relevant with respect to the Annual Allowance. Thank you for your patience and understanding while this is carefully considered.