Freedom and Choice
The Government introduced new ways for people over age 55 to take their defined contributions pension savings. These reforms are known as ‘Freedom and Choice’ and have been in force since April 2015.
As a member of the LGPS, you are a member of a public sector defined benefit scheme. The flexibilities under ‘Freedom and Choice’ have not changed how you can take your LGPS benefits. The ‘Freedom and Choice’ rules may have an impact if you are considering transferring your LGPS pension to a defined contribution arrangement that offers flexible benefits.
The questions and answers below will help you understand how the ‘Freedom and Choice’ rules may affect a pension transfer.
Can I transfer my LGPS pension to a defined contribution scheme?
Yes, if you have stopped paying into the LGPS you can transfer the pension you have built up to a defined contribution pension scheme. If that scheme offers flexible benefits, you must take appropriate independent advice from an adviser who is registered with the Financial Conduct Authority (FCA) or their appointed representative. You must prove that you have taken this advice before your LGPS pension fund can pay a transfer to a defined contribution scheme.
You also need to consider the general rules on transfers:
- You are only entitled to one transfer quotation in any 12-month period
- You must elect to proceed with a transfer at least 12 months before your Normal Pension Age in the LGPS
- If you are a pension credit member, you must elect to proceed with a transfer at least 12 months before your Normal benefit age
- If you have more than one set of benefits in the LGPS, you must transfer them all. You cannot transfer one set of deferred benefits and keep another set of deferred benefits in the LGPS.
- You cannot transfer any LGPS benefits if you are already receiving a pension from the LGPS.
Are there any exceptions to the rule on advice?
Yes. If the total value of your benefits across all LGPS funds is £30,000 or less, you are not legally required to take advice.
If you leave the LGPS without meeting the vesting period you are not required to take financial advice. You would generally not meet the vesting period if you leave the LGPS after being a member for less than two years.
Transferring your pension could have a big impact on your income in later life. Taking independent advice is recommended to ensure you make the right decision for you, even if it is not a legal requirement.
How do I find out the value of my LGPS benefits?
You will need to request a transfer value quotation from your LGPS pension fund. If you have benefits in more than one LGPS pension fund, you will to request a transfer value quotation from each one. The total value of your LGPS benefits is the sum of all these transfer values. If the total is more than £30,000, you will be legally required to take financial advice before you can transfer to a scheme that offers flexible benefits.
Who can give me authorised independent advice?
You must receive appropriate independent financial advice from an independent adviser who is authorised by the Financial Conduct Authority (FCA). You can check whether an adviser is authorised by checking the FCA’s Financial Services Register.
The independent adviser must be authorised and must be qualified to give specific advice on transfers between pension schemes. An appointed representative of an authorised financial adviser is also permitted to advise you, as long as the authorised adviser has permission to advise on pension transfers. Appointed representatives do not appear on the FCA register as they are not authorised themselves. They are acting as an agent for a firm that is directly authorised by the FCA. You will need to check the permission associated with the authorised independent adviser that the authorised representative is acting for.
It is important that you make sure that the adviser is authorised by the FCA and has permission to advise on pension transfers before committing to receive the advice.
Please do not ask your LGPS pension fund to advise you. They are not authorised by the FCA to provide such advice.
Can my pension fund recommend a financial adviser?
No. Please see the Financial advice page for more information about finding an independent financial adviser.
Who pays for the financial advice?
You will meet the cost of the advice. The cost will vary depending on the independent financial adviser or appointed representative you decide to use. You should get a clear and understandable quote of the cost from the adviser or appointed representative before you commit to receiving advice from them.
Do I have to follow the advice that I receive?
No. You are required by law to get financial advice, but you are not required to follow the advice that you get. However, any decision you make to transfer your pension cannot be changed. If you ignore the advice and transfer your LGPS pension to a defined contribution scheme that offers flexible benefits or to an overseas pension scheme, that decision may reduce your income in later life. If you later realise that you have made the wrong choice, you will have no redress from the LGPS pension fund or the authorised independent adviser who advised you.
What protection do I have if I follow the advice?
Your independent financial adviser or their appointed representative may advise you to transfer out of the LGPS. If you take this advice and it turns out to be financially disadvantageous to you, you would need to seek redress from the adviser or appointed representative who advised you. There will be no redress from the LGPS pension fund. It will not be possible to reinstate your LGPS benefits.
How can I prove I have taken appropriate advice?
If you are required to take appropriate independent financial advice, you will have to prove to your LGPS pension fund that you have been advised before they can make a transfer payment. You should receive an ‘Advice confirmation form’ in the transfer ‘pack’ provided by your pension fund. Your adviser or appointed representative must complete this form to confirm:
- that advice given to you was specific to the transfer
- that the adviser is authorised to provide this advice or, in the case of an appointed representative, that the principal financial adviser is authorised to provide such advice
- the FCA reference number of the company the adviser works for, or that the representative is an agent for
- your name
- the name of the scheme you are transferring from and in respect of which the advice was given.
If you decide to go ahead with a transfer, you must sign the ‘Advice confirmation form’ and return it with the rest of the transfer forms your pension fund has given you. Your pension fund will check the authorisation status of the firm your adviser works for or that the the appointed representative is an agent for. They will do this by checking the company’s entry in the FCA’s Financial Service Register using the FCA reference number provided on the ‘Advice Confirmation Form’.
You will not be required to take advice if:
- the total value of your LGPS benefits is £30,000 or less, or
- the scheme you are transferring to does not offer flexible benefits.
Your pension fund will ask you to confirm this in writing.
Are there any other rules that could affect my pension transfer?
Potentially, yes. If a large number of pension transfers are requested, this could present a risk to the LGPS pension fund. If the Government believes that the number of transfers to schemes offering flexible benefits is a risk to the pension find and local tax payers, then the transfer value can be reduced. Your LGPS pension fund will confirm if the transfer value has been reduced when you apply for a transfer.
The rules that require you to take independent financial advice are there to make sure that you understand the financial implications of transferring your LGPS pension to a defined contribution scheme. You should also be aware that your pension is at risk from pension scammers. They may use a pension transfer as a way to get access to and take your pension savings. It is important that you know how to spot a Pension scam, so you can protect yourself and your pension savings.
Transferring your pension 03:03
What to consider if you are thinking about transferring your pension to a defined contribution scheme.Download transcript
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