What to think about
Special rules apply if you re-join the LGPS. See the section on Transferring in for information about what happens when you re-join the Scheme.
If you are considering whether to transfer your LGPS benefits to another scheme, make sure you have full information about the two pension arrangements. You will need details of what your LGPS benefits are worth and what they would be worth in the new pension scheme if you transfer them. When you compare the schemes, remember some of the main benefits of the LGPS:
- your LGPS benefits are guaranteed to increase in line with cost of living increases
- you can take your LGPS pension from age 55
- your LGPS pension may be paid at any age of you are too ill to work
- you can swap pension for tax-free lump sum when you take your LGPS pension
- when you die, a death grant and survivor pensions may be paid to your loved ones.
Special rules known as the Club transfer rules may apply if you transfer your LGPS benefits to another public service pension scheme. If you transfer under Club transfer rules, you will normally get benefits in the new scheme that are broadly equivalent to the benefits you had in the LGPS. The Club transfer rules will apply if:
- you join the new public service pension scheme five years or less after leaving the LGPS, and
- you apply for the transfer within a year of joining the new pension scheme.
Transferring your pension rights is not an easy decision to make. You may wish to get help from an independent financial adviser before making a final decision. This is particularly important if you are thinking about transferring your deferred benefits to a personal pension plan, stakeholder pension scheme, buy-out insurance policy or to an employer’s money purchase scheme. In these schemes, you would bear all the investment risk. This could significantly affect your income in later life.
Some members will have to take independent financial advice before they can transfer their LGPS pension. See the next section to find out if you will be affected.
Freedom and Choice – Flexible benefits
Flexible benefits were introduced by the Government in 2015. They give members of defined contribution pension schemes more freedom on how they take money from their pension pot after age 55.
There are generally four main options for members who are over age 55 in a defined contribution scheme which provides flexible benefits. Those options are:
- to purchase an annuity (yearly pension) or scheme pension
- to take a number of cash sums at different stages
- to take the entire pot as cash in one go, or
- flexi-access drawdown.
The LGPS is a defined benefit pension scheme, not a defined contribution scheme. The LGPS is not directly affected by the Freedom and Choice rules. However, if you leave the LGPS and do not take your pension immediately, you could choose to transfer your LGPS pension to a defined contribution scheme that provides flexible benefits.
You will be required by law to take independent financial advice before you can transfer if the value of your pension benefits in the LGPS is more than £30,000. The value of any in-house AVC fund is not included. You do not have to take independent financial advice if the value of your benefits is less than £30,000. However, transferring your pension is not an easy decision to make. Seeking the help of an independent adviser could help you make an appropriate decision.
Visit the Freedom and Choice page for more information about transferring to a scheme that provides flexible benefits.