Local Government Pension Scheme

dans43

Can somebody please explain the following.

I am 53 years old. I completed 25 years local government service in 2003 and had a final year salary of 55,000 pounds. I then did a further 4 years ending in 2007 with a final years salary of 32,000 pounds. When I left, I was told by the administrators of the LGPS that I would not be able to access my pension until I was 65, and that I could expect a lump sum equivalent to 3/80 of my final salary, and an annual pension of 1/80 of my final salary, for each completed years service. By my reckoning, that would give me a lump sum of 56,000 pounds and an annual pension of 18,800 pounds, but I can`t access it for another 12 years.

I recently moved abroad and was advised to inquire about the possibility of taking out a QROP (Qualifying Recognised Overseas Pension). The LGPS gave me a current "transfer value" for my pension of 487,000 pounds, and they have now transferred this amount into an overseas pension trust. I have been able to access an immediate lump sum of 121,750 pounds, and an ongoing annual pension of up to 5% of the remainder (which in year 1 is 18,260 pounds). All this some 12 years before I could access the pension in the LPGS.

If I had remained in the LGPS and died before my 65th birthday, my estate would have received nothing. As a single person, if I had remained in the LPGS after the age of 65, the pension would have died with me. In the new trust, any surplus in the fund will be passed on in my will.

Where is the logic in this? And how many ex employees of the LGPS are missing out on a lucrative pension because they are under the misapprehension that they cannot access it until they are 65?

I'd be interested to hear people's observations.

EdInvestor

You are benefitting from the difference in pension laws applying in other countries: of course to do this you need to move overseas and convert your UK pension to a QROPS.

Is it not possible to take an LGPS pension early (with an appropriate reduction for each additional year it is payable) while remaining in the UK?

jem16

EdInvestor wrote: »

Is it not possible to take an LGPS pension early (with an appropriate reduction for each additional year it is payable) while remaining in the UK?

Yes you can from age 55. Also possible from earlier than age 55 if you were a member before March 2008.

Andy_L

dans43 wrote: »

If I had remained in the LGPS and died before my 65th birthday, my estate would have received nothing. As a single person, if I had remained in the LPGS after the age of 65, the pension would have died with me. In the new trust, any surplus in the fund will be passed on in my will.

Had you died in service your nominee would have received 3x salary (outside the estate so exempt from IHT) and (whether in service or not) your spouse 1/2 of the pension you would have got if you'd made it to 65.
As you say, single people lose out but thats the nature of FS schemes (as do,eg, men with their lower life expetancy or people who only have a few years service when young & then leave).

Idle curiosity, what country did you move to?

Is that "ongoing annual pension of up to 5% of the remainder" a drawdown style pension or is it a guaranteed, RPI indexed, income for life like the LGPS?

As ED says, you have to leave the country to do itvia QROPS, although I see no good reason why you couldn't transfer your LGPS to a private pension and do the same drawdown option, providing you could get an IFA to sign off on it as a good idea and before the lowest age increases to 55.

"Is it not possible to take an LGPS pension early"
yes, going at 53 (and assuming thay had reserved rights to retirement age of 60 for most of their service) they'd have lost about 1/3rd although possibly ff they'd held on to 60 then reserved rights to "the rule of 85" might have meant no reduction to all bar the last few years of service (or possibly not: its a confusing muddle is the LGPS)

So that would give you a lump sum of ~£37k & a pension of ~£8k. Significantly less than QROPS is getting but, I suspect, without RPI linking & that "gold plated" guarantee

Idle curiosity, what country did you move to?

dans43

Andy_L wrote: »

Is that "ongoing annual pension of up to 5% of the remainder" a drawdown style pension or is it a guaranteed, RPI indexed, income for life like the LGPS?

Idle curiosity, what country did you move to?

I have moved to Spain, but the QROP is based in Guernsey.

The ongoing annual pension is 5% of the balance in the fund at the start of each year. If the fund grows less than 5% then the annual amount is reduced. Obviously I will have to cushion the possibility of this by investing part of the lump sum to "top up" any shortfall, but given the additional lump sum over and above what I would have received, it seems a pretty good deal.