LGPS ill health retirement and ESA

faddy

My wife's applied for an LGPS medical retirement which looks as though it's going ahead as she's had a favourable medical report. She's also just applied for Contribution Based ESA (she's still employed, but not working, and her SSP has run out).

ESA is reduced by half of the amount by which an occupational pension exceeds £85 pw. Her pension will be around £10k so this reduction will be about £2800 pa (£2200 net of tax). She's nearly 61, so if she went into the ESA Support Group and remained there until SRA the maximum total "loss" would be about £11,000. There is of course no guarantee that she'll be awarded ESA after assessment.

According to this discussion on Rightsnet ESA is affected by regular pension income, but not by irregular lump sums. I'm wondering whether she should consider taking a transfer out (if that's possible for an ill health retirement?) so that she could draw her pension in a manner that doesn't affect ESA. I believe that the way in which transfer values are calculated by LGPS makes them particularly ungenerous so perhaps not worth considering for a "saving" of, at most, £11k?

Alternatively, would she be able to delay taking her pension and would it be enhanced similarly to the enhancements for taking it later than NRA? (She could delay taking it until her ESA ends or we run out of money, whichever comes first).

Silvertabby

No, No, No ! I can't comment on the ESA side, but if your wife is awarded Tier 1 ill-health then a transfer out would probably be extremely detrimental.

Tier 1 gives a service enhancement to NRA - which will be 66 in your wife's case. To transfer out, she would have to opt out of the LGPS - and then the CETV calculation would be based on her actual service.

Again, if she were to be awarded Tier 1, she would be throwing money away by not taking it straight away (not that it is possible to defer an ill health pension).

The enhancement for Tier 2 is 'only' 25%, but that would still be money thrown away if she were to opt out and then transfer out.

Ill health aside, I know from my days as a LGPS administrator that a number of LGPS deferred pensioners refused to take their (unreduced) LGPS pension at 60 because they were getting more in State means tested benefits. Not a lot we could do if they wouldn't sign the claim forms/give us their bank details for payment -- BUT as the LGPS was a contracted out scheme, the DWP could and did ask us for details of pensions due as part of the means test calculations.

faddy

Silvertabby wrote: »

No, No, No ! I can't comment on the ESA side, but if your wife is awarded Tier 1 ill-health then a transfer out would probably be extremely detrimental.

Independent doctor's stated opinion is that she qualifies for Tier 1, but he hasn't yet signed the certificate as someone screwed up the paperwork.

Tier 1 gives a service enhancement to NRA - which will be 66 in your wife's case. To transfer out, she would have to opt out of the LGPS - and then the CETV calculation would be based on her actual service.

So nothing to reflect the additional cost of providing ill health pension?

(not that it is possible to defer an ill health pension).

So we don't need to agonise about that then!

Ill health aside, I know from my days as a LGPS administrator that a number of LGPS deferred pensioners refused to take their (unreduced) LGPS pension at 60 because they were getting more in State means tested benefits. Not a lot we could do if they wouldn't sign the claim forms/give us their bank details for payment -- BUT as the LGPS was a contracted out scheme, the DWP could and did ask us for details of pensions due as part of the means test calculations.

I think the rules on the impact of pension on Contribution Based ESA are quite different from the rules on means-tested benefits, but from your answers there's no point in us trying to find clever ways around them.

Thanks for the reply. It's great when MSE finds you an expert

Silvertabby

“ Tier 1 gives a service enhancement to NRA - which will be 66 in your wife's case. To transfer out, she would have to opt out of the LGPS - and then the CETV calculation would be based on her actual service.
”

So nothing to reflect the additional cost of providing ill health pension?

Not for the CETV. The extra cost of an enhanced ill health pension is carried by the pension fund (unlike redundancy, whereby the extra costs fall on the employer) but only to pay for actual ill health benefits. If your wife really wanted to transfer out, she could only do that by first opting out not only of the scheme itself but also of any future additional benefits - such as the ill health enhancement.

Happy to help - hope all goes well.

Prudent

I can't offer any advice on the scheme as I don't know its conditions. I was in the teacher's final salary scheme and was awarded ill health retirement last summer. I did not get the enhanced rate, but the figures are fairly similar. Like your wife, I appplied for contributions based ESA my ssp ran out. I was told I had been awarded the pension just before the assessment for ESA. Therefore I never considered any option other than taking the pension. I passed the ESA assessment and was placed in the support group. The amount I was awarded was roughly halved by the pension. Even with the reduction I would make the same decision again as the pension is secure income from now onwards. I have read so many cases of arbitrary and unfair ESA decisions that I would not like to have all of my eggs in that basket. Having my pension takes the stress off.

faddy

Silvertabby wrote: »

The extra cost of an enhanced ill health pension is carried by the pension fund (unlike redundancy, whereby the extra costs fall on the employer)

Her employer (an academy trust that hasn't handled an ill health retirement before) seems to think they'll be picking up the tab! Even if the employer isn't paying directly, would it have an impact on the employer's future contributions to the fund?

System

Hi

The employer pays for the ill health retirement, but not directly.

The scheme has an allowance for ill health retirement set within the employers rate, and a one off payment or surcharge to the employer doesn't happen.

Silvertabby

“ The extra cost of an enhanced ill health pension is carried by the pension fund (unlike redundancy, whereby the extra costs fall on the employer)
Originally posted by Silvertabby ”
Her employer (an academy trust that hasn't handled an ill health retirement before) seems to think they'll be picking up the tab! Even if the employer isn't paying directly, would it have an impact on the employer's future contributions to the fund?

Hi

The employer pays for the ill health retirement, but not directly.

The scheme has an allowance for ill health retirement set within the employers rate, and a one off payment or surcharge to the employer doesn't happen.

John is right - I was told it was done this way so the employer wouldn't be detracted from the ill health process by the thought of having to pay a lump sum into the scheme.

The employer's contribution rate may or may not increase in the future - but that decision would be based on the cost of ALL benefits, not just ill health.

Alice_Holt

The DWP can (and do) apply the principle of notional income. So broadly, if a pension can be paid, then the DWP will assume it is in payment and adjust benefits accordingly. This is designed to prevent claimants deferring due income in order to maximise benefits.

How long your wife's ESA is in payment for depends on the ESA group she is allocated to after assessment. If in the WRAG group contribution ESA is paid for 365 days.
If placed in the Support Group ESA can be paid indefinitely.
Many people are declared fit for work following assessment, and their ESA stopped.

It would be foolhardy to comprise the best pension arrangement to maximise possible ESA payments.
The post by Prudent is spot on.
Rather, consider if your wife would be eligible for PIP. PIP, designed to help towards the additional living costs associated with a disability, is non means tested and tax-free.
http://www.benefitsandwork.co.uk/personal-independence-payment-pip/pip-self-test
https://www.citizensadvice.org.uk/benefits/sick-or-disabled-people-and-carers/pip/before-claiming/check-you-are-eligible/

faddy

Alice_Holt wrote: »

The DWP can (and do) apply the principle of notional income. So broadly, if a pension can be paid, then the DWP will assume it is in payment and adjust benefits accordingly. This is designed to prevent claimants deferring due income in order to maximise benefits.

Presumably applies once you've reached Normal Retirement Age for the scheme or been granted an ill health retirement (but doesn't oblige you to take your pension before NRA if your scheme allows it)? Does this apply only to fully means tested benefits (e.g. Pension Credit, Income Related ESA) or also to the Contribution Based ESA reduction for occupational pension?

faddy

She's now been awarded a Tier 1 pension.

Being on sick leave since September, she'd gone onto half pay during March, and her employment ended at the end of April after a pay rise on April 1st. From my reading of the scheme I was expecting that her Assumed Pensionable Pay - the pay used to calculate the Career Average part of her pension - would be either a) her average pay for the three months prior to going onto half pay or b) her (unreduced) salary at the date of leaving. It's apparent from her figures though that they've averaged her (unreduced) pay for the final three months of her employment. Is that correct?