LGPS Pension for less than 2 years - Employer Contributions

STLF

Hi,

I have very little understanding of pensions and I'm hoping somebody can help me. The more I try and educate myself on the subject, the more confusing it gets.

In my previous employment, I worked for a college where I was enrolled on LGPS.
I was employed for less than 2 years (about 1.5 years), meaning my funds were frozen and not invested. (apparantly you have to be a member for 2 years for investment)

I was only an apprentice on a very low wage, meaning my contributions were only around £350 total. However, I believe my employer made contributions of around £700 on top of this.

Obviously I have to do something with the money - I can't just leave it frozen!

I have just got off the phone to the local pension authority (county council) and they said that regardless of whether I take the money as a refund, or transfer into another pension pot, that I would lose all employer contributions. This came as a shock to me as I thought that if I transferred into another pension pot, I could keep the employer contributions. I then asked where the employer contributions had gone, and she said that it "paid for the scheme". I don't understand this.

I am now enrolled on NEST with my current employment. (private sector)

I am hoping someone can advise if there is a potential "play" I am missing?

- Are my only 2 options to either refund or transfer the LGPS money?
- Are the LGPS employer contributions simply gone forever?
- What if I transferred my current NEST pension into the LGPS pot? (Can I even do that if no longer working for the college/public sector?)

It's all very confusing. Really hoping someone can help.

Thanks

hyubh

STLF wrote: »

I was employed for less than 2 years (about 1.5 years), meaning my funds were frozen and not invested. (apparently you have to be a member for 2 years for investment)

Strictly speaking, 2 years for a 'preserved pension' (= index linked income on retirement), given the LGPS is DB not DC.

I was only an apprentice on a very low wage, meaning my contributions were only around £350 total. However, I believe my employer made contributions of around £700 on top of this.

Quite possibly.

Obviously I have to do something with the money - I can't just leave it frozen!

Basically, your options are -

- Leave it where it is. Assuming you left after March 2014, you have five years from when you left until the administrator of the pension fund must pay you your refund somehow.

- Take the refund. This will be of your own contributions only, net of tax and possibly NI relief reclaimed by HMRC, though gross of interest for late payment.

- As you were a member of the scheme for more than 3 months, take a CETV (cash-equivalent transfer value) and transfer out to a DC scheme. Can be a hassle because administrators of DC schemes can struggle with the concept of a CETV from a DB scheme that isn't for a preserved benefit, however transferring out would be a much better option than taking the refund, because the CETV will reflect the employer contribution too (see below).

- Rejoin the LGPS in another job, on which your frozen refund service now gets opened up and and joined with your new membership. Probably the best option of the three, however the 5 year cap on a frozen refund being frozen (didn't used to be the case) is a bit of a bummer.

- If you joined the scheme before April 2014, take a preserved benefit in the scheme. This is a transitional right only - arises because before April 2014, the 'vesting period' in the LGPS was only 3 months. Not an option if you joined on or after 1 April 2014 however.

I have just got off the phone to the local pension authority (county council) and they said that regardless of whether I take the money as a refund, or transfer into another pension pot, that I would lose all employer contributions.

The CETV will reflect the employer contribution, however the CETV is not calculated as the sum of employee and employer contributions for a number of reasons. Instead, it represents what the scheme actuary (GAD) has determined as the value of the hypothetical pension, had your number of months in the scheme been long enough to have preserved benefits.

What if I transferred my current NEST pension into the LGPS pot?

You can only transfer into the LGPS if you are an active member of it, and even then, usually only within 12 months of joining.

Silvertabby

The thing with pensions is that you have to ask the right question in order to get the right answer.

If you asked if your transfer value would be the total of your and your employer's contribution, then the answer would indeed be 'no' - because the LGPS CARE pension scheme doesn't work like that.

Instead, the transfer value would be calculated on the pension accrual rate/GAD transfer factor.

Go back to your LGPS provider and ask for a CETV (transfer quote) - and please don't muddy the waters by asking about your/your employers contributions, because they don't come into the equation.

You can't transfer your NEST scheme into the LGPS - you have to work for a LGPS employer in order to transfer/pay into the scheme.

And yes, if you do take a refund then all you will get back would be your own contributions less 20% tax (even if you don't earn enough to pay income tax).

ADD: Crossed with hyubh's post,

alewin

Silvertabby wrote: »

And yes, if you do take a refund then all you will get back would be your own contributions less 20% tax (even if you don't earn enough to pay income tax).

My wife was only in the scheme for 6 months and decided to take a refund last year.
She had paid in around £100 and the refund deducted 20% tax from the sum, even though she works part time and did not earn enough to pay income tax.

She was going to get around the claiming the back the tax that was deduced, but from the way you have worded the sentence, is it not possible to claim it back, is it lost?

Silvertabby

alewin wrote: »

My wife was only in the scheme for 6 months and decided to take a refund last year.
She had paid in around £100 and the refund deducted 20% tax from the sum, even though she works part time and did not earn enough to pay income tax.

She was going to get around the claiming the back the tax that was deduced, but from the way you have worded the sentence, is it not possible to claim it back, is it lost?

No, I'm afraid it's not possible to claim it back. It's not (earned) income tax - it's a specific tax on the refund of pension contributions in accordance with the Finance Act. It's just coincidental that the rate is the same as basic rate income tax - it was still 20% back in the day when basic rate was more than 20%.

Income Tax

Income Tax at 20% must be taken from the pension contributions deducted up to £20,000 and 50% on pension contributions over £20,000. Tax is deducted regardless of any tax relief due at the time of the refund or allowable when contributions were originally paid. You cannot reclaim this tax from HMRC.

swindiff

Definitely look at transferring rather than getting a refund. When my wife left LGPS after just under 2 years employment she was offered a refund of £1500. The transfer value was £7500.

Silvertabby

swindiff wrote: »

Definitely look at transferring rather than getting a refund. When my wife left LGPS after just under 2 years employment she was offered a refund of £1500. The transfer value was £7500.

Exactly . The transfer value is based on so much more than just the employee's contributions. A good point for OP to note - but, unfortunately, alewin's wife has already taken the refund.

alewin

Silvertabby wrote: »

No, I'm afraid it's not possible to claim it back. It's not income tax - it's a specific tax on the refund of pension contributions in accordance with the Finance Act. It's just coincidental that the rate is the same as basic rate income tax - it was still 20% back in the day when basic rate was more than 20%.

Many thanks for the reply.

It's something we were not aware of the time, a mistake on our part.
She only worked part time, lunchtimes at a school and had paid in a grand total of £94.07 which she just wanted back quickly. Still a shame though, money is money.

Apodemus

Silvertabby wrote: »

The thing with pensions is that you have to ask the right question in order to get the right answer...

It is also important to ask the right person. In all probability you will speak to a general finance technician in a payroll & pensions department, who may not really know that much about pension transfers and your case may be the first of this type that they have seen. Best to put the request in writing or make sure you speak to the Pensions Manager, who will have a much better understanding of the options available to you.