Moving job and going from DB to DC pension with potential poor health

Lungboy

I am currently in the LGPS pension scheme at work but I've been looking at other jobs and applied for one that would mean switching to a DC pension. I have a permanent health condition that is currently well managed and am able to work, but the likelihood is that over time I will gradually deteriorate to the point i can no longer work. It's possible I could get an infection next week and end up having to leave work in a much quicker timeframe. I know my LPGS scheme has policies in place to help if I do become ill, but I'm worried what might happen if I were in a DC scheme, particularly if my health deteriorated before I'd had the chance to build up much of a pot. Any thoughts and suggestions gratefully received.

xylophone

Your LGPS pension would be deferred.

See https://www.lgpsmember.org/arl/already-left-when.php under

The second method of obtaining early payment of your deferred benefits is on the grounds of permanent ill health. You can apply for payment of your deferred benefits at any age, without reduction if, because of your health, you would be permanently incapable of the job you were working in when you left the LGPS; if you left the LGPS after 31 March 2008 there is a further requirement that you are unlikely to be capable of undertaking any gainful employment within 3 years of applying for the benefit or by your Normal Pension Age, whichever is the earlier. In this context gainful employment means paid employment for not less than 30 hours in each week for a period of not less than 12 months.

https://www.thisismoney.co.uk/money/pensions/article-5896983/Can-stop-work-draw-pension-50-ill-health.html

You might be able to take your DC pot regardless of age due to ill health, but this will depend on how serious your condition is assessed to be and the terms and conditions of your scheme. You should check its specific rules on this, and you can find further information on The Pensions Advisory Service's website here.

State benefits might also be available.

Silvertabby

DC schemes aren't my thing, I'm afraid, but I'm sure someone else will pop up with some info for you.

Re the LGPS, however, are you aware of the differences that apply when taking benefits on the grounds of ill health?

The 3 Tier system (with extra service enhancements in the case of Tiers 1 & 2) only apply to those who actually retire on ill health grounds. If you leave your job, defer your LGPS benefits, and then successfully apply for them to be brought into payment on ill health grounds, there would be no Tier categorisation or enhancement, just payment (from any age) without any actuarial reduction for early payment.

Lungboy

Silvertabby wrote: »

DC schemes aren't my thing, I'm afraid, but I'm sure someone else will pop up with some info for you.

Re the LGPS, however, are you aware of the differences that apply when taking benefits on the grounds of ill health?

The 3 Tier system (with extra service enhancements in the case of Tiers 1 & 2) only apply to those who actually retire on ill health grounds. If you leave your job, defer your LGPS benefits, and then successfully apply for them to be brought into payment on ill health grounds, there would be no Tier categorisation or enhancement, just payment (from any age) without any actuarial reduction for early payment.

It's the loss of the possibility of the tiered benefits that I'm worried about, I don't think a DC pension would be able to compete until I'd built up a substantial pot, and with my health that's a huge worry.

Silvertabby

Lungboy wrote: »

It's the loss of the possibility of the tiered benefits that I'm worried about, I don't think a DC pension would be able to compete until I'd built up a substantial pot, and with my health that's a huge worry.

The only way you'd get an enhancement (100% Tier 1, 25% Tier 2) would be if you were to stay in Local Government and then retire on ill health grounds.

How old are you?

Lungboy

39 at the moment.

Silvertabby

Lungboy wrote: »

39 at the moment.

Then the differences could be huge.

If you were to retire on Tier 1 from the LGPS at age 40, for example, then the enhancement would be an extra 27/28 years of pensionable service (to SPA). Tier 2 would be an additional 6 / 7 years service.
In both cases, there would be no reductions for early payment.

That said, the younger you are the less likely you are to get Tier 1 (unless you have a terminal illness) or Tier 2 as the medics are understandably reluctant to categorically state that you won't be fit to return to work within a certain time / before State pension age. The alternative of Tier 3 has no enhancement, just paid without any reductions - and is subject to review at 18 months and 3 years.

I think I'm right in saying that the only enhancement payable with a DC plan would be in the form of a slightly higher impaired health annuity.

Lungboy

Thanks for that, it confirms my fears. Does the spouse's pension get the enhancement at tiers 1 and 2 too?

Alexland

Sounds like you would be a lot better protected sticking to your current scheme.

It also occurs to me that DB schemes are more generous when you get older as you continue to accrue the same rate of outcome compared to a DC scheme where the money would be invested for less time so less market growth before retirement.

Alex

Brynsam

Given you are only 39, it seems a bit career-limiting if you have to stay where you are just to have the possibility pension benefits if you need to retire early (although that could be quite a big 'just'!).

Find out if your (potential) new employer offers something known as Permanent Health Insurance (aka salary replacement). Nothing to do with medical insurance; it provides long-term income if you are unable work due to illness.

You might also look at taking out such a policy for yourself, although the premium could be fairly high depending on the view insurers take of your existing condition (which you must declare on any application form, obviously).

Lungboy

I'm happy to stay where I am if they sort out my pay, I only looked elsewhere as I'm currently working 2 or 3 grades above my pay. Most of the places offering work in my field are in the LGPS scheme so I'd normally be fine, this is one of the few private companies doing this so it hasn't been an issue before.