LGPS, Rule of 85 and decisions to make

Wimbrel

I've been paying into the LGPS pension scheme since 1985, it started out as final salary but then changed in 2014 to career average and the final salary part of the pension is protected to that date.
I  reach 60 later this year but intend to keep working for another 3-4 years. 
However, the pensions calculator on the LGPS site seems to show that I could start drawing my pension and take a lump sum at age 60 and that the protected element and rule of 85 mean that this would be financially advantageous as the additional years of pension outweigh the amount which would accrue were I to continue paying in.
I have requested a formal calculation from the scheme and won't make any decisions without seeking advice
I realise that there would be tax implications as even if I took the maximum lump sum by sacrificing annual pension payments, the pension plus my salary would take me into the higher tax band, but, on my back of envelope calculations, it looks too advantageous to be true.

Further info, this is a contracted-out scheme so when I reach state pension age at 67 I will not get a full state pension. I will need to be sure that when I actually retire and my income drops to the pension alone, that the books will still balance but I would be able to save additional money on top of the lump sum to ensure that I should be OK.

What am I missing? There must surely be drawbacks, and serious ones at that, that I need to consider.

bioboybill

I'm sure Silvertabby will be able to provide a detailed answer shortly, but I'm in a very similar position to you, but 2.5 years younger. I too started in 1985. Personally I wouldn't convert to max lump sum unless you have some sort of health issue or there is a history of dying at a relatively young age in your family, as conversion rate is a poor 12:1.
You could also look at paying for missing NI contributions. It costs in the region of £750 per year depending on the year and you only have to live about 3.5 years after SPA to be in credit. If you don't take your pension now you could pay into AVC scheme with the Pru, get the tax break and take all of that as TFLS when you do retire.

xylophone

Have you obtained a state pension forecast? What exactly does it say?
https://www.gov.uk/check-state-pension

Wimbrel

Hi, I haven't but that's another thing I need to do. I have had issues with the govt gateway site so have to sort that out soon.

Nebulous2

It is likely that your employment doesn’t allow you to draw your pension and continue working full time. You may need to enter phased retirement and reduce your hours. Check the rules for your own scheme / local authority. 

Wimbrel

I no longer work in the public sector but continued membership of LGPS was part of the TUPE transfer to my current employer.  Having read the information on the LGPS site It seems that there is no bar to my drawing my pension and continuing to work full time but this is something I would need to check out. At this stage, I am making no decisions, just seeking information and weighing up my options

Silvertabby

Wimbrel said:

I no longer work in the public sector but continued membership of LGPS was part of the TUPE transfer to my current employer.  Having read the information on the LGPS site It seems that there is no bar to my drawing my pension and continuing to work full time but this is something I would need to check out. At this stage, I am making no decisions, just seeking information and weighing up my options

Are you sure about that?  Drawing your full (LGPS) pension but continuing to work full time in the same job has been deemed to be 'unauthorised access' of pension benefits for some time, hence the introduction of Flexible Retirement.  Typically, this means reducing your hours from full time to 18.5, but could mean just dropping to 4 days per week or changing to a lower paid, less stressful, post.  This needs your employer's authority, as they would need to able to plug the gap by recruiting another part-timer (not always easy with some posts, especially if you are senior/have specialist qualifications) or spread your work out amongst the other staff.  
Can you post what makes you think you can take your pension but carry on full time?  Suspect it may be along the lines of drawing your LGPS pension even if you are working for another employer entirely, and are no longer a member of the LGPS.
Apologies if this is grannie's eggs, but you do know that your R85 protections only apply to your pre 2008 service, and that benefits accrued since then will be subject to full early payment reductions?

ADD: If you are 60 on or before 31 March 2020 (and not even a day later) then you will have a tiny bit of taper protection in respect of your benefits accrued up to 31 March 2020 - but it really won't be enough to make a difference. 

daveyjp

Do as Silveryabby advises.  Flexible retirement.  Take your pension, keep earning and you will also be contributing to a new LGPS pension.

stephenadarglas

Thi from the Teachers Pension - may be similar for the LGPS.

How do you decide if my pension should be suspended?

Your final salary pension will be affected if your pension and re-employment earnings exceed your salary of reference. Your salary of reference is the highest salary in the average salary period, as calculated at retirement.

Wimbrel

Thank you, this is exactly the kind of advice/  guidance on things to check out that I need. I am leaning towards continuing to work full time for at least another year and then investigating flexible retirement by reducing my working hours with the intent of fully retiring at 64. I am in the fortunate position of loving my job and not wanting to reduce working hours yet but this may change and it's good to have options.

This decision is supported by discovering that LGPS will only provide a single detailed quotation no more than one year before a definite intended retirement or flexible retirement date.  If that date changes estimates can be obtained on the members' section of the website but I would not be wishing to make such a major decision based on an estimate. As an example the estimates for retirement in December 2020 and December 2027 are identical as rule of 85 would give me full protected rights if I were to fully retire this year, which makes it look like any further contributions are essentially pointless when I assume that in fact, the additional years would increase the pension payable on a later retirement date.

 Luckily I don't have to make any decisions at this stage and that's one reason for starting to seek advice early,

 It seems,  that there may indeed be a bar on drawing the pension and then continuing in my present role full time but no such bar were I to retire and then return to full-time employment after a break. There's no mention on the LGPS site of a similar rule around the salary of reference to that in the TPS. 

Silvertabby

As an example the estimates for retirement in December 2020 and December 2027 are identical as rule of 85 would give me full protected rights if I were to fully retire this year, which makes it look like any further contributions are essentially pointless when I assume that in fact, the additional years would increase the pension payable on a later retirement date.

As your 60th birthday appears to be after 31 March 2020, your R85 will be limited to your pre 2008 benefits.  Retire, flexibly or otherwise at 60, and your 1 April 2008 to 31 March 2014 benefits will be reduced for early payment by 22.2%, and your 1 April 2014 to age 60 benefits by 25.7%.

It seems,  that there may indeed be a bar on drawing the pension and then continuing in my present role full time but no such bar were I to retire and then return to full-time employment after a break. There's no mention on the LGPS site of a similar rule around the salary of reference to that in the TPS.

I'm afraid there is.  When you fully retire and take your pension benefits there must be no planned return to work.  Yes, if your (non Local Authority) employer is willing to go along with this subterfuge, and as long as you don't re-join the LGPS, you may get away with it - but do you really want to live with the possibility of this being picked up at audit some years down the line? 

Pension abatement is very much a rarity in the LGPS, mainly because the flexi retirement reduced salary plus pension hardly ever exceeds the original full time salary - but it does remain an employer discretion, so you would need to run this past your HR as part of your flexi retirement request.