LGPS deferred benefits query

Bobziz

Hi, I'm a member of the LGPS, and I'm trying to confirm what would happen to my pension if I retired at 62, but didn't take my pension until 67.
Would my annual pension simply grow by the cost of living from what is was at 62 ? I would like to retire about 5 years early but the Ca. 25% hit for doing so would be painful. I can see that there's an option to transfer the pot to another provider, where I could look to grow the pot by more than the cost of living increases, but I guess this is very risky and I would also lose some of the other LGPS benefits. Any thoughts would be much appreciated ! thanks.

83705628

Yes you would keep the inflation-linking (https://www.lgpsmember.org/tol/thinking-leaving-before.php) the pension you have already built up.

Transferring out of defined benefit/final salary schemes is quite popular these days and there have been lots of threads about it but I think most people on the forum, if you told us your numbers, would suggest that you keep the guaranteed income and not transfer.

Most LGPS sites have a calculator/illustrator/modeller of what would happen if you retired early so try that.

If you're thinking of retiring now and living off savings/partners income for 5 years then you may as well take the early retirement option because if you live to your life expectancy it works out about the same (say you have £10k from 67-87, that's £200k, or 25% less so £7.5k from 62-87 is £187.5k, just a rough guess but normally it will even out). If you have reason to expect above average life expectancy and you think that extra 25% will come in handy then, that's something to think about too.

OldBeanz

https://lgssmember.pensiondetails.co.uk
Most members can access their pension at the above which allows you to role play various leaving scenarios.
If you look on this site you will see that there is an almost weekly thread from people wanting to cash in their Defined Benefit pensions but struggle to find an IFA to do this for them as the regulations for doing this are so strict. LGPS is renown for offering poor terms. Unless there are other reasons for not drawing your pension as normal (whether early or at SPA) it would be highly unusual for anyone to recommend doing this.
As taking your pension early is cost neutral for someone living to a normal age (mid 80's if you reach mid 60's) then drawing more of it tax free may be seen as a reasonable trade off to marginally losing out in your 90's.

jamjar92

Depending on how many years you have in before 2008 you may meet the 85 rule (Age+Year in Scheme), if you do you can retire at 60 with no reduction of the DB pot before 2008 (or lump sum), 5 years reduction on 2008-2014 and 7 years on post 2014, assuming state NPA is 67. Speak to your LGPS provider. Remember take the max lump sum and enjoy life while you can. you get the state pension on top from 67 of your DB pension. You also get CPI added every April after taking for 12 months. If you can afford AVC's now this can be used to offset some of the reductions by retiring early.

AlanP_2

jamjar92 said:

Depending on how many years you have in before 2008 you may meet the 85 rule (Age+Year in Scheme), if you do you can retire at 60 with no reduction of the DB pot before 2008 (or lump sum), 5 years reduction on 2008-2014 and 7 years on post 2014, assuming state NPA is 67. Speak to your LGPS provider. Remember take the max lump sum and enjoy life while you can. you get the state pension on top from 67 of your DB pension. You also get CPI added every April after taking for 12 months. If you can afford AVC's now this can be used to offset some of the reductions by retiring early.

Why take the max lump sum at the very low commutation rate available with the LGPS?

If you contribute to the AVC surely it would be better to use those to provide a larger lump sum and have a higher annual pension than use them to top up a lower pension?

jamjar92

AlanP_2 The schemes AVC allowes me ether buy an annuity or it added to the my main scheme pot, so I am adding it to "pot", therefore I convert less of the DB pension to lump sum. So yes, the AVC will give me a higher lump sum and DB higher pension than without after conversion. With the max lump sum you can spend or invest again as you see fit. Money into the AVC attracts tax breaks.