LGPS and inverse commutation/better commutation

Notepad_Phil

Mrs Notepad has a deferred LGPS pension from working for the local council from the early 80s to late 90s.

Whilst looking into the lump sum that would come with this I came across the fact that some LGPS members of a similar start date were entitled to use 'inverse commutation' to convert the lump sum into pension or to get a more favourable commutation rate than the more common 12:1. It seems that these benefits were removed sometime in 2006 but that a deferred member as at 5th April 2006 could opt out of the removal of them provided that they did this by 1st April 2007.

Now we've no memory of ever being sent any details of this (and Mrs Notepad's has various information dating back to her start date so she doesn't just throw pension things away in the dustbin), so Mrs Notepad would look like she's not going to get these benefits as she will never have opted out.

So onto my question itself - is there anyone out there who is aware of any reasons why someone with a deferred pension would have decided in 2006/2007 not to keep what seem to be good benefits to have or why some people would not have been sent any details of this? e.g. were there some new additional benefits that would only come if these specific benefits were removed or was it just for people of some specific job specification, etc.

Many thanks for any assistance.

TVAS

No idea however this is a) this sounds like another !!!!!! up and b) sounds like something to do with A Day simplification. I don't know but Steve Webb of LCP might. Good luck to Mrs Notepad.  

Marcon

Notepad_Phil said:

Mrs Notepad has a deferred LGPS pension from working for the local council from the early 80s to late 90s.

Whilst looking into the lump sum that would come with this I came across the fact that some LGPS members of a similar start date were entitled to use 'inverse commutation' to convert the lump sum into pension or to get a more favourable commutation rate than the more common 12:1. It seems that these benefits were removed sometime in 2006 but that a deferred member as at 5th April 2006 could opt out of the removal of them provided that they did this by 1st April 2007.

Now we've no memory of ever being sent any details of this (and Mrs Notepad's has various information dating back to her start date so she doesn't just throw pension things away in the dustbin), so Mrs Notepad would look like she's not going to get these benefits as she will never have opted out.

So onto my question itself - is there anyone out there who is aware of any reasons why someone with a deferred pension would have decided in 2006/2007 not to keep what seem to be good benefits to have or why some people would not have been sent any details of this? e.g. were there some new additional benefits that would only come if these specific benefits were removed or was it just for people of some specific job specification, etc.

Many thanks for any assistance.

Hopefully SilverTabby will be along shortly and you'll get a helpful answer from someone who knows what they're talking about.

jamjar92

I was never aware of this or heard of it before, I am an active member and OH a deferred member.

AlanP_2

Whilst looking into the lump sum that would come with this I came across the fact that some LGPS members of a similar start date were entitled to use 'inverse commutation' to convert the lump sum into pension or to get a more favourable commutation rate than the more common 12:1. It seems that these benefits were removed sometime in 2006 but that a deferred member as at 5th April 2006 could opt out of the removal of them provided that they did this by 1st April 2007.

Where did you come across the fact as that implies it is documented in something official which may help shed some light on the context?

Silvertabby

In theory, some with deferred benefits pre April 2006 who opted out of the changes before 2007 may be able to opt for inverse commutation.

In practice, it's not that clear cut and depends on how each LGPS played it.

In the case of the LGPS I worked for, they wrote to all eligible deferred members before the 2007 cut off.  If they wanted to keep the old rules, the member had to complete and return the enclosed option form.

Even after deducting the non-responses from (a) those who had moved house and not told us and (b) those who chuck everything about 'boring pensions' straight into the bin,  a surprisingly small number of these forms were actually returned.  Those who didn't return the forms, for whatever reason, were deemed to have opted for the new rules. 

Moving on, by the time these people became eligible to claim their pensions, our software updates had omitted to include the factors for calculating inverse commutation on line (cost of programme against tiny number of times it would be used?) meaning they would have to be done manually.

So, whenever we came across a record with an 'old rules' election, we would offer standard benefits and maximum lump sum options, but edit the letter to say that they had a further option of giving up their automatic lump sum in favour of a bigger pension - and that figures would be supplied on written request.

Of the records with 'old rules' option forms that I dealt with, the vast majority went straight for the maximum lump sum.  And out of the few that actually requested the additional figures, only 2  went for inverse commutation ( I remember because they really were a right faff to manually calculate!)

So, the answer is that Mrs N needs to ask her LGPS if she can inverse commute - but if she didn't actually opt out then it's likely that the answer will be 'no', I'm afraid.

ADD:  Inverse commutation factors are age, gender and marital status related, but for a 60 year old married woman are currently 5.07 (ie, £5.07 of additional index linked pension for each £100 of lump sum).  If this isn't attractive enough, then no point in even asking the question.

Notepad_Phil

jamjar92 said:

I was never aware of this or heard of it before, I am an active member and OH a deferred member.

AlanP_2 said:

Whilst looking into the lump sum that would come with this I came across the fact that some LGPS members of a similar start date were entitled to use 'inverse commutation' to convert the lump sum into pension or to get a more favourable commutation rate than the more common 12:1. It seems that these benefits were removed sometime in 2006 but that a deferred member as at 5th April 2006 could opt out of the removal of them provided that they did this by 1st April 2007.

Where did you come across the fact as that implies it is documented in something official which may help shed some light on the context?

I originally read about the inverse comutation on this forum a few years ago and thought that Mrs Notepad's circumstances must have meant that it didn't effect her as we hadn't heard about it either.

However during some recent googling/research I came across the reply https://forums.moneysavingexpert.com/discussion/comment/75538254/#Comment_75538254 and the fact that "Class C" members had been asked at some point about inverse commutation and something that I hadn't heard of before, larger commutation rates for lump sums.

At first I thought that "Class C" members were some higher ranking type LGPS deferred pensioner, but it seems it only refers to people who were became members before 17th March 1987, and reading through the pdf that's in the reply doesn't seem to add any context or in any googling I've tried.

Silvertabby said:

In the case of the LGPS I worked for, they wrote to all eligible deferred members before the 2007 cut off.  If they wanted to keep the old rules, the member had to complete and return the enclosed option form.

Mrs Notepad's double-checked her folder where she keeps her pension bits and pieces and there's definitely nothing there - if she'd received it then she would definitely have kept it.

Those who didn't return the forms, for whatever reason, were deemed to have opted for the new rules.

That's what I'm worried about and why I was wondering whether the deferred member would have had to give up some other benefit. If there is something that would have to be given up then it makes it less of an aggrevation that because of some missing post that she's missing out on what seems a potentially good benefit.

Of the records with 'old rules' option forms that I dealt with, the vast majority went straight for the maximum lump sum.  And out of the few that actually requested the additional figures, only 2  went for inverse commutation ( I remember because they really were a right faff to manually calculate!)

So, the answer is that Mrs N needs to ask her LGPS if she can inverse commute - but if she didn't actually opt out then it's likely that the answer will be 'no', I'm afraid.

ADD:  Inverse commutation factors are age, gender and marital status related, but for a 60 year old married woman are currently 5.07 (ie, £5.07 of additional index linked pension for each £100 of lump sum).  If this isn't attractive enough, then no point in even asking the question.

To be honest the loss of the ability to get a larger lump sum is likely to be much greater that the loss of the ability to inverse commute  - though given that Mrs Notepad's mother is in her 90s and we're relatively DB poor we'd have liked the ability to at least consider it.

Looking through this forum I found this thread from Malchester (who seems very similar to Mrs Notepad) https://forums.moneysavingexpert.com/discussion/5836750/lgps-deferred-pension-lump-sum/p1 where she was offered a lump sum of £18.69 for every extra £1 given up rather than the normal £12, which on P4 is eventually confirmed by the WYPF as being the result of being a Class C member which Mrs Notepad is.

This equates to a few thousands in Mrs Notepad's case and it seems unfair that if she chooses extra then she'll lose it due to no fault of hers, so before Mrs Notepad starts any correspondence with our local LGPS we wondered whether anyone knew of any reasons why anyone wouldn't have chosen to opt out of the removal of these benefits. It does seem a bit of an oddity that deferred pensioners would be asked whether they wanted to keep what seem like great benefits and they would just be removed if they didn't hear back - which deferred pensioner would want to reduce their benefits?

Silvertabby

It's worth Mrs N ringing her LGPS to say that she definitely  didn't receive the option form back in 2007, and to ask if/when/to where the letter had been sent, and to ask if she can still opt for the old rules.

I'll have to be perfectly honest with you, and say that unless Mrs N can prove negligence on the part of the LGPS (the letter getting lost in the post won't count) then I very much doubt that the answer would be 'yes'.

As the changes only applied to deferred members at the time of the 2006 changes, I expect that someone (way above my paygrade!) decided to give members the choice rather than apply the new rules retrospectively.  At this point I'm going to stick my tongue firmly in my cheek, and remind you that the default was the new rules - and that very few of these forms were actually returned for whatever reason.   

Notepad_Phil

Many thanks all.