LGPS deferred pension query

Marko61

I am trying to ascertain what my deferred LGPS entitlement will be, should I take payment on my 61st Birthday in June 2022.

I left previous local authority employment in 2009, and rather than transfer those accrued LGPS benefits at that point, I deferred them and started another LGPS pension with a new council employer.

According to the benefit projection on the LGPS website, it would appear that I am entitled to an annual payment of £10,868.69 subject to a £168.79 reduction, which has been included. The calculation seems to cover my 25 years previous service - I am assuming the reduction is due to a change in rules from 01/04/2008 to my leaving date (16/12/2009) when the rule of 85 doesn’t apply?

If I can access this pension now with such a small reduction due to early payment, surely it makes sense to take payment now rather than wait until I am 65, even though it would be taxed whilst staying in employment? Also if I reduce the pension and take a maximum conversion lump sum, approx. 57k would this be taxed? Any comments would be really welcome.

jamjar92

The calculator I assume you used is on the employer website was used to the get the reduction in pension and maximum conversion lump sum? This would given you max tax free lump sum available  for pension available.

So the 57K would be tax free.

You could have taken the pension any time from 55, so yes you can take the pension in June 2022, or sooner.

Silvertabby

In addition to your actual 25 years of service to 2009, your deferred membership to the date of payment also counts towards R85.

With such a small early reduction, taking it from 60 would have been a good option, but that boat has now sailed.  If you decide to take it now, go for a date after 12 April - that way the cost of living increase (3.1%) will be added to your automatic lump sum and any commuted pension.

Marko61

Many thanks guys, I felt that it could have been taken from 60. Would you have any views about whether it may be better to take the larger pension and lesser lump sum or going for the 57k lump sum and a smaller pension? Also with the secondary & current LGPS pension (that started from December 2009) would the % reduction apply to that if taken early and I stopped working and if I decided to have a maximum conversion on that for the lump sum, would that be tax free? 

OldBeanz

Marko61 said:

Many thanks guys, I felt that it could have been taken from 60. Would you have any views about whether it may be better to take the larger pension and lesser lump sum or going for the 57k lump sum and a smaller pension? Also with the secondary & current LGPS pension (that started from December 2009) would the % reduction apply to that if taken early and I stopped working and if I decided to have a maximum conversion on that for the lump sum, would that be tax free? 

In general conversion rates to cash in government pensions tend not to be good (someone no doubt will do the maths for you) so unless someone is paying off their mortgage or has other big plans for the money and not knowing any other circumstances then pension tends to be the better option.
With your other pension you have the option of paying into an AVC which can be taken as a lump sum when drawn.
Some might consider it advantageous to take one pension and then to pay the extra income into an LGPS AVC. There are generous limits to contributions but taxable income in and tax free on the way out is one of the major benefits of the LGPS.

Silvertabby

Marko61 said:

Many thanks guys, I felt that it could have been taken from 60. Would you have any views about whether it may be better to take the larger pension and lesser lump sum or going for the 57k lump sum and a smaller pension? Also with the secondary & current LGPS pension (that started from December 2009) would the % reduction apply to that if taken early and I stopped working and if I decided to have a maximum conversion on that for the lump sum, would that be tax free? 

As your second/current post started after October 2006 you don't have any R85 protections.  So, benefits accrued up to 31 March 2014 will be reduced if taken before age 65, and benefits accrued between 1 April 2014 and date of leaving will be reduced if taken before State pension age.

The LGPS/public sector commutation rate of 1:12 isn't generous, but it really depends on what you need the money for.  Yes, if you were to commute your second/current pension, then the lump sum would be tax free, but at the cost of £12 tax free cash in return for the loss of £1 index linked pension for the rest of your life.

As OldBeanz says, AVCs are a way of saving for tax free cash without reducing your pension, which would already have been heavily reduced if taken before SPA.

Marko61

Many thanks for these invaluable comments, really appreciate them. 

Marko61

Sorry to resurrect this post again, but I just want to make entirely sure - so I have decided to take my frozen (deferred) LGPS pension very shortly, not with maximum lump sum conversion, so circa 10,800k p.a.

Regarding my current local authority employment (covered by the 'new' LGPS started separately in 2009) - there are no restrictions on me taking my previous pension covered by the Rule of 85, whilst continuing to work full-time drawing a salary, but in addition contributing to the new and separate LGPS pension? 

Silvertabby

Marko61 said:

Sorry to resurrect this post again, but I just want to make entirely sure - so I have decided to take my frozen (deferred) LGPS pension very shortly, not with maximum lump sum conversion, so circa 10,800k p.a.

Regarding my current local authority employment (covered by the 'new' LGPS started separately in 2009) - there are no restrictions on me taking my previous pension covered by the Rule of 85, whilst continuing to work full-time drawing a salary, but in addition contributing to the new and separate LGPS pension? 

I want to say 'no restrictions' but the policy of abatement remains an employer discretion in the LGPS, even if VERY rarely applied.

From your comments, looks like your employer has opted not to apply abatement to (specifically) previous R85 benefits - but as you have a little post 2008 service I would run it past them just to be sure.