Two local Government pensions

khoward

I have a deferred local Government pension and am currently working in local Government. I received paperwork from the deferred local Government pension scheme in respect of taking the small pension now with a modest cash lump sum. When I called to ask the deferred pension administrator if I could take all of the small pension in cash now (so 25% tax free and the rest taxable) I was told I would have to take both pensions in the same way.  I am not planning on retiring from my current job for a while so am in a quandry as to the tax implications of cashing in the small pension (around £400 per annum) now and it causing a problem when I retire from my current employment. Any advice would be much appreciated.  I was thinking of calling HMRC to see if they could shed any light on the situation I am in.

JoeCrystal

Are you aware that it is a DB pension scheme, and hence, you have no money to "cash in"? There is such a thing as trivial commutation, but there are rules. From the sound of it, you cannot trivially commutate your deferred pension since you have pension benefits that exceed £30k across all your pensions.

daveyjp

As its a DB pension (and could be final salary) cashing it in iisn't an option to really consider.  Your pension is guaranteed inflation proof income for life.  £400 per annum may seem trivial, but it will cover one of your essential annual bills in retirement such as insurance, water bill etc etc.

Dates of employment, length of membership and your age are all important.  It may be you are of an age where you can take your deferred pension with no early payment deduction so not taking it now means you are now missing out on pension you have earned.

Silvertabby

Although your deferred pension has a notional value of under £30K, it can't be taken as a trivial commutation (one-off payment) if the combined notional value of both of your LGPS pensions (plus any other pensions except the State pension) exceeds £30K.

Your only option will be to take your deferred benefits as a smaller lump sum/ annual pension.

No point in calling HMRC.

xylophone

Your only option will be to take your deferred benefits as a smaller lump sum/ annual pension.

https://www.litrg.org.uk/pensions/pension-withdrawals/small-pensions

Presumably not eligible as a "small pot"?

Failing that, it seems likely that the deferred pension (even if  valued over £10,000) is not valued over £30,000?

 Assuming this to be the case, could he arrange to transfer the deferred pension to a  DC pension (no  PTS advice required) and take as required?

Silvertabby

xylophone said:

Your only option will be to take your deferred benefits as a smaller lump sum/ annual pension.

https://www.litrg.org.uk/pensions/pension-withdrawals/small-pensions

Presumably not eligible as a "small pot"?

Failing that, it seems likely that the deferred pension (even if  valued over £10,000) is not valued over £30,000?

 Assuming this to be the case, could he arrange to transfer the deferred pension to a  DC pension (no  PTS advice required) and take as required?

Even if the deferred pension is valued under £10K, small pot/de minimis wouldn't apply in this case because OP has other LGPS benefits taking them over the limit.

And would the cost/faff of transferring out really be worth it?

xylophone

And would the cost/faff of transferring out really be worth it?

If the value of the deferred  DB pension is under £30,000, then he would not be legally obliged to obtain the costly regulated advice.

It could still be a faff, how much of a faff I don't know.

Despite the under £30,000, he could still find pension providers unwilling to accept the transfer.

Perhaps he would want to consider opening a stakeholder pension with likes of Aviva/Standard Life and then arranging the transfer in due course?

Some discussion below,

https://forums.moneysavingexpert.com/discussion/6449917/cash-out-of-db-pension/p2

Silvertabby

Another factor would be OP's age and date of leaving the deferred post.

LGPS benefits can't be transferred out once the member is within 12 months of their NRA.

That could be 65, with a cut off of 64, but if OP meets R85 at 60 then his LGPS may apply a latest transfer age of 59.