To combine or not LGPS

Spartan9194

Hello - if anyone can advise I would be most grateful. 
I have a deferred amount in a LGPS (accrued from 2002 - 2017) as I was made redundant. So the Pension was frozen. In my current role I am also in the same LGPS but it counts as a separate record or amount. They have contacted me to see if I want to keep the benefits separate or whether to combine the two. I know I will lose my tax free lump sum from my deferred Pension when I retire. However,  I am earning slightly more now, well much more than the beginning of my first pension and will accrue quicker than before. I am sixty next week and so I am thinking seriously about what to do. I know the first record retains certain benefits including a final salary element. The deferred pension is worth 4,776.00 per annum at pension age, with a lump sum tax free of 5,300.00. Someone today just said to cash it in, which I am reluctant to do as I am single and will need that money at retirement time more than I need a lump sum now. My current pension is presently worth 1,800 per annum and will hopefully continue to accrue. 
What to do - I don't know - it's confusing. Thanks In advance for any advice😊

Aylesbury_Duck

When I had a similar decision  to make, it was pointed out that a significant benefit of the LGPS is that if you are made redundant after you turn 55, you may commence drawing the pension from that point without any reduction for age.  That was a significant factor for me, because it meant all my previously-earned LGPS benefit would be paid out in that event, not just any new benefit accrued.  Quite the benefit if it ever happened.  I hope to be made redundant shortly after I turn 55...😁

You would need to get others' advice on the final salary element, to make sure you wouldn't undermine any of it by merging.  

hyubh

Spartan9194 said:

Hello - if anyone can advise I would be most grateful. 
I have a deferred amount in a LGPS (accrued from 2002 - 2017) as I was made redundant. So the Pension was frozen. In my current role I am also in the same LGPS but it counts as a separate record or amount. They have contacted me to see if I want to keep the benefits separate or whether to combine the two. I know I will lose my tax free lump sum from my deferred Pension when I retire. However,  I am earning slightly more now, well much more than the beginning of my first pension and will accrue quicker than before. I am sixty next week and so I am thinking seriously about what to do.

The reason the automatic lump sum would go on transferring is because your memberships have a gap of over 5 years. Due to that, transferring would purchase a credit to go with your regular CARE pension, which doesn't have an automatic lump sum, and the final salary link would not be restored. The pension (regular income) part would be a lot higher than if left deferred however. For details, request an estimate from the pension administrator (they probably won't automatically).

I know the first record retains certain benefits including a final salary element.

That's a bit academic once deferred - the deferred pension (and lump sum) will just increase by CPI each year.

Someone today just said to cash it in

Bit unclear what 'cash it in' means in this context...? Transferring to a money purchase arrangement will likely be expensive and difficult. Just drawing your deferred pension to get the automatic lump sum (assuming you are 55 or over) would likely involve a chunky actuarial reduction.

Spartan9194

Thanks for the advice - this is a big decision 😊

Sarahspangles

Spartan9194 said:

Thanks for the advice - this is a big decision 😊

Whoever said ‘cash it in’ really doesn’t know what they’re talking about.

I don’t see how you can work out the pros and cons unless you make some assumptions about when you might want to retire. There are advantages to having a pension you can trigger if you want to work part time in your current or a similar role.

Presumably some parts of your deferred pension have R85 protection, but not the majority, and later parts have an NPA of 65. As you’re still working, presumably you aren’t interested in taking this pension now.

@Silvertabby is an LGPS specialist and might comment on scenarios, if you share them.

Spartan9194

Thanks for the reply. I want to retire possibly 65 but most likely 67 to be the same as my state pension becoming available. I think the 'cashing out' comment was meant to be taking a lump sum, but I would not consider that really as presumably It would be very small at current value. It really wasn't a helpful comment, but meant well. I don't want to take my pension yet and working until I'm at least 65 should boost the end value a bit for me. I was just unsure as to whether my earlier pension added to my current one would benefit me greatly as I'm earning more now. Or to leave it as a separate amount to draw at pension age with the tax free lump sum. Am I right in thinking that the final salary element would transfer to my current pension? In this case I would probably be better combining the two. It really is a minefield and difficult to decide either way. 

Sarahspangles

Spartan9194 said:

Thanks for the reply. I want to retire possibly 65 but most likely 67 to be the same as my state pension becoming available. I think the 'cashing out' comment was meant to be taking a lump sum, but I would not consider that really as presumably It would be very small at current value. It really wasn't a helpful comment, but meant well. I don't want to take my pension yet and working until I'm at least 65 should boost the end value a bit for me. I was just unsure as to whether my earlier pension added to my current one would benefit me greatly as I'm earning more now. Or to leave it as a separate amount to draw at pension age with the tax free lump sum. Am I right in thinking that the final salary element would transfer to my current pension? In this case I would probably be better combining the two. It really is a minefield and difficult to decide either way. 

I don’t think the final salary link is preserved but others may know better. I think they treat the deferred pension as if it’s cash that buys you a starting position. I didn’t combine my two LGPS pensions because an advisor said I wouldn’t benefit, I now know that’s because I have R85 for almost all of the older pension.

It is quite a specialist area and I’m glad my workplace ran a session around the time it was useful for me. At least you have narrowed down the scenarios.

Lemon_dr1zzle

Is there less than a 5 year gap between your two periods of service or have you worked for any other public sector body in the meantime? 

hyubh

Spartan9194 said:

Am I right in thinking that the final salary element would transfer to my current pension?

See my original reply.

Spartan9194

Thanks everyone. Lemon_dr1zzle - the gap is far less than 5 years and I got my job and LGPS with the same pension provider West Midlands within 2 years. 

hyubh

Spartan9194 said:

Thanks everyone. Lemon_dr1zzle - the gap is far less than 5 years and I got my job and LGPS with the same pension provider West Midlands within 2 years. 

If you haven't rejoined recently, why did you claim 'I know I will lose my tax free lump sum from my deferred Pension when I retire'....?