Pension Flexibility and the LGPS

12/03/2015

Last November the Chancellor, George Osborne, announced there were to be major changes to how pension scheme savers can access their pension benefits.

Unfortunately, the reporting of these changes in certain areas of the media and indeed by some financial services has caused quite a bit of confusion. Needless to say we are experiencing an increase in queries regarding early retirement, payment of pension benefits prior to retirement and accessing all of the "pension pot" as cash.

The changes in pension legislation relate to money purchase or defined contribution (DC) pension schemes only. The LGPS is not one of these types of pension scheme and the new rules do not apply. The LGPS is a defined benefit (DB) scheme and is administered under its own regulations which are written by parliament.

Here are some things you can do with your LGPS benefits:

  • Retire aged 55 but under 60: benefits paid but with a reduction (up to 52%) for early payment and a maximum tax free lump sum of 25% of the "pension pot"
  • Retire aged 60 but under 65: benefits paid but with a reduction (up to 36%) for early payment and a maximum tax free lump sum of 25% of the "pension pot"
  • Retire aged 65 but before State Pension age: benefits paid but sometimes with a reduction (up to 16%) for early payment and a maximum tax free lump sum of 25% of the "pension pot"
  • Retirement at State pension age: benefits paid "in full" and a maximum tax free lump sum of 25% of the "pension pot"
  • Retire after state pension age: benefits paid "in full" and a maximum tax free lump sum of 25% of the "pension pot" plus an increase for late retirement
  • Take Flexible (semi) retirement from age 55: you must have your employers consent to reduce your working hours and consent to receive payment
  • Left Local Government employment in Essex prior to 1 April 2014: you can receive your pension benefits from age 55 but before age 60 only if have your former employers consent.
  • Transfer of LGPS benefits: to another pension as long as you prove you have received financial advice (applies from 6 April 2015 and only to transfer values of £30,000 or more)

Here are some things that you cannot do with your LGPS benefits:

  • have your pension benefits paid without retiring from your current employment contract
  • receive all or part of your tax free lump sum without payment of the pension
  • receive more than 25% of your "pension pot" as tax free cash.
  • receive all of your "pension pot" as a one off taxable lump sum
  • receive any pension benefits before age 55 (except ill health retirement)
  • Transfer your LGPS benefits to a DC pension scheme without receiving financial advice (applies from 6 April 2015 and only to transfer values of £30,000 or more)

For further details of the LGPS please go to the member pages of our website www.essexpensionfund.co.uk

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