In April 2015, the Government made significant changes to the ways that people in certain types of pension schemes can take their pensions.
Who is affected?
The changes are mainly aimed at members of Defined Contribution (DC) pension schemes, sometimes also referred to as Money Purchase Schemes.
The Local Government Pension Scheme (LGPS) is not a Defined Contribution Scheme, so many of the changes that took place in April 2015 do not apply directly to members of the LGPS.
Members of Defined Contribution schemes build up a pot of money consisting of their own contributions and any contributions that their employer may have paid in. This money is then invested with the returns from that investment being added to the pension pot and re-invested.
Typically, when a person with a DC pension retires, they have been required to use the money they have built up in their pension pot to buy an annuity, with the size of your pension pot affecting the size of the annuity you can make at retirement. The annuity is an income for life paid by an insurance company.
What about the LGPS?
As the LGPS remember is not a Defined Contribution Scheme. This means that members in the Surrey Pension Fund scheme will not be able to take all of their benefits as cash in the same way as members of DC Schemes can.
The LGPS is a Defined Benefit (DB) pension scheme. In this type of scheme, the benefits you get at retirement don't depend on how well your investments perform or how large an annuity an insurance company will sell you. Instead, your LGPS pension at retirement is based on how long you've been in the scheme and how much you have earned. This means your benefits are secure and predictable.
The LGPS also allows members who are retiring and want to have access to additional cash to swap some of their pension for a bigger one-off lump sum. At retirement you can usually take a lump sum up to 25% of the total value of all your LGPS benefits tax free.
Transferring out of the LGPS
The Freedom and Choice rules allow members of the LGPS to leave the scheme and transfer the benefit they have built up to a Defined Contribution pension, allowing them to make use of the extra flexibilities.
Transferring pension benefits between schemes is highly complex. That's why, if you are considering transferring out of the LGPS it is important that you think very carefully about your decision. You can find out more on our 'Leaving your employment before you retire' page.
If you are thinking about transferring your LGPS benefits to a DC pension and the value of that transfer is over £30,000, you must receive advice before you can transfer. This advice must come from a qualified independent financial adviser who is qualified to advise on pension transfers. We will require written evidence that you have received this advice before we will pay out any transfer value of your benefits.
You will be responsible for arranging and paying for any advice you receive. The Money Helper website provides help on how to choose an independent financial adviser.
The Government has an information service called PensionWise. PensionWise is a free and impartial service that offers guidance to consumers about the options they have in relation to their pensions, and further explains the Governments reforms to DC pension schemes.
If you have any other questions, please check the Freedom and choice page on the LGPS Member website.