Pensions Freedom and Choice
What’s happening?
From 6 April 2015 those aged 55 or over with defined contribution/money purchase pensions are no longer be forced into buying an annuity (income) with their fund but can take the whole fund as a cash lump sum (with 25% of the fund being tax-free and the remainder taxed at the person’s marginal rate).
In March 2015 it was announced that this freedom will also be extended to those who have already used their defined contribution/money purchase funds to buy an annuity. From April 2017 those who have already purchased an annuity will be able to receive a one-off taxable lump sum instead of their future annuity payments although the detail of how this will work is still being discussed.
A defined contribution/money purchase fund is a personal or workplace pension based on how much money has been paid into your pot (your contributions, any employer contributions, plus investment returns). This is different to a defined benefit workplace scheme where the benefits paid out are based on a proportion of your salary (also known as salary-related, final salary or career average schemes).
Implications for the Local Government Pension Scheme (LGPS)
The freedoms described above only apply to those who have defined contribution/money purchase pensions, so they do NOT apply to salary-relatedpension schemes like the LGPS. If you wish to take all your LGPS benefits as cash, then you will need to transfer your LGPS benefits to a defined contribution/money purchase pension arrangement. If your LGPS transfer value is £30,000 or more then you will be required to take independent financial advice at your own expense. You should also be aware that once you have reached entitlement to a pension in payment from the LGPS, the benefits cannot then be transferred out.
I want to transfer out – what do I need to do?
You cannot transfer out benefits while you are an active member of the LGPS, so if you are still paying in you will need to opt out of the scheme. You will then need to find a suitable arrangement to transfer your benefits to, and ask your new provider to contact us for a transfer value and the appropriate forms. If your transfer value is £30,000 or more you must take independent financial advice before we will be able to transfer out your benefits. You should also note that a request to transfer-out must be made at least a year before your normal pension age (which is 65 or your state pension age, whichever is later).
Additional Voluntary Contributions (AVCs)
It is likely that the LGPS regulations will be changed allowing those with a LGPS AVC fund with Prudential/Equitable Life to take that fund as a cash lump sum (with 25% tax free and the remainder taxed at marginal rate). We are awaiting further details on whether this will be allowed and how it will work.
My LGPS pension is in payment – is there anything I can do?
Once an LGPS pension is in payment it cannot be transferred out to an alternative arrangement. If your pension is small, it may be possible for you to take a trivial commutation/small pot lump sum but the rules around these are strict so it will not be allowed in all cases. Please contact Peninsula Pensions for more information.
PensionWise
This is the Government backed advice service for those with defined/contribution/money purchase funds wishing to take advantage of pension freedoms. Their website is
Disclaimer
This information is based upon our understanding of the legislation in force or proposed as at the date of publication. Nothing in this document can or will override the legislation in force at the time any action is requested. We strongly recommend that members consider taking independent financial advice before making any decision affecting their pension benefits.
Want more information?
Our address Peninsula Pensions
Great Moor House
Bittern Road
Sowton Industrial Estate
Exeter
EX2 7NL
Our telephone number 01392 383000 (ask for Pensions)
Our e-mail address
Version 3 July 2015