Annual Allowance (AA) is the amount by which the value of your pension benefits can increase by in any one tax year without you having to pay a tax charge.
The AA limit is currently £40,000. Most members will not be affected by Annual Allowance because the value of their pension savings will not increase by more than £40,000 in a tax year. If they do increase by more than £40,000, the member is likely to have an unused amount of Annual Allowance from previous years that can be carried forward.
You are most likely to be affected if:
- you have membership of the LGPS that was built up in the final salary section and you receive a significant pay increase
- you transferred in membership from another public service pension scheme in the past which retains a final salary link and you receive a significant pay increase
- you pay a high level of additional contributions
- you are a higher earner
- you transfer pension rights into the LGPS from a previous public service pension scheme under the preferential club transfer rules and your salary (full time equivalent) on joining the LGPS is higher than the salary you earned when you left the previous scheme
- you combine a previous LGPS pension benefit that was built up in the final salary section of the LGPS with your current pension account and your salary (full time equivalent) has increased significantly since leaving the scheme
- you have accessed flexible benefits on or after 6 April 2015.
How is your Annual Allowance calculated?
Your AA is calculated by seeing how much the value of your pension has grown from one tax year to the next. (A tax year runs from 6th April to 5th April).
(Annual Pension value from previous tax year (*plus inflation) - Annual Pension value from current tax year) x 16
Lump Sum value from previous tax year (*plus inflation) - Lump Sum value from current tax year
Cash Value of all AVCs made during the current tax year = Annual Allowance used
What if I exceed the Annual Allowance?
The Clwyd Pension Fund will inform you if your LGPS pension savings exceed the AA limit in any year by no later than 6th October of the following year.
Carry forward from previous years
You would only be subject to a tax charge if the value of your total pension savings increases by more than the AA for that year.
However, you are allowed to carry forward unused AA from the previous three years. This means that even if the value of your pension savings increases by more than the AA in a year, you may not be liable for an AA tax charge.
For example, if the value of your pension savings in 2019/2020 increased by £50,000 (i.e. by £10,000 more than the AA) but in the three previous years it had only increased by £25,000, £28,000 and £30,000, then the amount by which each of these previous years fell short of the AA would offset the £10,000 excess pension saving in the current year. There would be no AA tax charge to pay in this case.
|Year||AA Used||AA Limit||AA left||AA left after carry forward used|
To carry forward unused AA from an earlier year you must have been a member of a tax registered pension scheme in that year.
If you would like to check your AA yourself, you can use the AA Quick Check Tool which can be found here but please read the instructions page first before using the Quick Check Tool.
Tapered Annual Allowance
Since the tax year 2016/2017, the AA has been tapered for high earning individuals. Your AA will be reduced if your ‘Threshold Income’ and ‘Adjusted Income’ exceed the limits in a year. For every £2 that your Adjusted Income exceeds the limit, your AA is tapered down by £1. Your AA cannot be reduced below the minimum that applies.
When you become a member of the Local Government Pension Scheme multiple decisions are made in respect of your membership. Some decisions are made by your employer or former employer, whilst some are made by the administration authority for the Clwyd Pension Fund which is Flintshire County Council.
It is advised that if you are notified of a decision, that you should check with the decision maker that it has firstly been based on the correct information. When notified of a decision, contact details will be provided so you can query any uncertainties and be provided with details of the rights of appeal under the LGPS regulations.
What can be appealed?
Administration Authority Decisions
- The person’s previous employment
- Additional periods as membership
- Crediting additional annual pension
- The amount pensionable benefits
- Any return of contributions
Employer’s First Instance Decisions
- Eligibility for membership
- Pensionable pay or final pay
- Contribution rate (employee’s)
- Entitlement to benefit on termination of - Entitlement to early release of pension
- Decisions under Regulation 72(4) “A person's Scheme employer must decide any question concerning any other matter relating to the person's rights or liabilities under the Scheme.”
If your appeal does not fall under any of the criteria noted, you will not be entitled to appeal via the IDRP. You cannot appeal just because you are unhappy with a decision. You must clearly state why you feel that you meet the regulatory criteria or that new evidence should be considered.
I wish to make an appeal, what should I do?
Often a problem can be resolved quickly by contacting the decision maker directly. Whether this is your employer or the Clwyd Pension Fund, the decision may have evolved from incorrect information being used or an initial misunderstanding.
Both scenarios can therefore be explained and easily amended by contacting the decision maker by telephone or in writing. Many problems are resolved this way, so please bear this in mind as it may save you time.
What is Internal Dispute Resolution Procedure (IDRP)?
If an agreement cannot be made between the applicant and the decision maker, within the LGPS Regulations 2013, Regulations 72 to 79 detail the formal dispute procedure known as the IDRP.
The process is split into two stages. If you are unhappy with a decision following Stage 1, or a decision has not been made in reasonable time under the dispute rules, you have the right to have it looked at afresh via stage 2 appeal.
Who can submit an IDRP disagreement?
A disagreement can be submitted by the following people:
(iii) surviving civil partners
(iv) surviving cohabiting partners
(v) dependants of a deceased member
(vi) prospective members
(vii) former members
Calculating your Pension
The Local Government Pension Scheme (LGPS) is a defined benefit scheme which means that your pension is calculated using formulas which are set out in Government regulations. The formulas used to calculate your pension depend on when you were a member of the scheme.
Final Salary Scheme
Prior to 31st March 2014 the scheme was a Final Salary scheme where your pension benefits were calculated based on four different elements:
- Length of pensionable service in years and days
(1 years full time = 1 years service, whereas 1 years part time working 18.50/37.00 hours = 6 months service)
- Your Full Time Equivalent Pensionable Pay
- Rate of accrual dependent upon when you were a member (1/60th or 1/80th)
- Circumstances under which you left your post (early, late, flexible, ill health)
Following 1st April 2014 the scheme changed to a Career Average Revalued Earnings (CARE) scheme.
This means that as a member you build up a fraction of your 'Career Average Earnings' for each year of membership of the scheme, which are 'Revalued' in line with inflation (Consumer Price Index) on an annual basis.
The accrual rate for the CARE scheme is 1/49th, meaning that a member builds annual pension each financial year at the rate of 1/49th of your annual actual pensionable pay (pay that you pay contributions on).
This accrued annual pension is added to any pension that had previously been accrued since 1st April 2014 and inflated in line with the Consumer Price Index. This amount is then forwarded as the opening balance for the following year, and the process is repeated until you leave the scheme or retire.
Payable to eligible children and increase every year in line with the cost of living (Consumer Prices Index), however, the pension benefits depend the eligibility of the child/children, the number of eligible children there are and whether there is a survivors pension being paid.
Who is an eligible child?
- Natural or adopted child who was born before, on, or in the case of a natural child, within the following 12 months' of the member's death.
- Step child or a child accepted by the deceased member as a member of the family (excluding a child sponsored by the member through a registered charity) who was dependent on the member at the date of death.
The above eligible children must also meet the following conditions:
- Under age 18, or
- Aged 18 and 23 and in full-time education or vocational training.
- Unable to engage in gainful employment because of physical or mental impairment and either:
- has not reached the age of 23, or
- the impairment is, in the opinion of an independent registered medical practitioner, likely to be permanent and the child was dependent on you at the date of your death because of that mental or physical impairment.
In this context gainful employment means paid employment for not less than 30 hours in each week for a period of not less than 12 months.
- Education must be full-time and continuous, although the administering authority may treat education or training as continuous despite a break.
- The administering authority may also suspend payment of any entitlements to a children’s pension during any break in education of training (school holidays do not break the continuity of education).
- The administering authority will generally decide what it regards as training for a trade or vocation, some might consider a paid apprentice to not qualify.
Upon death the Clwyd Pension Fund will wish to verify details concerning any child who may become entitled to a children’s pension with reference to:
- the child’s birth or adoption certificate;
- proof of continuous full-time education;
- evidence of training for a trade, profession or vocation; and
- proof of dependency (2008 scheme, or for a step-child)
- evidence of permanent disability (IRMP opinion under 2014 regulations if over 23)
By asking for the above details, the Clwyd Pension Fund will then assess whether or not the child falls within the definition of an ‘eligible child’ under the regulations.
Calculating the Children's Pension
No survivor's pension being paid
One child would receive:
- Pre 31/03/2014: 1/240th x final pay x membership built up to 31/03/2014.
- Post 01/04/2014: 1/240th x final pay x membership built following 01/04/2014.
- Transfers in: 49/240ths of the amount of any pension credited following a transfer.
- Enhancement: 1/240th of your assumed pensionable pay from date of death to NPA.
Two or more children would share the following:
- Pre 31/03/2014: 1/120th x final pay x membership built up to 31/03/2014.
- Post 01/04/2014: 1/120th x final pay x membership built following 01/04/2014.
- Transfers in: 49/120ths of the amount of any pension credited following a transfer.
- Enhancement: 1/120th of your assumed pensionable pay from date of death to NPA.
Survivor's pension being paid
One child would receive:
- Pre 31/03/2014: 1/320th x final pay x membership built up to 31/03/2014.
- Post 01/04/2014: 1/320th x final pay x membership built following 01/04/2014.
- Transfers in: 49/320ths of the amount of any pension credited following a transfer.
- Enhancement: 1/320th of your assumed pensionable pay from date of death to NPA.
Two or more children would share the following:
- Pre 31/03/2014: 1/160th x final pay x membership built up to 31/03/2014.
- Post 01/04/2014: 1/160th x final pay x membership built following 01/04/2014.
- Transfers in: 49/160ths of the amount of any pension credited following a transfer.
- Enhancement: 1/160th of your assumed pensionable pay from date of death to NPA.
No longer an eligible child?
If the pension has been split between more than one eligible child, when one of the children no longer meet the criteria of an eligible child, the total pension is split in equal shares amongst the remaining eligible children.
For example if the total pension was £1,200 split amongst 4 children in equal shares of £300 (£1,200 / 4). However, once the eldest child leaves full-time education, the remaining 3 children would receive equal shares of £400 (£1,200 / 3) each. When two remained the shares would be £600 (£1,200 / 2) each until one eligible child remained when the payment would remain £600.
A death grant is defined as a lump sum that is payable to the deceased member’s nominee(s), or any person appearing to the Administering Authority to have been a nominee or personal representative(s), or any person appearing to the authority to have been his relative or dependant at the time.
We advise all members of the scheme to complete a ‘Death Grant Expression of Wish Form’ to nominate whom and how they wish their death grant to be paid upon their death. Although this expression is taken into consideration following a member’s death, the decision as to whom the death grant should be paid to is entirely at the discretion of the Administering Authority, to accommodate for any changes for any out dated nominations.
The whole of the death grant can be paid to one person, or the payment can be split as the Administering Authority deems fit. The death grant is not necessarily paid to the estate of the deceased person, and in this way inheritance tax can be avoided.
If you pay Additional Voluntary Contributions (AVCs) arranged through the LGPS, the value of your AVC fund is also payable, as is any extra life cover.
If you left employment and have not drawn your pension benefits the Death Grant will depend on when you left:
If you left after 1 April 2008
5 x Deferred Annual Pension x Pensions Increase = Deferred Death Grant
Member with Deferred Pension of £5,000 would have a Death Grant of £25,000 (£5,000 x 5) x pensions increase multiplier.
If you left before 31 March 2008
Members Deferred Lump Sum x pensions increase = Deferred Death Grant
Member with Deferred Lump Sum of £20,000 would have a Death Grant of £20,000 x pensions increase
I have other LGPS benefits
If you are an active member of the LGPS after 01/04/2014 and die, the Clwyd Pension Fund shall check if any other LGPS fund across England and Wales are paying you a Death Grant for a previous Deferred or Pensioner record. If the total Death Grant calculated with your previous Deferred or Pensioner records is larger than the Active Death Grant payable by Clwyd Pension Fund, then Clwyd Pension Fund must pay the larger amount, but the Death Grants from your Deferred or Pensioner records would not be payable.
Your Deferred Pension
A deferred member is a member who is no longer paying into the scheme, and has kept their pension within the Clwyd Pension Fund but who is not drawing their pension yet. All service accrued up until 31/03/2014 is calculated using the Final Salary Pensionable Pay at date of leaving, whereas all post 1st April 2014 benefits shall be calculated as CARE scheme benefits.
If you have left your employment, or decide to opt out of the scheme before your retirement age (and have vested in the scheme), the pension you have built up stays in the Clwyd Pension Fund until:
- you decide to transfer your pension rights to another pension scheme or,
- you qualify for payment
- you rejoin the pension scheme and have the availability to combine both records
As a deferred member, your pension benefits will increase in value each year in line with inflation, and you shall receive an annual deferred benefit statement each year to indicate the current value of your deferred benefits. Pensions increase is paid in line with the annual increase in the Consumer Prices Index (CPI) at the previous September and is currently paid from the first Monday of each new tax year.
You have the option to transfer out your deferred benefits to another pension scheme if you wish. In order to investigate this, you will need to contact the pension scheme to which you intend to transfer your pension benefits to, who will then contact us to arrange for the transfer to take place.
By default a member's benefits will be deferred in the scheme if they are not entitled to immediate payment of their pension.
Even if a member is entitled to immediate payment of their pension benefits they are still allowed to defer their benefits within the scheme if they wish (not available if a redundancy/efficiency/ill health/flexible retirement case is applicable or the member has reached 75 years old).
What do you need to do?
Once you leave or opt out of a pensionable position, your employer will notify the Clwyd Pension Fund by completing a termination form. This termination form will include all your pensionable information since becoming a member of the scheme (service, contributions, pensionable pay etc.).
Upon receipt of this form, we shall post an acknowledgment letter to the member, providing them with an 'Initial Leavers Option Form', this form will allow the member to make an election of what they wish to do with their benefits.
Upon receipt of this Option Form, the Clwyd Pension Fund shall calculate your benefits, and once checked post these details to the member.
If you are entitled to payment of your pension benefits, after leaving a position within the LGPS, your employer shall notify the Clwyd Pension Fund of all your pensionable details by completing a termination form. Upon calculating your pensionable benefits for that single post, we shall write out to yourself with a number of forms to complete and return to ourselves.
Among these forms will be a Retirement Conversion Option Form, which will indicate your options regarding converting pension to lump sum. However, if the benefits are reduced due to early retirement, one option will include to defer your benefits in the scheme until a later date. If this is what you wish to do, we will require you to tick the relevant box, sign and date the form and return it to the Clwyd Pension Fund using the pre-paid envelope provided.
This will remain in the scheme until you reach your Normal Pension Age and have availability to unreduced benefits, or upon written request to draw the benefits from yourself.
After calculating your deferred benefits value, if you hold an active record or multiple active records, you will have an option to combine the deferred benefits with one active record.
Details of how this will affect your pension will be detailed in the letter sent.
Refund of contributions
If you leave the scheme before meeting the 2 year vesting period you can choose a refund of contributions.
A refund of contributions will include:
- any pension contributions you have paid
- any additional pension contributions or AVCs you have paid (other than AVCs paid for additional life cover)
A refund of contributions will have a deduction for tax and also the cost, if any, of buying you back into the State Second Pension (S2P) in respect of membership up to 5 April 2016.
If a refund is not paid within 1 year of you leaving the scheme then interest is payable. The rate of interest is 1% above base rate on a day to day basis from the date you left the scheme to the day the refund is paid (compounded with three monthly rests).
Your refund of contributions must be paid within 5 years of your leaving the scheme (or age 75 if earlier), at that point a refund of contributions is automatically paid to you.
Request payment of your deferred benefits
You can choose to take early payment of your deferred benefits from age 55, if you were an active member after 1 April 2014, otherwise if you left before 1 April 2014 then the earliest you can take your benefits is from age 60.
Withdrawing your pension before your Normal Pension Age does not require the consent of your former employer. If you choose to withdraw your deferred benefits before your Normal Pension Age your benefits will usually be reduced to take account of their early payment and the fact that your pension will be paid for longer.
If your benefits were deferred at the Clwyd Pension Fund because you opted out of the scheme, these benefits cannot be paid as benefits until you finish your employment in that single job.
Vesting period -Active member after 1st April 2014
The vesting period refers to the period of time that you must be an active member of the LGPS before becoming entitled to benefits under the scheme in the LGPS this period is 2 years however, it can be met before 2 years in certain circumstances; you will meet the 2 year vesting period if any of the conditions below apply:
- You have been a member of LGPS in England and Wales for 2 years or more years
- You hold deferred benefits which total over 2 years in LGPS in England and Wales
- You are receiving a pensionable income from LGPS in England and Wales (including survivors or pension credit member’s pension)
- Previously transferred pension rights into the LGPS in England or Wales from a previous pension scheme that when added to your LGPS membership totals 2 or more years
- Previously transferred pension rights out of LGPS in England or Wales to a pension scheme abroad
- You paid National Insurance contributions whilst a member of the LGPS and cease contributions to the LGPS in the tax year of reaching your Normal Pension Age
- You cease contributing to the LGPS at age 75
Protection of 2 years membership
Leaving after 31 March 2014 with under 2 years membership but with membership predating the scheme changes on 1st April 2014 puts you in a protected area. You may choose to have a deferred benefit because of the earlier protected status, however you may be entitled to a refund.
The below table shows a members entitlement to a deferred benefit or refund of contributions.
|I only hold pre 1st April 2014 benefits||I hold benefits pre and post 1st April 2014||I only hold post 1st April 2014 benefits|
|Deferred Benefit||Over 3 months membership or vested||Over 3 months membership or vested||Over 2 years membership or vested|
|Refund of contributions||Under 3 months membership and not vested||Under 2 years membership, not vested and no other LGPS benefits||Under 2 years membership, not vested and no other LGPS benefits|
Annual Deferred Benefit Statements
Your pension benefits will increase in value each year in line with inflation, and you shall receive a deferred benefit statement each year to indicate the current value of your deferred benefits.
Pensions increase is applied in line with the annual increase in the Consumer Prices Index (CPI) at the previous September and is currently applied from the first Monday of each new tax year.
The previous increases were:
If CPI is negative, your deferred benefits will not decrease.
The annual statement will be sent to your home address. From 2018 this will no longer be sent out to your Member Self Service hub. The value is shown on the statement date. However, the early payment of pension may be granted. Conditions for early payment will be personal and linked to your pension scheme and any eligibility rules.
It is your responsibility to tell Pension Services when you change your address. When the annual statement is returned to us, undelivered, we will not send out further statements until you tell us your new address.
In the event of a divorce or dissolution of a civil partnership, you may wish to get legal advice regarding how your LGPS will be affected. You and your partner will need to consider how to treat these pensionable rights as part of any settlement, which can divide your pension in a variety of ways.
Following a divorce or a civil partnership dissolves:
- Your ex-spouse or ex-civil partner will cease to be entitled to a spouse or civil partner pension should you die before them.
- All children's pensions paid to eligible children in the event of your death shall not be affected following the divorce or dissolution
- If you had nominated your ex-spouse or ex-civil-partner to receive any death grant following your death by completing an expression of wish form, this will remain in place unless changed.
This is because the Court may issue an Earmarking Order stating that all or part of the death grant shall be payable to your ex-spouse or ex-civil-partner following your death.
Requesting pension figures for divorce purposes
If your solicitor has asked for a Cash Equivalent Transfer Value (CETV) of your LGPS benefits, this should be requested in writing via email or post.
Please make sure you notify us of your
- Name, NI number and state that you wish to request a CETV for DIVORCE PURPOSES
This is because a different calculation is actioned for CETV for transfer purposes
Offsetting your pension rights
You can offset the value of your pension rights against the value of other financial assets in your settlement. For example, you could keep your pension and your partner could get a larger share of the value of the house.
Following an Earmarking Order the LGPS benefits still belong to the member, but some are designated for your ex-spouse or ex-civil partner and your benefits will be reduced.
This allows your ex-spouse/ex-partner to receive all or part of your LGPS pension and all or part of any lump sum payable on your death.
Earmarking has limitations and is not widely used. If your ex-spouse remarries or your ex-civil partner enters into a new civil partnership, any earmarked pension payments would cease and the full pension would be restored to the member. These payments would also cease on your death (although any earmarked lump sum death grant would then become payable to your ex-spouse/ex-civil partner).
Pension Sharing Order
If the Court makes a Pension Sharing Order, part of your benefits will be transferred into your ex-spouses or ex-civil partners possession, and they shall keep these benefits even if your future circumstance change.
Your ex-spouse or ex-civil partner will then hold these benefits in their own right and hold their own individual record with the Clwyd Pension Fund. These benefits can be drawn as though they were member’s pensionable benefits and can be drawn once they reach pensionable age (with any reductions if applicable) or transferred out to another qualifying pensionable scheme.
Similar to any member’s pensionable benefits, this Pension Sharing Order must be taken prior to their 75th birthday.
Effect upon member’s benefits
At retirement, this Pension Sharing Order amount will simply be deducted from the member’s total pension, this deducted amount is known as Pension Debit.
Pension Debit - Similar to deferred benefits, a Pension Debit shall increase in line with cost of living between the date it was first calculated and the date the benefits are paid. Once paid as pensionable benefits to the ex-spouse or ex-civil partner, the re-valued amount of the Pension Debit will be deducted from the member’s retirement benefits.
Members may be able to top up their benefits by buying extra pension through Additional Pension Contributions (APCs) or Additional Voluntary Contributions (AVCs) directly alongside their LGPS benefits, or by paying into a personal/stakeholder pension plan in order to make up for the benefits 'lost' following a Pension Share.
You can still transfer your remaining benefits to another pension arrangement on leaving the LGPS. If you transfer within the LGPS, your new fund will reduce your benefits by the Pension Debit at retirement.
A further divorce / dissolution
If you remarry or enter into a new civil partnership and then divorce or dissolve your new civil partnership, your remaining pension rights can be subject to further division, although a pension sharing order cannot be issued if an earmarking order has already been issued against your LGPS pension rights.
Ill Health Retirement
All initial stages to the Ill Health retirement process are led by your former employer and your former employer's Human Resources department. It is only upon notification of a member being granted Ill Health Retirement, that the Clwyd Pension Fund can action any calculations and correspond with the member directly regarding any pensionable benefits.
To qualify for ill health retirement benefits you have to have met the vesting period in the scheme. Before determining whether to agree to the request the former employer or, where that employer is no longer a Scheme employer, the appropriate administering authority, must obtain a certificate from an IRMP who has been approved by the administering authority showing whether, in the opinion of the IRMP, the member is suffering from a condition that renders him / her:
- permanently incapable, because of ill-health or infirmity of mind or body, of discharging efficiently the duties of the employment he / she was engaged in at the date of becoming a deferred member, or
- whether, as a result of that condition, the member is unlikely to be capable of undertaking gainful employment before reaching Normal Pension Age or for at least three years, whichever is the sooner.
The term 'Gainful Employment' is imperative in determining what Tier of Ill Health a member is applicable for as it appears in all three Tier definitions. It is defined as "paid employment for not less than 30 hours in each week for a period of not less than 12 months."
Early payment of retirement pension on ill-health grounds
(1) A deferred member who, because of ill-health or infirmity of mind or body—
(a) becomes permanently incapable of discharging efficiently the duties of the employment that member was engaged in at the date the member became a deferred member, and
(b) is unlikely to be capable of undertaking gainful employment before normal pension age, or for at least three years, whichever is the sooner,
may ask to receive payment of a retirement pension whatever the member’s age.
(2) A request under paragraph (1) must be made in writing to the deferred member’s former Scheme employer or appropriate administering authority where the member’s former Scheme employer has ceased to be a Scheme employer.
(3) Before determining whether or not to agree to a request under paragraph (1), the deferred member’s former Scheme employer, or administering authority, as the case may be, must obtain a certificate from an IRMP as to whether the member is suffering from a condition that renders the member—
(a) permanently incapable of discharging efficiently the duties of the employment the member was engaged in because of ill-health or infirmity of mind or body; and, if so,
(b) whether as a result of that condition the member is unlikely to be capable of undertaking gainful employment before reaching normal pension age, or for at least three years, whichever is the sooner.
(4) A deferred pensioner member who, because of ill-health or infirmity of mind or body, is unlikely to be capable of undertaking gainful employment before normal pension age, may ask to receive payment of a retirement pension at any time before the member’s normal pension age.
(5) A request under paragraph (4) must be made to the deferred pensioner member’s former Scheme employer, or appropriate administering authority where the member’s former Scheme employer has ceased to be a Scheme employer.
(6) Before determining whether to agree to a request under paragraph (4), the deferred pensioner member’s former Scheme employer, or administering authority, as the case may be, must obtain a certificate from an IRMP as to whether the member, as a result of ill-health or infirmity of mind or body, is unlikely to be capable of undertaking gainful employment before normal pension age.
(7) If the Scheme employer is not the deferred or deferred pensioner member’s appropriate administering authority, it must obtain that authority’s consent to the appointment of an IRMP under this regulation.
(8) An IRMP appointed under paragraph (6) may be the same IRMP who provided the first certificate under regulation 36(1) (role of the IRMP).
Protection for Members
All the pension built up to 1 April 2014 will continue to be calculated in the same way as before the change in regulations and is linked to your salary upon leaving the scheme.
Even though a member may leave in the CARE scheme it is the final salary pensionable pay at date of leaving which is used, and not what it was at 31st March 2014 when the scheme changed.
Normal Pension Age
Pension built up prior to 31st March 2014 has a protected Normal Pension Age of 65, meaning that all benefits accrued prior to this date can be payable unreduced at age 65. If drawn before 65, the final salary benefits will be reduced
The Rule of 85
Some members who were in the LGPS prior to 1st October 2006 will have Rule of 85 protection. These protections still apply for members who take their retirement benefits from age 60. These protections have continued into the CARE scheme ensuring that the pension benefits under the final salary scheme are unaffected by the changes.
If you choose to retire earlier than your normal pension age (NPA), your pension benefits may be reduced for earlier payment. The 85 year rule however protects some, all or part of your pensionable benefits from these reductions applicable when leaving the scheme early.
The rule of 85 is satisfied in full if:
- Your age at retirement + LGPS membership in whole years = 85 years or more
- Active member of the scheme between,01/04/1998 and 30/09/2006
- Aged 60 years old or above at retirement
The rule of 85 applies differently dependant upon when a member was born and when they were a member of the scheme. The below table outlines what how certain benefits are affected if the rule of 85 applies to a member.
|Born||Pre 31/03/2008 service||01/04/08 - 31/03/14 service||Post 01/04/2014 service|
|On or before 31/03/1956||Unreduced||Unreduced||Unreduced until 31/03/2016|
|Between 01/04/1956 & 31/03/1960||Unreduced||Tapered Reduction - sliding scale from 31/03/2016||Tapered Reduction - sliding scale from 31/03/2020|
|After 01/04/1960||Unreduced||Full Reduction||Full Reduction|
Please note you will not have any 85 year rule protections if you stopped contributing to the Scheme before 1 April 1998. The Rule of 85 applies in full from aged 60, meaning that a minimum retirement age of 60 is required to fully imply the protection of a members benefits.
What are tapered reductions?
Tapering the reductions made to a members benefits was implemented to ‘fade out’ the protections, meaning that members born on the ‘wrong’ side of the cut off dates.
How does tapering work?
Members who are eligible for the 85 Year Rule have limited protections in place regarding their post 01/04/2008 benefits. This tapering aspect of the reductions allows the member a more beneficial reduction the nearer they are to their normal pension age, due to this ‘fading out’ aspect of the protection.
Previous higher year
If the members final years’ pay is not the most beneficial, the member is able to use the best of the previous three years pay to substitute the final year, ending with the day on which employment ceases.
Alternatively, if a member has been downgraded in their last 10 years or their pay is restricted in that period they have the option to have their benefits based on the average of any 3 consecutive years in the last 10 years (ending on a 31st March) with pensions increase applicable to this figure.
An election does not need to be made by the member themselves and the Clwyd Pension Fund will endeavour to action these but suggest the members' double check their benefits for any cases that slip through the net.
From 1st April 2008 the Certificate of Protection of Pension Benefits has been replaced with an automatic 13 year protection. If a member has been downgraded in their last 13 years or their pay is restricted in that period they have the option to have their benefits based on the average of any 3 consecutive years in the last 13 years (ending on a 31st March) with pensions increase applicable to this figure.
To guarantee that no members within 10 years of age 65 as at 1 April 2012 find themselves worse off, there will be a ‘protection underpin’. This means that those members who would see their normal pension age increase due to the movement in state pension age will get a pension at least equal to that which they would have received in the current scheme, if they retire at age 65 or after.
If you were a member of the Local Government Pension Scheme prior to 31/03/2014 and are nearing retirement there is a protections in place called the Underpin.
This is to guarantee that members shall get a pension that is at least equal to that which they would have received at retirement if the scheme had not changed on 01/04/2014. Some members would have seen an increase to their Normal Pension Age to become in line with their State Pension Age, and therefore an underpin calculation would be guarantee that they would receive the most beneficial pensionable benefits.
- Active member on 31/03/2012
- Within 10 years of your normal retirement age on 01/04/2012 (which is 65 years old)
- You have not had a continuous break in active membership of a public service pension for more than five years (after 31/03/2012)
- You have not drawn any benefits from the LGPS before your Normal Pension Age
- You leave with immediate entitlement to your benefits
Rejoining the scheme
If you rejoin the LGPS after having previously built up LGPS pension benefits, then these benefits can be combined with your new active pension account in the scheme. If you opted out of the scheme on or after 11 April 2015, you will not be permitted to join the two periods of membership together and, instead, you will have two separate sets of pension accounts in the scheme.
If you rejoin the LGPS after having previously left an LGPS employment with a deferred refund, then this deferred refund must be combined with your new active pension account in the scheme. In these circumstances, the refund would no longer be payable.
More than one employment
Where you have more than one active employment and therefore more than one pension account in the LGPS, you can elect which active account to combine your previous LGPS pension rights with.
|Upon rejoining the scheme, the Clwyd Pension Fund will ask members for information regarding any previous LGPS membership and subsequently write out to the member ......|
|I have a Deferred Benefit in the LGPS||... providing them with all applicable options to combine their deferred benefit with their new active pensionable position.
Dependant upon when the previous deferred benefit was, will determine which options are available to the member
|I have a Deferred Refund in the LGPS||... notifying them that their deferred refund has either automatically been combined with their new active pensionable position, or notify them that they must take a refund of contributions from their previous position.
This will depend upon when the member contributed into the scheme in their previous position.
Final Salary Link
If the deferred benefit consists of only pre 1st April 2014 service, an election is required to either combine both pension benefits (with a final salary link) or to convert the deferred benefit into a CARE pension benefit.
A key protection surrounding the combining of pension records is the final salary link protection. This protection means the link can be retained if a member does not have a break in active public sector pensionable service of greater than 5 years, meaning that the final salary (pensionable pay) of the most recent combined position can be used to calculate all pre 31st March 2014 membership.
|JOB A||JOB B|
|Dates||01/04/1990 - 31/03/2012||01/04/2015 - 31/03/2017|
If a member elects to combine both JOB A and JOB B, all pre 1st April 2014 service shall be calculated using the Full Time Equivalent pensionable pay at 31/03/2017, and NOT at 31/03/2012 due to this ‘final salary link’ (even though no benefits in JOB B were ever contributed to in the final salary scheme).
Losing the Final Salary Link
If the deferred benefit consists of only pre 1st April 2014 service, but a break in active public sector pensionable service of greater than 5 years has occurred prior to re-joining, the link to final salary is lost.
In these circumstances, if members wish to combine both periods of pensionable service they must convert the pre 1st April 2014 service into a CARE benefit which will stand alongside the members ongoing CARE benefits and continue to be revalued in line with inflation.
This conversion from service to CARE benefits is calculated similar to that of a transfer.
Following a death in service, the rate of the survivors pension is based on what the member would have accrued had their accrual rate been 1/160th.
This is then enhanced to create a pension equal to what the member would have received if they had earned their assumed pensionable pay from the date of death to their normal retirement age, and multiplying this by 1/160th.
Any pension granted by a transfer in is multiplied by 49/160ths and added to the survivors’ pension.
After your death, your spouse/civil partner/cohabiting partner may be entitled to a pension for life based on 1/160th of the pensionable pay for each year of membership used to calculate your pension (but see notes below). This pension will be increased by the same percentage increases applied to your own pension since you retired.
If membership ceased:
- before 1 April 1998, pension benefits are only payable to legally married surviving spouses.
- between 1 April 1998 and 31 March 2008 inclusive, pension benefits are payable to legally married surviving spouses or surviving civil partners.
- on or after 1 April 2008, pension benefits are payable to a surviving legal spouse, civil partner or nominated cohabiting partner (providing a nomination has been made and all the criteria are met).
- on or after 1 April 2014, pension benefits are payable to a surviving legal spouse, civil partner or cohabiting partner (providing all the criteria are met, no nomination required).
- If you have a civil partner or nominated unmarried cohabiting partner, only your Scheme membership after 5 April 1978 will count when calculating their pension.
- If you are a man and married your wife after you retired, only your membership after 5 April 1978 will count when calculating her pension.
- If you are a woman and married your husband after you retired, only your membership after 5 April 1988 will count when calculating his pension.
- If you retired before 1 April 2008 you cannot nominate an unmarried cohabiting partner to receive a pension on your death, but you can nominate them to receive any death grant.
Reduction in hours
If you have reduced your hours as a result of a condition or illness (in the opinion of the independent occupational health physician), which subsequently resulted in your death; the reduction in your hours is disregarded, when calculating any survivor pension payable to your spouse, registered civil partner or eligible co-habiting partner.
Cohabiting Partner Pension
Providing a member paid into the LGPS after 1 April 2008, they may nominate another person to receive benefits from the LGPS by giving a declaration signed by them and their nominee to the administering authority.
From 1st April 2014 the requirement for a nomination has been removed but the criteria remain the same.
An eligible cohabiting partner is a partner you are living with who, at the date of your death, who can prove that they have met the following conditions for a continuous period of at least 2 years:
- You both currently are and have been free to marry/enter a civil partnership with each other.
- You both have been living together as if you were married /civil partners, and neither you or your cohabiting partner have been living with someone else as if you/they were a married couple or civil partners,
- Either your cohabiting partner is, and has been, financially dependent on you or you are, and have been, financially interdependent on each other.
If you are no longer making pension contributions, your benefits can be transferred out of the Clwyd Pension Fund at any time providing that your new employer/pension provider is willing to accept the transfer. You should check that your new pension provider will accept transfers and that you are within their given time limits before requesting a transfer out of the Clwyd Pension Fund.
What do I need to do to instigate a transfer out?
You should contact your new pension provider directly to instigate the transfer by giving permission to speak to the Clwyd Pension Fund on your behalf. Your pension provider may have an online process or form which you need to complete to instigate the transfer.
You cannot transfer your benefits if you leave less than one year before your Normal Pension Age.
This NPA is relevant to what membership you hold in the LGPS, if you have pre 31/03/2014 membership only this shall be your 65th birthday, however if you hold any post 01/04/2014 membership, this shall be the lowest of your state pension age or 65th birthday.
Once the process begins, your new pension provider will require a transfer value quotation, which the Clwyd Pension Fund will guarantee for a period of three months from the date of calculation. Your new pension provider can then advise you of the additional benefits the transfer will buy in their scheme.
If you are considering whether to transfer benefits, make sure you have full information about the two pension arrangements; details of what your benefits are worth in the LGPS and details of what your benefits would be worth in the new pension scheme, if transferred. When you compare your options, don’t forget that your LGPS benefits are guaranteed cost of living increases.
Please note that transfers can be a lengthy process.
Freedom and Choice
From April 2015 significant changes were made to how and when individuals could access their pension benefits, mainly affecting defined contribution members.
Prior to the change, defined contribution scheme members built up pension pots via contributions made by themselves, their employer and any investment returns. The money that individuals have built up could then be used to buy an annuity which is an income for life paid through an insurance company (additional dependent benefits could also be bought).
Although the regulation changes directly affect individuals who hold a defined contributions pension benefit it could affect members of the LGPS if they were to transfer their LGPS defined benefits out to a defined contributions scheme.
Various ‘Freedom and Choice’ options are now available to members of defined contributions schemes on how they wish to use their pension pots, they can be drawn in the following ways:
- To take an annuity in the same way as before
- To draw their money as cash, whether this is all at once or in a series of instalments. Where pension pots taken as cash, the initial 25% would be tax free whilst the remainder would be taxed in the same way that any other income would be taxed.
- To take a mixture of both the above, buying an annuity with some of their pot and taking the rest as cash when they wish to do so.
Transferring out of a guaranteed Defined Benefit scheme such as the LGPS may not generally be in the members best interests, so if you are considering this option it is very important to think very carefully about your decision, and seek financial advice if required, this is not available directly from the Clwyd Pension Fund.
Transfers to Overseas Scheme
Transfers to overseas schemes are possible if the scheme is a Recognised Overseas Pension Scheme (ROPS). A list of these schemes is held on the HMRC website.
A transfer payment represents the cash equivalent value of your LGPS benefits at the time of the transfer. If a transfer payment is made, you will not be entitled to any further benefits from the LGPS for yourself, your spouse civil partner, dependents nor co-habiting partner nominated by you.
You may wish to take independent financial advice when making this decision as this is not available directly from the Clwyd Pension Fund.
Although LGPS administrators cannot give financial advice it is recommended that members take advice before making transfers to other pension schemes. Financial advice is compulsory for transfers which are greater than £30,000 to Defined Contribution schemes which offer Freedom and Choice benefits.
Beware of scams
The introduction of new freedom and choice options regarding people’s finances can be appealing; however, members should be wary of any scams which have arisen further to its introduction, and we strongly advise members to be cautious.
This could be through cold calls, emails, doorstep visits, promises of unrealistic investment opportunities, pressuring individuals to make quick and rash decisions.
Further information regarding pension scams can be found on the below link:
When can you retire?
A welcome change for deferred members within the LGPS (Amendment) Regulations 2018 is the option for members who left the scheme prior to 31 March 2014 to may be able to access their pension benefits from 55 years old without requiring their former employer’s consent.
From 14 May 2018 (depending upon your dates of service) deferred members may be entitled to access these pension benefits. Previously only members who left the scheme after 1 April 2014 had the right to draw pension benefits at 55 years old without employer consent.
Please note that pension benefits accessed prior to your Normal Pension Age will be subject to reductions as they are likely to be paid for longer. The Normal Pension Age for any pre 31 March 2014 membership is 65 years old, whilst any post 1 April 2014 pension benefits are linked to your new state pension age (minimum 65 years old).
If you are over 55 years old and wish to investigate drawing your pension benefits please email firstname.lastname@example.org with your name, National Insurance number and quotation request.
|Final Salary scheme
Left employment before 31st March 2014
Left employment after 1st April 2014
|55 years old
(dependant upon membership dates
- previously 60)
|55 years old|
If you wish to find out what your annual pension, lump sum and conversion options would be if you were to draw your deferred benefits, you will be required to request this in writing.
You can do this via email, post or by raising a MSS Contact Us query. Please include your name, national insurance number and potential retirement date. This date is crucial and will be used when calculating your pension benefits.
If you choose to voluntarily retire before your Normal Pension Age your benefits will normally be reduced to take account of being paid for longer. Your benefits are initially calculated and are then reduced, this reduction depends on how early you draw them.
The reduction is based on the length of time (in years and days) that you retire early i.e. the period between the date your benefits are paid and your Normal Pension Age, meaning that the earlier you retire, the greater the reduction.
As a guide, the current percentage reductions for retirements up to 13 years early are shown in the table below.
Where the number of years is not exact, the reduction percentages are adjusted accordingly.
|YEARS EARLY||ANNUAL PENSION REDUCTION||AUTOMATIC LUMP SUM REDUCTION|
The maximum reduction applied to your automatic lump sum for membership to 31 March 2008 is 10 years as the protected normal pension age is 65 and the earliest you can retire is age 55 (65 - 55 = 10 years reduction).
However, for the CARE (post 01/04/2014 benefits) there is a possible 13 year reduction if a member retires on their 55th birthday and has a Normal Pension Age (state pension age) of 68 i.e. 68 - 55 = 13 years
Working beyond 75 years old
If a member works beyond their 75th birthday neither the LGPS or auto enrolment requirements apply, meaning that they cannot continue to pay contributions into the scheme and accrue additional pensionable benefits.
You must draw your pension by no later than age 75, meaning that a retirement date shall be defaulted to the eve of your 75th birthday, whilst members can continue to work in their post if they wish.