If you have left the LGPS with deferred benefits and you join another pension scheme, you may be able to transfer your LGPS benefits to the new scheme. Transferring your pension is not an easy decision to make. You will need to compare the two schemes carefully to be certain you make the right choice. You may wish to get help from a specialist adviser. In some cases you will have to seek independent financial advice before you can transfer.
Criminals may try and convince you to hand over your pension by transferring it to a scam pension scheme. You can protect yourself by finding out about how to spot a Pension scam.
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In this section we look at the basic rules that apply to pension transfers of deferred benefits out of the LGPS.
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- If you have bought extra LGPS pension for yourself or for a dependant, the value of that extra pension will be included in any transfer payment. You may have bought extra pension by paying Additional Pension Contributions, Additional Regular Contributions or purchasing added years.
- If you have paid Additional Voluntary Contributions (AVCs), you do not have to transfer these if you transfer your main LGPS benefits to another pension scheme. The conditions to transfer your AVCs are different from those set out below.
- You cannot transfer your pension if you leave the LGPS less than one year before your Normal Pension Age.
- You can only transfer your pension if you elect to transfer at least one year before your Normal Pension Age.
- If you complete a full pension transfer, you will not be entitled to any benefits from the LGPS. No death grant or dependants’ pensions will be paid by the LGPS when you die.
- You can only transfer your LGPS pension if you have stopped paying into the Scheme.
- You cannot transfer an LGPS pension if you have already taken a pension from the LGPS. If you have an LGPS pension in payment you cannot transfer any deferred benefits out of the LGPS.
- If you hold more than one set of deferred benefits in the LGPS in Scotland, you can transfer all or none of those benefits. You cannot transfer one deferred benefit to a different scheme and keep another deferred benefit in the LGPS.
What to think about
Special rules apply if you re-join the LGPS. See the section on Transferring in for information about what happens when you re-join the Scheme.
If you are considering whether to transfer your LGPS benefits to another scheme, make sure you have full information about the two pension arrangements. You will need details of what your LGPS benefits are worth and what they would be worth in the new pension scheme if you transfer them. When you compare the schemes, remember some of the main benefits of the LGPS:
- your LGPS benefits are guaranteed to increase in line with cost of living increases
- you can take your LGPS pension from age 55
- your LGPS pension may be paid at any age of you are too ill to work
- you can swap pension for tax-free lump sum when you take your LGPS pension
- when you die, a death grant and survivor pensions may be paid to your loved ones.
Special rules known as the Club transfer rules may apply if you transfer your LGPS benefits to another public service pension scheme. If you transfer under Club transfer rules, you will normally get benefits in the new scheme that are broadly equivalent to the benefits you had in the LGPS. The Club transfer rules will apply if:
- you apply for the transfer within a year of joining your new pension scheme, and
- you have not had a break in membership of a public service pension scheme of more than five years.
Transferring your pension rights is not an easy decision to make. You may wish to get help from an independent financial adviser before making a final decision. This is particularly important if you are thinking about transferring your deferred benefits to a personal pension plan, stakeholder pension scheme, buy-out insurance policy or to an employer’s money purchase scheme. In these schemes, you would bear all the investment risk. This could significantly affect your income in later life.
Some members will have to take independent financial advice before they can transfer their LGPS pension. See the next section to find out if you will be affected.
Freedom and Choice – Flexible benefits
Flexible benefits were introduced by the UK Government in 2015. They give members of defined contribution pension schemes more freedom on how they take money from their pension pot after age 55.
There are generally four main options for members who are over age 55 in a defined contribution scheme which provides flexible benefits. Those options are:
- to purchase an annuity (yearly pension) or scheme pension
- to take a number of cash sums at different stages
- to take the entire pot as cash in one go, or
- flexi-access drawdown.
The LGPS is a defined benefit pension scheme, not a defined contribution scheme. The LGPS is not directly affected by the Freedom and Choice rules. However, if you leave the LGPS and do not take your pension immediately, you could choose to transfer your LGPS pension to a defined contribution scheme that provides flexible benefits.
You will be required by law to take independent financial advice before you can transfer if the value of your pension benefits in the LGPS is more than £30,000. The value of any in-house AVC fund is not included. You do not have to take independent financial advice if the value of your benefits is less than £30,000. However, transferring your pension is not an easy decision to make. Seeking the help of an independent adviser could help you make an appropriate decision.
Visit the Freedom and Choice page for more information about transferring to a scheme that provides flexible benefits.
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The transfer process
The UK Government has introduced new rules on pension transfers in recent years. These rules are there to protect scheme members when they are thinking about transferring their pension.
You may have to take independent financial advice before you can transfer out of the LGPS. If you transfer to a defined contribution scheme, you would lose the guarantees that you have in the LGPS. Taking advice from a qualified financial adviser will make sure you understand the effect that transferring out of the LGPS could have on your income in later life.
Your pension fund must take reasonable steps to stop you losing your pension savings to a scam. They may need to ask you for information about the transfer to check whether there is any sign of a scam. You can also reduce the risk of becoming a victim of a pension scam by finding out more about pension scams and how to spot them.
The basic transfer out process is set out below. We have provided this as a general guide only. Some steps will not be necessary if you are transferring to a ‘safe’ scheme such as another public service pension scheme. Your pension fund may need to take extra steps to find out more about the scheme receiving the transfer to assess whether you are at risk of a pension scam.
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- If you are interested in transferring your LGPS pension to another pension scheme, you should inform your new pension provider. Give them the Contact details of your LGPS pension fund.
- Your LGPS pension fund will provide a quotation of the value of your deferred benefits. The date they calculate this is known as the guarantee date. The quotation is generally guaranteed for three months from the guarantee date. It may be guaranteed for a shorter period if you are approaching a year before your Normal Pension Age. If your pension fund sends the quotation to you, you should share it with your new pension provider as soon as possible.
- Your new pension provider lets you know what benefits the transfer would buy in their scheme.
- If you are thinking about transferring to a scheme that offers flexible benefits and the value of your LGPS deferred benefits is more than £30,000, you will have to take appropriate financial advice. You must pay for the advice yourself. It must be from an authorised independent adviser who is registered with the Financial Conduct Authority (FCA). See the section on Freedom and Choice for further information. It’s a good idea to speak to a regulated financial adviser before you start the transfer process. This will help make sure that you get financial advice in a timely manner and give you enough time to make your decision without being rushed.
- If you wish to transfer your LGPS pension to the new scheme, you must complete a written option form within the guarantee period.
- Your LGPS pension fund must check whether there are signs that the scheme you want to transfer to is a scam. They may contact you to find out more information about the scheme, how you were contacted and who advised you about the transfer. It is important that you answer their questions fully as soon as you can. Your pension fund will stop the transfer if you do not provide the information they need, or if that information indicates that you are likely to be at risk of a scam. You may be required to attend a Pension Safeguarding Guidance appointment given by MoneyHelper.
- Once your pension fund has taken reasonable steps to check that the pension scheme you are transferring to is a legitimate arrangement, they will make the transfer payment. They will generally do this within six months of the guarantee date.