Leaving your job before retirement

Transcription

1 SHROPSHIRE COUNTY PENSION FUND Leaving your job before retirement August 2018 v6

2 Contents What happens to my benefits once they are deferred? Page 3 How are deferred benefits worked out? Page 4 What if I paid extra contributions? Page 5 When are deferred benefits paid? Page 6 What if I die before receiving my deferred benefit? Page 9 Who will my death grant be paid to? Page 10 How your deferred benefits keep their value? Page 10 What will happen if I wish to transfer my LGPS benefits to another (non LGPS) scheme? Page 11 What happens if I change jobs but remain in the LGPS? Page 13 What if I have two or more LGPS jobs? Page 13 Further information and disclaimer Page 15 Contact details Page

3 In this guide we look at what happens to your Local Government Pension Scheme (LGPS) benefits on leaving your job before retirement. This guide is for members leaving the LGPS after 1 April If you leave your job before retirement and have been in the scheme for two years, you will have built up an entitlement to a pension. You will have two options in relation to that pension entitlement: you can choose to keep your benefits in the LGPS. These are known as deferred benefits and will be adjusted every year in line with the cost of living, or alternatively, you may be able to transfer your deferred benefits to another pension arrangement. Section 1- What happens to my benefits once they are deferred? When your benefits are deferred the amount held in your pension account up to your date of leaving is transferred to a deferred pension account and you then have what are known as deferred benefits. The value of the pension in your deferred pension account is held in the LGPS for you until either you decide to transfer the value to another pension scheme, or the deferred benefits are due to be paid. Your deferred benefits package consists of an annual pension, payable throughout your retirement, with an option on retirement to exchange some pension for a one off tax-free lump sum. It also includes life cover and financial protection for your family. 3

4 Section 2- How are deferred benefits worked out? Your deferred benefits will be worked out as follows: Membership from 1 April 2014 Your deferred pension in respect of your membership of the scheme from 1 April 2014 is the value of the pension you have built up in your active pension account at the point of leaving. This is calculated as 1/49 th of the pay you have paid contributions on for each scheme year (April March). Membership between 1 April 2008 and 31 March 2014 The part of your deferred pension in respect of any membership of the scheme you have between 1 April 2008 and 31 March 2014 is calculated by dividing the period of scheme membership between those dates by 60 and multiplying by your final pay on leaving. Membership before 1 April 2008 The part of your deferred pension in respect of any membership of the scheme you have before 1 April 2008 is calculated by dividing the period of scheme membership you have before that date by 80 and multiplying the resulting figure by your final pay on leaving. Tax free lump sum If you have membership before 1 April 2008 you will be entitled to an automatic tax-free lump sum of three times your pension for membership before 1 April If you were not in the LGPS before 1 April 2008, or you were and you wish to increase your automatic lump sum, you will be given the option to exchange some of your annual pension for a one off tax-free lump sum. You receive 12 pounds of lump sum for each pound of annual pension 4

5 given up. You can take up to 25% of the capital value of your pension benefits as a lump sum. Section- 3 What if I paid extra contributions? If you have been paying extra contributions your contributions will cease when you leave the LGPS. When you leave with deferred benefits you will benefit from those extra contributions which we will calculate with your deferred benefits. If you are buying extra LGPS pension by paying Additional Pension Contributions (APCs) You will be credited with the extra pension you have paid for at the time of leaving. This will increase the value of your deferred benefits and any transfer value paid to a new pension arrangement. If you are buying extra LGPS pension by paying Additional Regular Contributions (ARCs) You will be credited with the extra pension you have paid for at the time of leaving. This will increase the value of your deferred benefits and any transfer value paid to a new pension arrangement. If you are buying extra years in the LGPS (Added Years) You will be credited with the extra period of membership that you have paid for at the time of leaving. This will increase the value of your deferred benefits and any transfer value paid to a new pension arrangement. The extra benefits will be calculated on the same basis you had agreed to buy them. If you move to a new employer in the LGPS in England or Wales within 12 months of leaving, you can carry on paying the 5

6 additional contributions provided you also pay them to cover the period between leaving and starting your new job and you join your pension rights together. Contact your new LGPS administrator within three months of re-joining to arrange this. If you pay Additional Voluntary Contributions (AVCs) arranged through the LGPS (in-house AVC) The value of your AVC fund will continue to be invested until it is paid out. Your AVC plan is similar to your main LGPS benefits in that it can be: Transferred to another pension arrangement, or Drawn at the same time as your LGPS benefits. As you cannot pay in-house AVCs after leaving, any extra cover paid for through AVCs will cease. If you are paying additional contributions to buy extra cohabiting partner s survivors pension The period of your pre 6 April 1988 membership that you have paid extra for at the time of leaving will be included in the calculation of any survivor s pension payable to an eligible cohabiting partner on your death. Section 4 - When are deferred benefits paid? Your deferred benefits built up from 1 April 2014 are payable at your normal pension age in the LGPS. Your normal pension age for this period of service is linked to your State Pension age (but with a minimum of age 65). Benefits built up before 1 April 2014 have a normal pension age of

7 You can find out what your State Pension age is by using the government's State Pension age calculator available on their website or by calling Deferred benefits can be paid earlier, or later than your normal pension age. There are two ways they can be paid earlier and these are: early payment of deferred benefits at your request, or early payment of deferred benefits due to permanent illhealth. Please be aware that you cannot take payment of your deferred benefits if you are still actively employed in the post to which these deferred benefits relate (unless you have reached the age of 75). Early payment of deferred benefits at your request You can choose to take early payment of your deferred benefits from age 55. You do not need your former employer s consent to draw your pension before your normal pension age. If you choose to draw your deferred benefits before your normal pension age your benefits will normally be reduced to take account of their early payment and the fact that your pension will be paid for longer. How much your deferred benefits are reduced by depends on how early you draw them. The reduction is calculated in accordance with guidance issued by the Secretary of State and 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. The percentage reductions, issued in April 2016, for retirements up to 13 years early are shown in the table. 7

8 Reduction table (table issued 29 April 2016) No. of years paid early Pensions reduction Men 0 0% 0% Pensions reduction Women 1 5.6% 5.2% % 10.1% % 14.6% 4 20% 18.8% 5 24% 22.7% % 26.4% % 29.8% % 33% % 36.1% % 38.9% % 42.2% % 45.5% % 48.6% Your former employer can agree to waive any reduction. This is a discretion and you can ask your employer what their policy on this is. If you built up pension in the LGPS before 1 April 2014 then protections are in place for the normal pension age that applies to those benefits. In addition, if you were a member of the LGPS on 30 September 2006, some or all of your benefits paid 8

9 early could be protected from the reduction if you are a rule of 85 protected member. Early payment of deferred benefits due to permanent ill health The second method of obtaining early payment of your deferred benefits is on the grounds of permanent ill health. You can apply for payment of your deferred benefits at any age, without reduction if, because of your health, you would be permanently incapable of the job you were working in when you left the LGPS and you are unlikely to be capable of undertaking any gainful employment within three years of applying for the benefit or by your normal pension age, whichever is the earlier. You should contact your former employer to request early payment of deferred benefits, this decision cannot be made by the Pensions Team. Payment of deferred benefits at or after normal pension age If you do not take early payment of deferred benefits the benefits will be paid from your normal pension age unless you opt to delay payment beyond that age. Your deferred benefits cannot be paid later than age 75. Section 5- What if I die before receiving my deferred benefit? If you die before receiving your deferred benefits a death grant is payable. If you left the LGPS before 1 April 2008, the death grant is the deferred lump sum retirement grant adjusted in line with the cost of living to the date of your death. If you left the LGPS after 31 March 2008 the death grant is five times the 9

10 annual deferred pension adjusted in line with the cost of living to the date of your death. If you are contributing to the LGPS in another employment any death grant due is limited to the greater of either the death in service grant or the pension guarantee from your deferred pension (or multiple deferred pensions). Section 6 - Who will my death grant be paid to? If you have completed an expression of wish form for payment of death grant, then your wishes will be taken into consideration but the final decision is at the discretion of the Pension Fund. If you have not completed a form or wish to change your nomination, please contact your Pensions Team to request one. Alternatively, you can update these details via My Pension Online. Contact the Pensions Team to register for online service. Section 7- How your deferred benefits keep their value? Your deferred benefits will be adjusted every year in line with the cost of living by a Treasury Order. If your benefits are paid on or after age 55, or if your benefits are paid before age 55 because of ill health and you are permanently incapacitated from engaging in any regular fulltime employment, your benefits will be adjusted each year in line with the cost of living. 10

11 Section 8 - What will happen if I wish to transfer my LGPS benefits to another (non LGPS) scheme? If you are joining another pension scheme, you may wish to consider transferring your LGPS benefits to it. Please note this must be an arrangement that meets HMRC conditions. You cannot transfer your benefits if you leave less than one year before your normal pension age. Your new pension provider will need a transfer value quotation (sometimes known as a CETV) which, the Pensions Team can supply and will be guaranteed 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 wish to go ahead with the transfer a written option to proceed must be received within the three months guaranteed period. If you are considering whether to transfer benefits, make sure you have full information about the two pension arrangements i.e. 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. Transfers to public sector schemes usually give benefits that are broadly equivalent to those in the LGPS, under what are known as Club transfer rules, provided you apply for the transfer within twelve months of joining your new pension scheme and have not had a continuous break in active membership of a public service pension scheme of more than five years. Transferring your pension rights is not always an easy decision to make and you may, therefore, wish to seek the help of an independent financial adviser before you make a decision to transfer your deferred benefits to a personal pension plan, 11

12 stakeholder pension scheme, buy-out insurance policy or to an employer s money purchase scheme, as you will be bearing all of the investment risk which could significantly affect your future pension benefits. You will have to take advice from an authorised independent financial adviser (who is registered with the Financial Conduct Authority), if the value of your LGPS benefits is more than 30,000. An authorised independent advisor can be located by accessing one of the following websites: FCA register, Personal Finance Society Website, The Association of Professional Financial Advisors, or the local Citizens Advice Bureau. If a full transfer payment is made, you will not be entitled to any further benefits from the LGPS for yourself, your spouse, civil partner, eligible cohabiting partner or eligible children. Freedom and Choice Changes in the law introduced by the Pensions Act 2015 mean that many members of UK pension scheme which offer Defined Contribution (DC) benefits will have increased flexibility over how they take their pension from age 55. The increased flexibility introduced by this legislation means that you can now take the whole of your pension as a lump sum in one go or at different stages however, only 25% of the cash taken will be cash free. The LGPS is not a DC scheme, but is a Defined Benefit (DB) scheme so these new flexibilities do not directly apply to members of the LGPS. If you would like to take advantage of these new flexibilities then as a member of the LGPS you will need to first transfer your pension benefits to a provider who offers these flexibilities. 12

13 Section 9 - What happens if I change jobs but remain in the LGPS? If you are changing your job, but still working in local government or for another employer who offers you membership of the LGPS, or if you re-join the LGPS before your deferred benefits are paid, your deferred benefits are automatically joined with your new active pension account when you re-join the scheme, unless you elect to keep them separate. If you wish to keep your deferred benefits separate you must elect to do so within twelve months of re-joining the LGPS, unless your employer allows you longer. This in an employer discretion and you can ask your employer what their policy is on this matter. If you wish to transfer your LGPS pension rights you should contact your current or former LGPS administrator as soon as possible to commence the process and find out about the matters you will need to consider in making your decision. Section 10- What if I have two or more LGPS jobs? If you have two or more jobs in which you pay into the LGPS at the same time and you leave one (or more) but not all of them, and you are entitled to deferred benefits from the job (or jobs) you have left, your deferred benefits from the job that has ended are automatically transferred to the active pension account for the job you are continuing in, unless you elect to keep them separate. If you wish to keep your deferred benefits separate you must elect to do so within twelve months of rejoining the LGPS, unless your employer allows you longer. This in an employer discretion and you can ask your employer what their policy is on this matter. 13

14 If you are not entitled to deferred benefits from the job (or jobs) you have left, you cannot have a refund of your contributions and you must transfer your benefits to the pension account for the job you are continuing in. 14

15 Further information and disclaimer This guide is for employees in England or Wales and reflects the provisions of the LGPS and overriding legislation from 1 April This guide cannot cover every personal circumstance, does not confer any contractual or statutory rights and is provided for information purposes only. You can find out about what you can do if you are not happy about a decision made about your LGPS pension by contacting the Pensions Team or by visiting our website. The Shropshire County Pension Fund is a Data Controller under Data Protection legislation. This means we store, hold and manage your personal data in line with statutory requirements to enable us to provide you with pension administration services. To enable us to carry out our statutory duty, we are required to share your information with certain bodies, but will only do so in limited circumstances. For more information about how we hold your data, who we share it with and what rights you have to request information from the Fund, please visit

16 Contact details If you can read this but know someone who cannot, please contact us on (01743) so we can provide this information in a more suitable format. You can contact the pensions team on any issue regarding your pension using the below contact details. pensions@shropshire.gov.uk Tel: Website: If you would prefer to discuss your pension in person, you are welcome to come in and see us at the address below: Pension Services, Shropshire Council, Shirehall, Abbey Foregate, Shrewsbury, SY2 6ND Office hours: Monday - Thursday 8.45am pm Friday am pm Administered By 16