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  • Scenario B2

Scenario B2

This scenario applies when you left an employment after 31 March 2014 with an entitlement to a deferred benefit in the LGPS, were in the scheme on both the 31 March and 1 April 2014, and re-joined the LGPS again without having had a continuous break in active membership of a public service pension scheme of more than five years since ceasing to be an active member of the LGPS in the employment to which the deferred benefit relates.

You have re-joined the Local Government Pension Scheme (LGPS) and we note that you have previous deferred benefits in the LGPS. You therefore have a decision to make about what should happen to those deferred benefits.

Unless you tell us otherwise, the amount of pension you have built up after 31 March 2014 in your deferred pension account will automatically be transferred and added to your new active pension account and the membership you built up before 1 April 2014 in the final salary scheme will continue to count as final salary membership automatically linked to your new active pension account.

 

Decision Required

You can elect to keep you deferred benefits separate and, if you wish to do so, this must be done within 12 months of re-joining the scheme and while you are still paying into the scheme.

If you make an election to keep your benefits separate you cannot change your decision. If you do not make a decision within the 12 month period of re-joining the scheme then your deferred benefit will automatically be combined with your new active pension account.

Please note that your employer can extend the 12 month window within which you can elect to keep your benefits separate. However, this is an employer discretion and you would need to speak to your current employer if you wish to seek such an extension.

 

What do I need to consider before making my decision?

At the moment you have a separate deferred benefit for your previous employment in the LGPS. If you take no action this will be automatically combined with your new active pension account.

You need to think about the following things when considering whether or not you should keep your benefits separate:

  • How will the benefits from my previous employment be worked out?
  • When will my benefits be payable?
  • Are there other key areas to consider?

 

How will the benefits from my previous employment be worked out?

You have built up benefits in the both the final salary scheme (up to 31 March 2014) and the career average scheme (from 1 April 2014). See Working out your benefits in the LGPS in the Re-joiner Glossary page for information on how these benefits are calculated.

If your previous deferred benefit is combined with your new active pension account then:

  • the membership you built up before 1 April 2014 in the final salary scheme will continue to count as final salary membership*. This membership will be linked to your active pension account and when you leave your new employment in the future your final pay in that employment will be used to work out your final salary benefits for your pre 1 April 2014 membership;
  • the amount of pension you have built up in the career average scheme from 1 April 2014 would transfer over to your new active pension account.

If you elect to keep separate deferred benefits then these will increase each year in line with inflation, as currently measured by the rise in the Consumer Prices Index (see the Re-joiner Glossary page page for more information).

* If your membership in the final salary scheme built-up before 1 April 2014 was variable time and your ongoing employment is not variable time then, to ensure you get the appropriate level of membership for that period, your pre 1 April 2014 membership from the employment that has ceased is adjusted, using the following formula:

Period of membership x Your annual rate of pay in the variable time employment / Your annual rate of pay in the ongoing employment = adjusted period of membership.

 

When will my benefits be payable?

For the pension you have built up in the final salary scheme (before 1 April 2014) your Normal Pension Age would be protected at age 65. For the pension you have built up in the career average scheme (on or after 1 April 2014) your Normal Pension Age is now linked to your State Pension Age. For more information on Normal Pension Age see the Re-joiner Glossary page. 

What key differences are there if I elected to keep my deferred benefits separate?

 

Combined Benefits

Separate Benefits

Redundancy/ Business Efficiency 

Benefits paid early because of redundancy or efficiency would include the value of earlier deferred benefits that have been transferred.

If you are made redundant or lose your job for business efficiency reasons when aged 55 or over then your benefits would be payable immediately and would include the value of the pension that transferred from your deferred benefit. 

Benefits paid early because of redundancy or efficiency in your new employment would not include the value of earlier deferred benefits.

If you are made redundant or lose your job for business efficiency reasons when aged 55 or over then your benefits would be payable immediately but would not include the value of your deferred benefit (because you had elected to retain that as a separate deferred benefit).

Subject to the information in the boxes below, the separate deferred benefits would be payable at your Normal Pension Age.

Ill- health

Any benefits paid early because of ill-health would include value of earlier deferred benefits that have transferred.

Your benefits will become payable immediately if your employer decides, based on the opinion of an independent doctor that you are permanently unable to perform the duties of your employment due to ill-health and you are not capable of undertaking other gainful employment. Your pension would be paid at an increased level if you are unlikely to be capable of undertaking other gainful employment within 3 years of leaving.  The payment would include the value of your pension that transferred from your deferred benefit.

Benefits paid early because of ill-health would not include the value of earlier deferred benefits.

Your benefits from your new employment will become payable immediately if your employer decides, based on the opinion of an independent doctor, that you are permanently unable to perform the duties of your employment due to ill-health and you are not capable of undertaking other gainful employment. Your pension would be paid at an increased level if you are unlikely to be capable of undertaking other gainful employment within 3 years of leaving.  The payment would not include the value of your deferred benefit (because you elected to retain that as a separate deferred benefit).

Your separate deferred benefit may become payable but that would only be if your former employer decided in light of the view from an independent doctor that you are permanently incapable of the job you were working in when you left the employment in respect of which the deferred benefit was awarded.

Early payment of benefits

You can voluntarily choose to draw the combined benefits from as early as age 55 (at, normally, a reduced rate to account for the early payment).

However, the combined benefits would be payable at the same time (i.e. cannot be paid at different times) and cannot be paid until you have ceased your new employment.

 

You can voluntarily choose to draw benefits from as early as age 55 (at, normally, a reduced rate to account for the early payment).

However, the deferred benefits do not have to be drawn at the same time as the benefits from your new employment. The deferred benefits can be drawn later than, at the same time as, or earlier than the benefits from your new employment (even if you are still in your new employment at the time you wish to draw the deferred benefits).

Rule of 85 (for more info on this please see the  Re-joiner Glossary page)

 

If your previous benefits are combined with your new employment and you have rule of 85 protections these protections will transfer to your new active pension account. However, the date you meet the rule of 85 may move closer to your Normal Pension Age because the break in service between your previous period of membership and your new period of membership will not count towards the rule of 85.

If you decide not to combine your previous benefits with your new active pension account and you have rule of 85 protections then these continue to apply to your deferred benefits only.

Pay upon which pre 1 April 2014 benefits are calculated

If your previous benefits are combined with your new employment the pre 1 April 2014 element of your benefits will continue to be final salary benefits. They will be calculated using your whole-time equivalent final pay in the new employment when you cease membership of the LGPS in that employment (based on the definition of final pay in the final salary scheme).

You will need to consider this point carefully if your whole-time equivalent pay in the new employment is less than the whole-time equivalent pay on which your deferred benefit was awarded (as increased in line with the cost of living).

If you decide not to combine your previous benefits with your new active pension account, the pre 1 April 2014 element of your deferred benefit will have been calculated on your whole-time equivalent final pay in the employment that gave rise to the deferred benefits (based on the definition of final pay in the final salary scheme). 

Cost of living increases

The combined benefits will be subject to revaluation each year in accordance with HM Treasury Orders. The revaluation is currently in line with the rise in the Consumer Prices Index (see glossary for more information). However, in times of negative inflation, the revaluation under a HM Treasury Order could be negative.

The benefits in the active pension account will be subject to revaluation each year in accordance with HM Treasury Orders. The revaluation is currently in line with the rise in the Consumer Prices Index. However, in times of negative inflation, the revaluation under a HM Treasury Order could be negative.

The benefits in the deferred pension account will be subject to revaluation each year under the Pensions (Increase) Act 1971. Future revaluation is currently in line with the rise in the Consumer Prices Index. In times of negative inflation, the revaluation under the Pensions (Increase) Act 1971 would be 0% (i.e. it cannot be a negative amount).

 

Are there any other key areas to consider?

 

Death in Service lump sum

As a member of the LGPS if you die in service a lump sum of three times your annual pensionable pay would normally be payable. If you have a deferred pension and die before it is paid, a lump sum equal to five times the deferred pension is paid. However, only one amount for lump sum life cover is payable from the LGPS so, even if you keep your deferred benefits separate from your active pension account, only the greater of the lump sum life cover for your deferred benefit or for your active pension account would be payable.

Annual Allowance Potential Tax Implications

You are advised to be aware of any potential tax implications around combining your deferred benefits with your new active pension account. In the unlikely event that a tax charge would apply your Pension Fund would make you aware of the implications. Please read the Re-joiner Glossary page for more information on annual allowance

Paying extra contributions

Have you paid extra contributions towards buying additional pension or membership? These would include Additional Voluntary Contributions (AVCs), Added Years, Additional Regular Contributions (ARCs) or Additional Pension Contributions (APCs). Please read the Re-joiner Glossary page and the entry on paying extra contributions to find out what your choices in respect of these are.

 

What next?

We would have sent you an option form.  Please complete this form to tell us whether or not you wish to combine your benefits**. This will enable us to take the appropriate action in respect of your pension rights as quickly as possible.

If we do not receive your completed form within 12 months of the date you re-joined the scheme, your previous deferred benefit will automatically be transferred to your new active pension account at the end of the 12 month period.

**If you have more than one active pension account (because you have more than one current employment in which you are contributing to the LGPS) you will also, if you decide to combine your benefits, need to decide which active pension account you wish your deferred benefit to be combined with.

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