The Government introduced greater flexibility in the way individuals aged 55+ can access any Defined Contribution (DC) pension savings they may have. These reforms were in effect from 6 April 2015 and are now referred to as Freedom and Choice.
As a member of the LGPS, it’s important to understand that you are a member of a public sector Defined Benefit (DB) scheme and therefore the flexibilities being introduced under ‘Freedom and Choice’ do not impact on how you can take your Defined Benefits from the LGPS.
However, there are some indirect changes which do have an impact on any members who are considering transferring the value of their accrued LGPS Defined Benefit pension rights from the LGPS to a DC arrangement offering flexible benefits.
The information below will address and help you understand these changes:
Are there rules around transfers from the LGPS to a defined contribution scheme?
Yes. If you cease membership of the LGPS and wish to use the right to transfer the value of your LGPS Defined Benefits to a Defined Contribution pension scheme which offers flexible benefits you will be obliged by law to obtain appropriate independent advice, at your own cost, from an authorised independent adviser, who is registered with the Financial Conduct Authority (FCA), or an appointed representative. You must prove that this advice has been taken before any payment of a transfer can be made from the LGPS Pension Fund(s) to a Defined Contribution pension scheme offering flexible benefits.
You are only entitled to request one transfer quotation in any 12 month period and, if you wish to proceed with a transfer, the election to proceed must be made at least 12 months before your Normal Pension Age in the LGPS or, if you are a Pension Credit member, at least 12 months before your Normal Benefit Age.
Are there any exemptions to the rule on advice?
Yes. If the total value of all your LGPS benefits across all LGPS pension funds is £30,000 or less then you are not legally required to take advice. However, given the impact on your LGPS benefits, you are recommended to take such advice regardless of the legal requirement.
In addition, if you leave the LGPS less than 2 years membership (and you do not have an entitlement to a deferred benefit in the LGPS in respect of that membership) you would not legally be required to take advice. However, given the impact on your LGPS benefits, you would again be recommended to take such advice regardless of the legal requirement.
How will you know what the total value of your LGPS benefits is?
You will need to request a transfer value quotation from all LGPS pension funds in which you have benefits in the scheme. The total value of your benefits is the sum of all these transfer values. If the total amount is more than £30,000 then you will be legally required to take advice.
What happens to your LGPS benefits if you do transfer to a defined contribution scheme?
From the point of transfer all rights to any benefits of any description in any circumstance in the LGPS included in the transfer are extinguished.
Who do you need to get authorised independent advice from?
You must by law receive appropriate independent advice from an independent adviser who is authorised by the Financial Conduct Authority (FCA), or an appointed representative. You can check if an adviser is authorised by the FCA using the Financial Services Register on the FCA website. An independent adviser must not only be authorised but also must be qualified to give specific advice on transfers between pension schemes. From 6 July 2016 an appointed representative of an authorised adviser is also permitted to provide this advice, providing the authorised financial adviser has the permission to advise on pension transfers. It is important that you ensure that this is the case before committing to the receive the advice.
You should be aware that appointed representatives will not appear on the FCA register, as they are not authorised themselves but are acting as an agent for a firm that is directly authorised by the FCA. Therefore, you will need to check the permission associated with the authorised independent adviser to whom the appointed representative is an agent.
Please do not ask your LGPS pension fund to advise you as you cannot by law receive advice on this matter from them. They are not authorised by the FCA to provide such advice.
Can your LGPS pension fund give you names of an authorised independent adviser or appointed representative?
No. Refer to the section called getting financial advice for help with obtaining independent financial advice.
How much will this advice cost and who pays for it?
The cost will vary depending on the authorised independent adviser or appointed representative you decide to use. You, as the member choosing to transfer, will be expected to meet the cost of the advice. You should ensure that you get a clear and understandable quote of the cost from the authorised independent adviser or appointed representative before committing to receiving advice from them.
Do you have to follow the advice that you receive from the authorised independent adviser or appointed representative?
No, however, if you choose to ignore the advice and proceed with the transfer to a registered Defined Contribution scheme offering flexible benefits (or to a qualifying recognised overseas pension scheme) you will have no redress from either the authorised independent adviser/appointed representative or from the LGPS pension fund, should that decision prove to be financially disadvantageous to you.
If you follow the advice to transfer what protection do you have?
If the advice you are given from an authorised independent adviser or appointed representative is to proceed with the transfer and it proves to be financially disadvantageous to you, you would need to seek redress from the authorised independent adviser or appointed representative who provided that advice. There will be no redress from, or reinstatement in, the LGPS pension fund from which the benefits have been transferred.
How will your LGPS pension fund know you have taken appropriate independent advice?
If you are required to take appropriate independent advice you will have to prove to your LGPS pension fund(s) that this advice has been taken before your pension fund can release the transfer value payment. As part of the transfer information provided by your LGPS fund there will be an ‘Advice Confirmation Form’ which the adviser/representative must complete. The information on this form will include confirmation:
- that advice given to you was specific to the transfer
- that the adviser is authorised to provide such advice, or in the case of an appointed representative, that the principal financial adviser is authorised to provide such advice
- of the FCA reference number of the company for whom the adviser works or for whom the representative is an agent
- your name, and the name of the scheme from which the transfer is being sought and in respect of which the advice was given.
You must also sign that ‘Advice Confirmation Form’ and return it as part of any other application forms to transfer your LGPS benefits which your LGPS pension fund may send you. On receipt of the above proof of advice your LGPS pension fund must check the authorisation status of the adviser’s/representative’s company. They will do this by checking the company’s entry in the FCA register using the FCA reference number provided by the adviser/representative on the ‘Advice Confirmation Form’.
If you are not required to take appropriate independent advice (because the total value of your benefits in the LGPS is £30,000 or less or the scheme to which you are transferring benefits is not one that offers ‘flexible benefits’) you will be asked to confirm this in writing.
Are there any other new rules which could impact on the transfer value of your accrued LGPS pension benefits?
Potentially, yes. In circumstances where the Government is convinced that the number of transfers to Defined Contribution schemes offering flexible benefits may result in a risk to the LGPS pension fund and, hence, to local taxpayers, the amount of the transfer value can be reduced. Your LGPS pension fund will confirm if this applies when you are considering your transfer.