Planning Your Retirement - THE LOCAL GOVERNMENT PENSION ...

Planning Your RetirementThe Local GovernmentPension Scheme

ContentsIntroduction 3Planning your Retirement 5LGPS Retirement Benefits 7Calculating Retirement Benefits 10Default Retirement Age 12Options on Retirement 13Increasing your Pension Benefits 14Increases to your Pension 17Your State Pension 19Early Retirement 20Flexible Retirement 25Early Retirement throughRedundancy or Efficiency 26Ill Health Retirement 28Late Retirement 31Tax Matters 32How your RetirementBenefits will be paid 38After you Retire 39Protection for your Family 40Help with Pension Problems 42Glossary 44How to find us 48

Introduction

This guideis for membersof the LocalGovernment PensionScheme (LGPS) whoare approachingretirement.We tell you about the processesleading up to retirement and whathappens once you have retired.We explain about your LGPSpension, how it is paid, how itrelates to State Pensions andtaxation and give you generalinformation about the financialprotection the LGPS offersyou and your family.We have avoided using pensionterms where we can, but pleaserefer to the glossary on page 44of the guide for a full explanationof some of the terms used.This guide cannot cover everypersonal circumstance and doesnot cover rights that apply to alimited number of employees e.g.those whose total pension benefitsexceed the Lifetime Allowance(£1.8 million in 2011/12,£1.5 million thereafter), or thosewhose rights are subject to aPension Sharing Order followingdivorce or dissolution of a civilpartnership. In the event ofany dispute over your pensionbenefits the appropriate legislationwill prevail. This guide doesnot confer any contractual orstatutory rights and is providedfor information purposes only.More detailed information aboutthe Scheme is available from:Merseyside Pension FundPO Box 120LiverpoolL69 2NWTelephone 0151 242 1391Fax 0151 236 3520Email: mpfadmin@wirral.gov.ukwww.merseysidepensionfund.org.ukMy Pension ONLINEMy Pension Online allows registeredusers to view details of any relevantmembership(s) of the LocalGovernment Pension Scheme(LGPS) administered by MerseysidePension Fund and calculate yourown pension estimates.If you have not yet registered to usethe service and wish to do so, go towww.tinyurl.com/chmxyee.4

Planning YourRetirement

Opinion variesas to when is thebest time to plan for yourretirement. But whether youare planning your retirementway ahead, taking earlyretirement, or about toretire, the earlier you takeaction the better.Income in RetirementHere are some of the thingsyou need to consider:• Occupational Pensions includingyour Local Government PensionScheme (LGPS) pension• State Pension andother State Benefits• Investments• Other earningsThere are many sources ofinformation to help you make adecision about your retirement.You can contact the Fund aboutyour LGPS pension and yourPersonnel or Administration Officercan provide useful information tohelp you plan your retirement.You can ask your Personnel Officerif there is a pre-retirement courseavailable for you to attend. Thesecourses often cover many topics,not just your LGPS pension.State Pension ForecastA State Pension forecast tellsyou, based on current rates,the amount of State Pension youmay get based on your NationalInsurance contributions so far andthe amount you may get when youclaim it. You can get a forecast ifyou are living in the U.K. and aremore than 30 days away fromyour State Pension Age, contact:Future Pension CentreThe Pension ServiceTyneview Park, Whitley RoadNewcastle upon Tyne, NE98 1BAor Telephone 0845 300 0168Tracing Pension RightsIf you have lost touch with a previousemployer or pension provider andstill have pension entitlements withthem, the Pension Tracing Servicemay be able to help by providing youwith an up-to-date contact address.If you need to use thistracing service write to:The Pension Tracing ServiceThe Pension ServiceTyneview Park, Whitley RoadNewcastle upon Tyne, NE98 1BAor Telephone 0845 6002 537Remember to keep your pensionproviders up to date with anychange in your home address.6

LGPSRetirementBenefitsYour LGPS retirementbenefits are made up of:• An annual pensionpaid monthly, and• An automatic tax-freelump sum paid onretirement. (Onlyautomatic for memberswith membershipbefore 1 April 2008)The two main factors usedto calculate your retirementbenefits are:• Your membership inthe Scheme, and• Your final payNew-look SchemeIntroduced 1 April 2008On 1 April 2008 a new-look LGPSwas introduced and all memberswho were paying into the Schemeon 31 March 2008 automaticallybecame members under the newScheme and had the benefits inrespect of their membership before1 April 2008, banked, based onthe rules under the old Scheme’.For each year of old Scheme’membership your retirementbenefits will be based on 1/80 thof your final pay – so if you had40 years membership up to31 March 2008 you would get40/80 th or one half of your finalyears pay as an annual pension,plus an automatic lump sumof three times your pension atretirement. (See page 13 for waysto increase your tax free lump sum).For each year of new Scheme’membership, your retirementbenefits will be based on 1/60 thof your final pay – so if you have6 years membership from1 April 2008, you will get 6/60 thor one tenth of your final years payas an annual pension. Althoughthere is no automatic lump sum,you can elect to give up part of yourpension to increase your tax-freecash at retirement. (See page 13).7

Total MembershipThe first important element usedin working out your benefits isyour total membership 1 .This normally includes:How long you have been amember of the LGPS worked outin years and days – not includingmembership for which you alreadyreceive a LGPS pension or hold anLGPS deferred pension.Membership purchased by atransfer into the LGPS fromanother scheme or pension plan.Any extra membership youhave bought with additionalcontributions or by convertingAVCs into membership.Any extra membershipyou are awarded, such asill health enhancement.Your Total Membershipcould be different to youractual calendar lengthmembership of the LGPS:If you have worked part-timeyour membership is reducedto its part-time equivalentlength to calculate retirementbenefits, although calendarlength is used to decide if youare eligible for a benefit.If you are a married man withmembership before 1 April 1972this will be converted to 89% ofits length unless you have electedto pay additional contributionsto convert it to its full length.If you are a high earner andyou joined the Scheme after31 May 1989 and before6 April 2006, you could onlypay contributions and haveyour benefits based on your payup to the Earnings Cap – thiswas £105,600 for 2005/6.The Earnings Cap was removedfrom 6 April 2006 and, if it affectedyou, your relevant membershipprior to then will be reduced.1Certain membership is not used to calculate your benefits but only to decide if you areeligible for a benefit – this should be detailed on your Certificate of Membership.8

Final PayThe other important elementused in working out yourbenefits is your final pay.This is usually the pay youpaid pension contributions onduring your final year of Schememembership, one of the previous2 years if higher or, if you suffera reduction or restriction in yourpay after 31 March 2008 andthis reduction/restriction occurswithin your last thirteen yearsof membership, you can electto have your benefits calculatedusing the average of the bestthree consecutive years in thelast ten years using your payas at 31 March of each year.Final pay includes:• normal pay• shift allowance bonus• contractual overtime• Maternity Pay, PaternityPay, Adoption Pay, and• any other taxable benefitspecified in your contractas being pensionableWe don’t include such thingsas car allowances, casualovertime, travelling or subsistenceallowances, pay in lieu of noticeor pay in lieu of loss of holidays.If you work part-time whenyou leave the LGPS, or haveworked part-time in your lastyear of membership, your finalpay is the whole-time paythat you would have received,if you had worked whole-time.If your pay was reduced inthis period because of sickness,your final pay will be the paythat you would have receivedhad you not been off sick.If you received a Certificate ofProtection (issued only up to31 March 2008) from youremployer within 10 years ofretirement because your paywas reduced or increases toyour pay were restricted throughcircumstances beyond your control,then we will work out your finalpay as the best year’s pay in thelast 5 years, or the best 3 yearaverage in the last 13 years.If your pension benefits arecalculated using a previous payperiod to your final year, yourbenefits would be increased byappropriate inflation increases.9

CalculatingRetirementBenefitsAnnual PensionYour annual pension is calculated intwo parts. Firstly your membershipup to 31 March 2008 is divided by80 and multiplied by your final pay.Then, any membership you haveafter 31 March 2008 is dividedby 60 and multiplied by yourfinal pay. When added together,the results of these calculationsgive your total pension.Retirement GrantYour automatic tax-free lump sumRetirement Grant is three times theannual pension you built up in theScheme up to 31 March 2008.Your benefits can be reduced orincreased, depending upon yourreason for retirement or whetheryou retire before or after age 65and you will be able to exchangesome of your pension for a biggertax-free lump sum. (See page 13).Examplesof how yourbenefits areworked out areshown overleaf10

If you work Whole-Time: On retiring at age 65 with 20 years wholetimemembership (18 years up to 31.3.2008, two years from 1.4.2008)in the Scheme and a final years pay of £12,000. The annual pension is:18 years x 1/80 x £12,000 = £2,700 (old Scheme pension’)+ 2 years x 1/60 x £12,000 = £ 400 ( new Scheme pension’)£3,100The automatic tax-free lump sum is three times the old Scheme’ annual pension:£2,700 x 3 = £8,100If you work Part-Time: The same calculation is used, but yourmembership is scaled down to the part-time equivalent length based onyour contractual hours and your final pay is scaled up to the whole-timeequivalent rate. On retiring on 31 March 2010 at age 65 after 20 years(18 years up to 31.3.2008, two years from 1.4.2008) working half time -18½ hours a week in a 37 hour job with a part-time final pay of £6,000.Membership to be used in calculating benefits is reduced like this:20 years x 18½ ÷ 37 = 10 yearsAnd we would use a whole-time equivalent pay, so: The annual pension is:9 years x 1/80 x £12,000 = £1,350 (old Scheme pension’)+ 1 years x 1/60 x £12,000 = £ 200 ( new Scheme pension’)£1,550The automatic tax-free lump sum is three times the old Scheme’ annual pension:£1,350 x 3 = £4,050This member will have paid half the contributions and receive half thebenefits of an equivalent whole-time person.If your hours have changed during your membership of the Scheme,your benefits will be calculated to reflect the changes. If you do not haveany contractual hours, your membership for each year in the LGPS willbe calculated on average weekly hours worked during each year.11

DefaultRetirementAgeBetween April 2011 and October2011, the Government phasedout the default retirement ageso that people now have morechoice when to stop working.Previously, the default retirementage enabled employers to makestaff retire at 65 regardless oftheir ability or desire to continueworking, but now, employees havemore choice on whether toretire on reaching pensionableage, or to continue working.The Local Government PensionScheme (LGPS) already allowseligible employees to remain in theScheme up to age 75. If you carryon working after age 65 you maycontinue to pay into the Scheme,building up further benefits. If youdraw your pension after age 65,it will be paid at an increased rateto reflect the fact that it will be paidfor a shorter time. Your pension hasto be paid by your 75th birthday.12

Options onRetirementTaking a bigger lump sumInstead of taking the standardbenefits package, you can take abigger tax-free lump sum by givingup some of your annual pension.You can take up to 25% of thecapital value of your LGPS benefitsas a lump sum. The CapitalValue is calculated as follows:Total Pension (old plusnew Scheme pensions) x 120/7Plus Automatic lump sum x 10/7Every £1 of annual pensionthat you give up will produce anadditional £12 lump sum. In thesame way, giving up £100 ofyour annual pension would giveyou an extra £1,200 lump sum.An option to take a bigger lumpsum has to be made in writingusing a Retirement Declarationform (LGP1b) before your benefitsare paid. To ensure you have plentyof time to make up your mind andseek financial advice if you wish,it is important you contact youremployer well in advance of yourintended retirement date to requestan estimate of your LGPS benefits.In converting pension for extralump sum, your pension maynot be reduced below the levelof your Guaranteed MinimumPension (GMP – see page 18).Any future dependants pensionsthat may become payablewould not be affected by youtaking extra lump sum.ExampleA member with a standard benefit package of an annual pension of£7,000 and a lump sum of £9,000 goes for the option of a biggerlump sum, and decides to give up £300 of annual pension.The benefits would be: Annual Pension: down by £300 to £6,700Lump Sum: up by £3,600 to £12,60013

IncreasingYour PensionBenefits

If you are buying extraLGPS pension by payingAdditional RegularContributions (ARCs)Your contributions will cease onretirement and you will be creditedwith the extra pension that youhave paid for. This will increase thevalue of your retirement benefits.But if you are paying ARCs whenyou retire and qualify for the typeof ill health pension where yourbenefits are based on enhancedmembership, you will be creditedwith all the extra pension that youset out to buy, even if you have notcompleted full payment for it.If you choose to retire early anddraw your benefits before age 65,or you are retired on redundancyor business efficiency grounds,the extra pension you have boughtwill be reduced for early payment.If you draw your benefits on flexibleretirement, you will be able todraw the extra pension you havepaid for, although it will be reducedfor early payment.You can choose to exchange someof the extra pension you have boughtfor a cash lump sum in the same wayas your main LGPS pension.If you are paying in-houseAVCs through the LGPSYour contributions will cease onretirement and you have a choiceof how you use your AVC fund:Buy an AnnuityThis is where an insurancecompany, bank or building societyof your choice converts the valueof your AVC Fund and pays youan annuity (pension) in return.You can do this at the sametime as you draw your LGPSbenefits or you can choose todelay payment until any time upto the eve of your 75 th birthday.An annuity is paid completelyseparately to your LGPS benefits.The amount of annuity dependson several factors, such as interestrates and your age. You also havesome choice over the type ofannuity, for example whether youwant annual increases and whetheryou want dependants’ benefits.Buy a Top-up LGPS PensionIf you retire with immediatepayment of your benefits you maybe able to use your AVC fund tobuy a top-up pension from theLGPS. This automatically providesinflation proofed pension anddependants’ benefits in the sameway as your main Scheme benefits.15

Buy extra membershipin the LGPSIf you started paying AVCs before13 November 2001 and you areaged 50 or more and ceasedpayment of your AVCs beforeyou retire, or at any age if you areretiring on ill health grounds, youhave the choice to convert your AVCfund into extra LGPS membership.This will provide extra pensionfor you and your dependants,paid and increased in the sameway as your LGPS pension.Take your AVCs as cashIf you draw your AVC at the sametime as your LGPS pension, youmay be able to take some or all ofyour AVC as tax-free lump sum.Working out how much scope youhave is fairly complex especially ifyou also wish to convert some ofyour ordinary LGPS pension intolump sum. We will explain yourown position close to the time youretire. If you decide to draw yourAVC later, you can have up to 25%of your AVC fund as a lump sum.Any extra life cover paid for throughAVCs will cease, as you can nolonger pay AVCs after leaving.AVC benefits can be drawn early onflexible retirement (See page 25).If you are buying extrayears in the LGPSIf you are paying additionalcontributions to buy extra yearsin the LGPS, your contributionswill cease when you retire.You will be credited with theextra period of membership thatyou have paid for at the time ofleaving. This will increase thevalue of your retirement benefits.If you retire early because ofredundancy or efficiency, wewill give you the opportunity topay the remaining contributionsdue in a lump sum in orderto complete your contract.If you retire on ill health grounds,you will be credited with the wholeextra period of membership thatyou set out to buy, even if you havenot completed full payment for it.If you draw benefits on flexibleretirement you can continue topay for any extra years you arebuying. The benefits from theextra membership will not bepaid until you finally retire.For further information relatingto Increasing Your PensionBenefits please call the Fundon 0151 242 1396.16

Increasesto YourPensionYour LGPS pensionincreases with thecost of livingRetirement pensions are increasedevery April in line with the cost ofliving (Consumer Prices Index) forthe 12 months to the end of theprevious September - protecting theirpurchasing power.If you are retired on ill healthgrounds, your pension is increasedeach year regardless of your age.If you haven’t been on pension afull year, then you won’t get a fullyear’s increase unless we haveused a previous years final payto calculate your benefits. Forexample, if you retire in September,you get half a year’s increase.17

Guaranteed MinimumPension (GMP)The LGPS was contracted outof the State Earnings RelatedPension Scheme (SERPS), so ifyou were a member of the LGPSbetween 6 April 1978 and5 April 1997 the LGPS mustpay you a guaranteed minimumamount of pension (GMP)based on the state entitlementyou would have earned if youhad not been a member ofthe LGPS during this time.At state pension age your pensionwill be compared with this GMPand increased to the rate ofyour GMP should this be higher.In most cases, your LGPS pensionis higher than your GMP.How increases are appliedto your LGPS pensionfrom State Pension AgeUp to state pension age your LGPSpension is fully increased and paidby the Fund. Once you reach statepension age the Department forWork & Pensions (DWP) paysthe increases on the GMP partof your LGPS pension with yourState Pension – although the Fundhas to pay the first 3% increaseon the GMP generated by anymembership after April 1988.Although theincreases are paidfrom two sources, itamounts to the same asif you had received costof living increases on thefull amount with yourLGPS pension.18

Your StatePensionIn addition to your LGPSbenefits, you may also qualifyfor a state retirement pensionpaid by the Government fromState Pension Age (SPA).The State Retirement Pension isbased on the National Insurancecontributions you pay, or are givenas credits, during your working life.The Additional State Pension,also known as the State EarningsRelated Pension Scheme(SERPS) or State Second Pension(S2P), is the part of your statepension that depends on yourearnings since April 1978.LGPS members are contractedout of the Additional State Pensionand most pay lower nationalinsurance contributions as a result.More information on your StatePension is available from thePension Service – see page 6.The table below shows theamendment to SPA made bythe Pensions Act 2011.Please note:On 29 November 2011, as part of anAutumn Statement’ the Chancellor ofthe Exchequer announced plans for aphased increase to age 67 for thosepeople born between 6 April 1960and 5 April 1969.Currently, SPA is due to increase to68 from 2044, affecting anyoneborn after 5 April 1977, however,in light of the Chancellor’sStatement’, this is likely to be revised.For more detailed information visit:www.tinyurl.com/2ezbm7bState Pension Age equalisation timetableGender/Date of birthState Pension AgeMen born before 6 December 1953 65Women born before 6 April 1950 60Women born 6 April 1950 to 5 December 1953 Between 60 and 65Anyone born 6 December 1953 to 5 October 1954 Between 65 and 66Anyone born 6 October 1954 to 5 April 1968 66Anyone born after 5 April 1968 Between 67 and 6819

EarlyRetirement

Can I retire early?If you have at least three monthstotal membership or havebrought a transfer value into theLGPS you can elect, in writingto your employer, to retire andreceive your LGPS benefits atany time from age 60 onwards.Between and including the agesof 55 and 59 you may also electto retire and receive your LGPSbenefits, but only if your employergives their consent. This is anemployer discretion and under theLGPS your employer’s policy withregard to this must be includedon their Policy Statement.Will my pension andlump sum be reducedif I retire early?If you choose to retire before age65 your benefits may be reducedto take account of being paid forlonger. Your pension and lumpsum are initially calculated asdetailed in the section on LGPSRetirement Benefits (see pages7 - 9) and are then reduced toreflect that they are being paidfor longer (see table page 24).Your employer can agree towaive these reductions oncompassionate grounds.How muchyour benefits arereduced depends onhow early you drawyour benefits, how muchmembership you haveand when you joinedthe Scheme.21

If you joined the LGPS after30 September 2006Your benefits will be reduced ifpaid before age 65. The reductionis based on the length of time(in years and days) that you retireearly - from the date your benefitsare paid to age 65. The earlier youretire, the greater the reduction.ExampleA man who joined the LGPSin October 2006 asks toretire at 60. He is choosingto receive his benefits fiveyears before 65, so hispension and lump sumwill be reduced as follows:Pension reduction: 24%Lump sum reduction: 12%If you were alreadyPaying into the LGPSon 30 September 2006Some or all of your benefitspaid early could be protectedfrom reduction.All members who joined theScheme before 1 October 2006retain the 85 year rulein respect of membership upto 31 March 2008.The 85 year rule is satisfied ifyour age at the date you drawyour benefits and your Schememembership add up to 85 ormore (each in whole years).If you are part-time, yourmembership counts towards the85 year rule at its full calendarlength. Working out how youare affected by the 85 year rulecan be quite complex, but thefollowing examples should helpyou work out your position.If you choose to retire beforeage 65 and do not satisfythe 85 year rule when youdraw your benefits, yourbenefits are reducedThe reduction is determined bythe date you reach age 60 and isbased on either; how far short youare of satisfying the 85 year rule,the years remaining to age 65,or a combination of both.ExampleA woman retires at 60on 31 March 2007 with12 years LGPS membership.As she does not satisfy the85 year rule on retirement(60 + 12 = 72) her benefitsare reduced. As she wouldnot have satisfied the 85 yearrule by age 65, the reductionis based on her receivingher benefits 5 years early,so her pension and lump sumwill be reduced as follows:Pension reduction: 23%Lump sum reduction: 12%22

If you choose to retire before age65, and you satisfy the 85 year rulewhen you draw your benefits, then:Members who joined prior toOctober 2006 who attain age 60by 31 March 2016, have thebenefits they have accrued up to31 March 2016 fully protectedunder the 85 year rule.Members who joined prior toOctober 2006 who reach age60 between 1 April 2016 and31 March 2020, receive partial85 year rule protection ontheir benefits accrued up to31 March 2020; the nearer to1 April 2016 that they attain age 60,the greater the level of protection.Members who joined prior toOctober 2006 who reach age60 on or after 1 April 2020,only have 85 year rule protectionin respect of their membershipbefore 1 April 2008.The earliest retirement date for allmembers in respect of membershipfrom 1 April 2020 will be age 65.ExampleA woman retires at age 61 on31 December 2007 with 24 yearscontinuous membership in the LGPS.She was born before 1 April 1956and all her membership is before31 March 2016. She satisfiesthe 85 year rule on retirement(61 + 24 = 85), so her benefits arenot reduced for early payment.Let’s assume she retired a year earlier,aged 60 with 23 years membership.In that case, she would not havesatisfied the 85 year rule onretirement (60 + 23 = 83), so herbenefits are reduced. She wouldhave satisfied the 85 year ruleby age 61, so the reduction isbased on her choosing to receiveher benefits 1 year early and herpension and lump sum would bereduced as follows:Pension reduction: 5%Lump sum reduction: 2%23

FlexibleRetirementCan I have a gradualmove into retirement?Rather than continuing in your jobto 65, you can, on or after age55 with your employer’s consent,reduce your hours or move to aless senior position and draw someor all of the pension benefits youhave built up to then – helpingyou ease into retirement. This isknown as Flexible Retirement.Drawing your benefits inthis way is only possible ifyour employer agrees.You can still receive your wages /salary from your job on the reducedhours or grade and continuepaying into the LGPS, building upfurther benefits in the Scheme.Will my pension and lumpsum be reduced if I takeflexible retirement?If you joined the LGPS after30 September 2006 and takeflexible retirement before age 65,your pension and lump sum,initially calculated as on pages 7 - 9,will be reduced for early payment.If you were contributing to theScheme on 30 September 2006,some or all of your benefitspaid early could be protectedfrom the reduction (see pages21 - 24). Your employer may,however, determine not to applyall or part of any reduction.Your employer will have a policy onflexible retirement - you can ask youremployer for details of their policy.25

EarlyRetirementthroughRedundancyor Efficiency

If you areaged 55 or over,your benefits arepayable immediatelywithout any earlyretirementreductions.In the event of your employerhaving to introduce a redundancyprogramme or a policy to improvethe efficiency of the service,members with at least 3 monthsmembership, including anytransferred in from a previouspension scheme, who are atleast 55 years of age and leaveeither compulsorily or voluntarily,are eligible for immediate paymentof benefits. In these circumstancesbenefits are not subject toreduction as for Early Retirement.The 3 months minimummembership does not apply ifyou have transferred a previouspension into the LGPS.27

Ill HealthRetirementWhat happens if Ihave to retire earlydue to ill health?If you have to give up workbecause of illness, you maybe able to receive immediatepayment of your benefits.To qualify for ill health benefits,an independent doctor, who isqualified in occupational healthand appointed by your employer,must be satisfied that you will bepermanently unable to do yourjob until you reach age 65.Ill health benefits can be paidat any age and are not reducedon account of early payment –in fact, you can be awarded extramembership to increase thevalue of your benefits and makeup for your early retirement.How is an ill health pensionand lump sum calculated?If you have at least 3 monthstotal membership an immediatepension and tax-free lump sumis payable based on actualmembership, plus additionalmembership depending on thelevel of incapacity – see below.Tiered ill healthFrom 1 April 2008 the LGPSintroduced a new system forthe early payment of pensionsdue to permanent ill health.When establishing a member’sincapacity to carry out their job,the independent occupationalmedical practitioner appointed byemployers will also need to indicatea member’s likelihood of beingcapable of further employment.This will determine under whichtier the pension will be paid.28

Tier 1: Immediate benefits can be paid to members who, in addition to beingpermanently unable to carry out their job, are medically certified as incapableof gainful employment*’ before age 65. The benefits under Tier 1 are basedon the membership the Scheme member has built up to that point, plus aperiod of enhancement equal to the member’s potential membership up toage 65. (For members aged 45 or over at 1 April 2008, the enhancementunder the old’ rules, where greater, would be applied instead).Tier 2: Immediate benefits can be paid to memberswho, in addition to being permanently unable tocarry out their job, are certified as incapableof any alternative gainful employment*’within three years of retirement, but capablebefore age 65. The Fund will pay anill health pension with benefits based onthe membership the Scheme memberhas built up to that point, plus a period ofenhancement equal to 25% of their potentialmembership to age 65 (For members aged 45or over at 1 April 2008, the enhancement underthe old’ rules, where greater, would be applied instead).Tier 3: Immediate benefits can be paid to a member who is permanentlyunable to carry out their job, but is certified as capable of obtaining gainfulemployment* within three years of leaving his/her employment.The Fund will pay an ill health pension with benefits based only on themembership the Scheme member has built up to that point, withoutenhancement. Members retired under these circumstances will be requiredto notify their previous employer when gainful employment is foundproviding details, including pay, working hours and length of contract of thatemployment. Former employers will be required to undertake a review whenpayments have been made for 18 months to determine whether paymentsshould cease, continue, or be paid under Tier 2.Pension payments cease after 3 years and the member becomes entitledto a deferred benefit, payable from age 60 at a reduced rate, if applicable,or in from age 65 without reduction.*gainful employment is defined as paid employment for no lessthan 30 hours per week for a period of no less than 12 months’.29In thecase of part-timemembers, any period ofenhancement at Tier 1 or Tier2 is calculated in accordancewith the same conditionshad the member remainedpart-time until normalretirement age.

Examples of calculating increased membership on Ill Health RetirementExampleTier 1: A Scheme member aged 53 with 5 years calendarlength membership retires due to permanent ill health andis found to be incapable of any work before age 65.Membership used to work out the member’s retirement benefits:Actual membership: 5 yearsExtra membership:12 years (100% of membership to age 65)Total Membership used in working out benefits:17 yearsExampleTier 2: If the same Scheme member aged 53 with 5 years calendarlength membership retires due to permanent ill health but is found tobe capable of some gainful employment after 3 years, the Membershipused to work out the member’s retirement benefits would be as follows:Actual membership: 5 yearsExtra membership: 3 years (25% of membership to age 65 - 12 years)Total Membership used in working out benefits: 8 years*Please note that members aged over 45 at 1 April 2008 retired on health groundswill be granted the extra years they would have received under the regulations priorto April 2008. So for this example, an additional 6 2 / 3 years, making 11 2 / 3in total.If you work part-time, any extra membership awarded is reducedto reflect the hours worked.ExampleTier 1 - Part-time: Once again, the Scheme member aged 53 but thistime with 5 years part-time membership (job share – 50%) retires due topermanent ill health and is found to be incapable of any work before age65. Membership used to work out the member’s retirement benefits:Actual membership:5 years (Calendar Length) 2½ years (Reduced to work out benefits)Extra membership:12 years (Calendar Length) 6 years (Reduced to work out benefits)Total Membership used in working out benefits: 8½ yearsMembers retired under tiers 1 and 2 who were paying extra contributions tobuy added years will be credited with the whole extra period of membershipthat they set out to buy, even if they have not completed the full contract.30

LateRetirementYourpensionhas to be paidbefore your 75 thbirthday.What if I carry onworking after age 65?If you carry on working after age 65you may continue to pay into theScheme, accruing further benefits.You can receive your pension when:• you retire, or• you reach the eveof your 75 th birthday, or• you have your employer’sconsent for flexible retirement- see page 25whichever occurs first.If you draw your pension afterage 65 the pension you accruedprior to age 65 will be increasedto reflect the fact that it willbe paid for a shorter time.31

TaxMatters

HM Revenue and Customscontrols and yourRetirement BenefitsFrom 6 April 2006 HM Revenueand Customs introduced controlson the pension savings youcan have before you becomesubject to a tax charge.The Lifetime Allowance is the totalcapital value (see page 13) of allyour pension arrangements, but notyour state pension, which you canbuild up without paying extra tax.If the value of your benefits whenyou draw them (not includingany State Retirement Pension,State Pension Credit or anyspouse’s, civil partner’s, cohabitingpartner’s or dependant’s pensionyou may be entitled to) exceed yourLifetime Allowance, a tax chargewill be made against the excess.The Lifetime Allowance forcurrent and future years2011/2012 £1.80 million2012/2013 £1.50 million2013/2014 £1.50 millionThere are protections for benefitsearned up to 5 April 2006 in respectof those high earners affected bythe introduction of the LifetimeAllowance from 6 April 2006.You can find out more aboutthese in our factsheet, Tax andyour Benefits’. You can requesta copy on 0151 242 1360 ordownload a copy from our websiteat www.tinyurl.com/cph4v25.The Fund will let you know thevalue of your LGPS benefits onretirement and ask you aboutany other pensions you mayhave in payment, so we canwork out whether we need todeduct a recovery tax charge.If you do not provide this33

information promptly it could delaythe payment of your pension.Also, under HM Revenue andCustoms rules, if the LGPS makesan unauthorised payment or ifyou recycle your lump sum backinto a pension arrangement,there will be a tax charge.The Annual Allowance is a limitthat applies to the increase inpension benefits from one year tothe next. However, in April 2011,the previous limit of £255,000was reduced to £50,000.This could therefore affectnot just the highest earners,but members who either;• have long membership andsubsequently gain a significantpromotion, and/orHow is the increase inthe value of benefitscalculated?The increase in the value ofbenefits is calculated by deductingthe value of all occupational andpersonal pensions in a previousyear, adjusted for inflation,from the value of all occupationaland personal pensions in thefollowing year, then multiplyingthe difference by 16. Add this tothe increase in the value of anylump sums, including inflation,plus any increase in any AVC funds,then gives the total increase.Unused annual allowance canbe carried forward from theprevious three tax years.• transfer in a sizeable amountof previous pension rights.34

ExampleTom is on a salary of £50,000 and has 30 years LGPS membership.He has not paid AVCs or into any other pension scheme.His benefits in 2010 were:Pension: £19,375 & Lump sum: £50,625Including 3.0% inflation adjustmentPension: £19,956 & Lump sum: £52,144In 2011, he is promoted with a salary of £60,000, which in turn,increases the value of his benefits to:Pension: £24,250 & Lump sum: £60,750This represents an increase of £4,294 pension and £8,606 Lump Sum.Multiplying the increase in his pension (£4,294) by 16, gives £68,704which, when added to the increase in his Lump Sum of £8,606,gives a total increase in the value of his benefits of £77,310.This exceeds the annual allowance of £50,000, by £27,310 so Tomwho pays tax at 40%, would have a tax charge to pay of £10,924(£27,310 x 40%).However, as this is Tom’s first significant promotion for several years,he therefore has unused annual allowances from the preceding threeyears that he can carry forward. As these exceed £27,310 he istherefore spared the tax charge.For further example please see pages 35 and 36 of the Treasurydocument, which can be downloaded from www.tinyurl.com/39bb99lIf you think you may exceed the Annual Allowance, you may wishto seek independent specialist advice.35

Income Tax andyour PensionYour LGPS pension is taxable,but your lump sum is tax-free.Whether you pay tax when youretire depends on the amount ofyour pension and your personalcircumstances including:• whether you are going to workagain or have other income• whether you have any incomefrom savings and investments• how old you areWhen you RetireTax form P45 is a statementshowing your current tax code,pay and tax details to date thatan employer normally gives anemployee on leaving work.When you retire on an immediateoccupational pension you onlyget a copy of your P45. Youremployer has to forward tax formP45 directly to the Fund wherethe Payroll Section applies yourappropriate tax code against yourpension under a special temporaryarrangement which does not permitany tax refunds. This is becausethe tax office needs to re-assessyour tax code to take account ofany income and any changes inyour personal circumstances.On behalf of the tax office, theFund will send you a tax formP161 that you should completepromptly and forward directly tothe tax office. Once your tax codeis re-assessed, the tax office notifiesyou and the Fund of your new taxcode and any tax refund due ispaid with your LGPS pension.What counts as IncomeIncome is subject totax and can include:• your LGPS pension and anyother occupational pension• state pensions• your earnings if you work again• interest from investments• Jobseekers allowance• Incapacity BenefitThe tax office needs to know yourincome from all sources and yourpersonal circumstances in order toassess your tax allowance. Your taxallowance is offset against your totalincome and tax is due on the rest.As tax is not deducted from anystate pension or benefit, any tax dueis likely to be collected through yourLGPS pension. So it is importantyou fill in Form P161 and send it tothe tax office as soon as possible.36

Your Tax OfficeRegardless of where you workedand which tax office you hadwhilst working, the tax officethat deals with the Fund is:HM Inspector of TaxesLiverpool - Riverside(Reference 428/M1)Regian HouseJames StreetLiverpoolL75 1AATel: 0845 302 1459Tax QueriesIf you have any question aboutyour tax you should contact thetax office, quoting the abovereference number, 428/M1 andyour National Insurance number asthis helps them find your record.Other Tax MattersIf you decide to get anotherjob don’t worry about nothaving a P45 to give your newemployer. Your new employerwill give you a form to fill in.Your new employer’s tax office willdeal directly with the tax officethat deals with your LGPS pensionand between them they willdecide how to deal with your tax.Every year in May we send youa P60. This is a statement ofyour LGPS pension and tax paidduring the previous year fromApril to March. You need to keepthis safe as other organisationsoften ask to see it as a proof ofearnings if you make a claim forsuch things as Council Tax Benefit,Income Support or tax rebate.If your tax code is changed,the tax office will let you know.They will also tell us sowe can apply it.37

How yourRetirementBenefits willbe PaidPayment of Lump SumYour lump sum is paid directlyin to your chosen bank orbuilding society account.You can choose to have yourlump sum and pension paid intodifferent accounts if you wish.You are strongly advised to seeksome independent financialadvice on how best to useor invest your lump sum.In most cases, a full explanationof your benefit calculations is sentto your home address within sevenworking days of the Fund receivingall relevant documents from bothyourself and your employer.First Payment of PensionYour first payment of pension ispaid directly into your chosenbank or building society accountat the same time as your lumpsum. This special first paymentcovers the period from thedate of your retirement to theend of the month and usuallyall of the following month.Interest on LatePayment of Lump SumIf payment of a lump sum isdelayed for any reason for morethan 1 month from the date ofretirement, the current bank rate ofinterest plus 1% is paid for everyday of delay as compensation.Payment of PensionAll pensions are paid monthlyno later than the 10 th of eachmonth for the whole of thatmonth. You can choose to haveyour pension paid either:• directly into a bank• directly into a building societyIt is very important that boththe sort code and accountnumber details are accuratelycompleted on form LGP1b.38

Trivial PensionsAt State Retirement Age or later,should the value of your annualpension plus any other pensionsbe no more than 1% of LifetimeAllowance, it may be possible toconvert your LGPS pension to aone-off payment. The conversionrate depends on your age, sex andmarital status at state retirementage. Under no circumstances canpensions in excess of this amountbe commuted. Any decision tocommute is final and means thatthere is no further liability on theFund to pay any dependants’benefits in the event of your death.PayslipsThe Fund does not normally senda payslip to you every month as,for the majority of pensioners, theamount paid each month does notalter significantly. You will receivea pay advice when you first retire,thereafter you will receive one inApril giving details of any pensionincrease, May including form P60,and in December. You will alsoreceive a pay advice in any monthwhen your net pay varies by morethan £1 from the previous month.My Pension OnlineMy Pension Online allows registeredusers to view details of any relevantmembership(s) of the LocalGovernment Pension Scheme(LGPS) administered by MerseysidePension Fund and calculate yourown pension estimates. By usingthis free service, registered users canalso view recent pension payslips.If you wish to register for this service,please contact the Fund.Payment OverseasIf you decide to emigrate, yourpension can still be paid monthlyinto a bank account anywherein the world. All overseastransactions are dealt with byCitibank who make a small chargefor currency conversion andtransmission of the payment.Any QueriesAny queries you have regardingpayments should be directed tothe Payroll Section at the Fund.After youRetireWhat if I get anotherjob after I retire?If you get another job there will beno change to your pension. It willcontinue to be paid, as usual, unlessyou were granted Compensatoryadded Years of Membershipthrough a redundancy/efficiencyof the service retirement, in whichcase your benefits may be affected.39

Protectionfor yourFamilyWhat benefits willbe paid if I die afterretiring on pension?If you die after retiring onpension, your benefits will nolonger be payable. Your widow,widower, civil partner, cohabitingpartner, next-of-kin or persondealing with your Estate mustimmediately inform the Fund ofyour date of death as otherwisean overpayment could occur.The followingbenefits may thenbe payable:A lump sum death grantA lump sum death grant will bepayable if the death occurs inthe first ten years on pensionand is the amount by which theannual pension multiplied by tenexceeds the pension paid to thedate of death. You should ensurethat you have completed an upto date death grant expressionof wish form so that the Fundmay consider your wishes whenmaking payment of the deathgrant. Forms are available from yourPension Liaison Officer or the Fund.A Survivor’s pensionFollowing your death a survivor’spension will be payable to yourwidow, widower or surviving civil,or nominated cohabiting partner.The survivor’s pension ispayable for the lifetime of yourwidow, widower, civil partner ornominated cohabiting partner.A widow’s pension is basedon 1/160 th of your final yearspensionable pay for each yearof membership. However, if youmarried after your retirement,the widow’s pension will be basedonly on membership you had inthe Scheme since 5 April 1978.40

For widowers the survivor’s pensionwill be based upon membershipyou had after 31 March 1972.For civil and nominated cohabitingpartners, the survivor’s pensionwill be based upon membershipyou had after 5 April 1988.Pensions foreligible childrenFollowing your death, pensionsare payable for eligible childrenwho are under age 18, or, if infull-time education, under age23 or for life where a child hasa disability as described underthe Equality Act 2010. If thechild has such a disability,the pension may be payable forthe life of the child. The pensionis based on 1/320 th of your payfor each year of membership.Points to noteThe Fund has the discretion topay the lump sum death grantto your nominee or personalrepresentatives or to any personwho appears, at any time, to havebeen your relative or dependant.If any part of the death granthas not been paid by the secondanniversary of your death, itmust be paid to your personalrepresentatives, i.e. to your Estate.If you have not already made yourwishes known, or you wish tochange a previous nomination,a death grant, expression of wishform is available from the Fund.Widow’s, widower’s, civil partner’s,nominated cohabiting partner’sand children’s pensions areincreased each year in line withthe Consumer Prices Indexregardless of age.In order to nominate a cohabitingpartner to receive a survivor’spension on your death, a completedform LGP25a, available from yourPension Liaison Officer or the Fund,must be completed and returned tothe Fund, prior to your death.41

Help withPensionProblemsIf you are in any doubt aboutyour benefit entitlements orhave a concern about yourLGPS membership or benefits,please contact the Fund.We will seek to clarify or putright any misunderstandingsor inaccuracies as quickly andefficiently as possible. If youare still dissatisfied you canstart the complaints process.You have the right to haveyour complaint independentlyreviewed if you are dissatisfiedwith any decisions made inrelation to the Scheme.The review process begins withthe Internal Disputes ResolutionProcedure and, if no satisfactoryanswer is found, continuesto The Pensions AdvisoryService (TPAS) and finally, thePensions Ombudsman, whosedecision is final and binding.42

What you should doStage 1Write, within 6 months of theoriginal decision, to whoevermade the decision. If this is youremployer, your Pension LiaisonOfficer, usually located in theFinance Department, will adviseyou who to write to. If the complaintis against the Fund, write to:The Nominated Person,Merseyside Pension Fund,PO Box 120, Liverpool,L69 2NWYou should receive a decisionwithin 2 months.Stage 2If you disagree with the Stage 1decision, you have a further6 months to appeal to theStage 2 referee.All correspondenceshould be addressed to:The Pensions Referee,Merseyside Pension Fund,PO Box 120, Liverpool,L69 2NWYou should receive a decisionwithin 2 months of your appeal.The PensionsAdvisory ServiceTPAS is available at any time toassist Scheme members andbeneficiaries in connectionwith queries or difficultiesthey cannot resolve withtheir scheme administrators.TPAS can be contacted at:11 Belgrave Road,London, SW1V 1RBTel: 0845 601 2923www.pensionsadvisoryservice.org.ukThe PensionsOmbudsmanWhen a complaint or disputecannot be resolved even afterTPAS intervention, an applicationfor adjudication can be made,within three years of the event,to the Pensions Ombudsman.The Ombudsman can investigateand determine any complaint ordispute involving maladministrationor matters of fact or law.The Ombudsman’s decisionis final and binding and theOmbudsman cannot investigatematters where legal proceedingshave already started. The PensionsOmbudsman can be contacted at:1st Floor 11 Belgrave Road,London, SW1V 1RBwww.pensions-ombudsman.org.uk43

GlossaryAdditional VoluntaryContributions (AVCs)These are extra payments toincrease your future benefits.All local government pensionfunds have an in-house AVCscheme where you can investmoney through an AVC provider,often an insurance companyor building society. AVCs arededucted directly from your pay.Contracted-outThe LGPS is contracted-out of theState Second Pension Scheme(S2P). This means that, up to Statepension age, you pay reducedNational Insurance contributionsbetween the Lower and UpperEarnings Limits, unless you haveopted to pay the married woman’s/widow’s reduced rate of NationalInsurance, and that you do notearn a pension under S2P. Instead,the LGPS must guarantee to payyou a pension that in general is ashigh as you would have earnedhad you been in the State EarningsRelated Pension Scheme / S2P.For contracted-out membershipon and between 6 April 1978and 5 April 1997, this is dealtwith as detailed in the sectionentitled Guaranteed MinimumPension on page 18.For membership after 5 April1997, the LGPS has guaranteedthat the benefits it provides will,in general, be no less favourablethan those provided under aReference Scheme prescribedunder the Pensions Act 1995.DiscretionThis is the power given by theLGPS to enable your employer orthe Fund to choose how they willapply the Scheme in respect ofcertain of its provisions. Under theLGPS your employer or the Fundare obliged to consider certain ofthese discretionary provisions andto pass resolutions to form a policyof how they will apply the provision.In respect of the remainingdiscretionary provisions they areadvised to do so. They have aresponsibility to act with prudenceand propriety’ in formulating theirpolicies and must keep themunder review. You may ask youremployer or the Fund what theirpolicy is in relation to discretion.44

Final payThis is the figure used to calculatemost of your pension benefits andis normally your pay in the lastyear before you retire, or one ofthe previous two years’ pay if thatamount is higher, or, if you havesuffered a reduction or restrictionin your pay (occurring after31 March 2008) in the last 10years before retirement, the averageof the best three consecutiveyears pay, ending on a 31 March,in the ten years before retirement.For a part-time employee, thefigure used is normally the payyou would have received if youhad worked whole-time.If your pay is reduced becauseof sickness, the final pay is takento be the pay you would havereceived if you had not been sick.During any period of maternity,paternity or adoption leave inrespect of which you pay (or aredeemed to have paid) pensioncontributions, final pay includesthe pay you would have receivedhad you not been on maternity,paternity or adoption leave.If a Certificate of Protection hasbeen issued please refer to page9. Should you reach age 65and continue in employmentplease refer to page 31.Guaranteed MinimumPension (GMP)This is the minimum pension thatthe LGPS must pay you in relation tothe period that you were a memberof the LGPS on and between6 April 1978 and 5 April 1997. It iscalculated by reference to the StateEarnings Related Pension Schemeentitlement that you would haveearned if you not been a memberof the LGPS during this period.Lifetime AllowanceThis is the total capital value ofall pension benefits you canhave without triggering an excessbenefits tax charge. If the valueof your pension benefits whenyou draw them (not includingany State Retirement Pension,State Pension Credit or anyspouse’s, civil partner’s, cohabitingpartner’s or dependant’s pensionyou may be entitled to) is morethan the lifetime allowance, or morethan any primary lifetime allowanceprotection or enhanced protectionyou may have, you will have topay tax on the excess benefits.The lifetime allowance is set by theTreasury. The lifetime allowancecovers any pension benefits youmay have in all tax-registeredpension arrangements - not justthe LGPS. Most Scheme members’pension savings will be significantlyless than the lifetime allowance.45

Consumer Prices IndexThis shows the changes in the costof living. It reflects the movementof prices covering a range of goodsand services over time. The amountby which pensions are increasedannually is based on movement inthe Consumer Prices Index duringthe 12 months to September.State Earnings RelatedPension Scheme (SERPS)The State Earnings Related PensionScheme (SERPS) is an earningsrelatedelement of the StateScheme. Benefits are paid by theDepartment for Work and Pensions(formerly the Department for SocialSecurity) and are based upon anyNational Insurance contributionsyou paid between the Lower andUpper Earnings Limits between6 April 1978 and 5 April 2002(with a maximum of 20years counting).State SecondPension (S2P)The State Second Pension(formerly SERPS) is the additionalstate pension, payable from statepension age by the Department forWork and Pensions. It is currentlyan earnings-related pension butthe Government is expected tochange it to a flat rate pensionfrom a future date, for peopleunder age 45 at the time. LGPSmembers are contracted out ofS2P and most pay lower nationalinsurance contributions as a result.Total MembershipYour period of membership isthe number of years and daysthat you have been a member ofthe LGPS plus any membershiptransferred in from anotherscheme. It also includes any extraperiod of membership boughtwith additional contributions,awarded by your employer orby the LGPS. Any period of parttimemembership is convertedto whole-time membership tocalculate retirement benefits.If you joined the Scheme after31 May 1989 and before6 April 2006 you could onlypay contributions and have yourbenefits based on your pay upto the Earnings Cap, whichwas £105,600 for 2005/6.The Earnings Cap was removedfrom 6 April 2006 and, if it affectedyou, your relevant membershipprior to then will be reduced -treating you as though you hadnever been subject to capped pay.46

How tofind usFor SatNav users ourpost code is L2 9TBDirections from NorthWales/Chester/WirralFollow M53 Motorway northboundas far as Junction 3 (it is of coursepossible to continue and usethe Wallasey Mersey Tunnel butreaching us from the exit of thattunnel is more complicated).Follow signs for Birkenhead TownCentre / Liverpool on A552 forapprox 3 miles until the approachto Birkenhead Toll Tunnel. The Tollis currently £1.50.On entering the tunnel keepto left hand lane - it is compulsoryto keep to the same lane withinthe tunnel - this will maketurning left immediately afterthe tunnel exit easier. Notedo not take the Dock Exit’At the exit of the tunnel there isa small roundabout - the first exitof the roundabout is signpostedfor Dale Street. Turn left into DaleStreet and continue until the set oftraffic lights at the point where theflyover merges with Dale Street.About 400 yards ahead on DaleStreet is Liverpool Town Hall (thepillared building which protrudesslightly into Dale Street). CastleStreet is the road on your left.Turn into Castle Street. Level accessis available from the 43 Castle Streetentrance (refer to map for parking).Directions from the M62Follow M62 westbound to theend at Junction 4. At end of M62follow signs for Liverpool CityCentre/Albert Dock.Follow Edge Lane dual carriagewayfor approx 2 miles until the roadis reduced to only one lane as itapproaches the junction with HoltRoad. From this point it is bestto keep to the left in readinessfor a left turn further ahead.At traffic lights after those atJubilee Road take the left handlane which turns left into a one-waysystem. Then continue downhill tothe right around the church intoIrvine Street/Pembroke Place andpast the Royal Liverpool Hospitalinto London Road.Continue downhill the full lengthof London Road toward the end of48

London Road be ready to turn rightat the T junction. A tall monumentand the Liverpool Museum areopposite the end of London Road.After turning right at the end ofLondon Road, keep to the left inorder to be ready to turn left at thetraffic lights which then lead ontoChurchill Way flyover.The flyover leads to a set of trafficlights at the start of Dale Street.About 400 yards up Dale Streeton the right is Liverpool Town Hallwhich is the pillared building whichprotrudes out into Dale Streetslightly. At the Town Hall turn leftinto Castle Street.Level access is available from theentrance via 43 Castle Street.Travelling by trainLiverpool Lime Street Station is a tenminute walk across the City Centreto Castle Chambers. If you do notknow central Liverpool we wouldsuggest you take a taxi.An alternative is the underground raillink on the Wirral Line - James StreetStation is the second stop fromLiverpool Lime Street Station and isaround the corner from our offices.To check the timetables for localtrains, you may want to use thewebsite of Merseyrail. You cancheck out real time serviceinformation and facilities at localstations. You can also link to NationalRail sites to check information if youare travelling from further afield.49

Merseyside Pension Fund7 th FloorCastle Chambers43 Castle ChambersLiverpoolL2 9SHrg/1.0k/12.11T: 0151 242 1390F: 0151 236 3520E: mfadmin@wirral.gov.ukwww.merseysidepensionfund.org.uk