Opting out - things to consider
If you have been paying into the Local Government Pension Scheme for two years or more and decide to opt out of the scheme, when you leave the scheme the benefits that you have built up in the scheme will be frozen, or 'preserved', until you reach retirement age.
There are several points that you need to consider when thinking about opting out of the LGPS and having preserved benefits.
- If you were to be made redundant with immediate entitlement to benefits, the preserved benefits would not be payable. If you opted out and re-joined the scheme at a later date and were paying into the scheme at the time of being made redundant, only the pension calculated from the period of membership from the point of re-joining might be payable immediately. Whilst the preserved benefits could be paid from age 55 onwards, they may be reduced to reflect early payment, or paid unreduced at your normal pension age (which, if you paid into the scheme after 1 April 2014, is your State Pension age, subject to a minimum age 65).
- If you had to retire on ill health grounds from the same job, preserved benefits might not be payable. This would depend on the level of incapacity as certified by an occupational health doctor. If the preserved benefits are payable on ill health grounds, they would not include any ill health enhancement.
- If you have continued in the same employment then you will not be able to access your deferred benefits until such a time as that employment ends.
- If you opt out of the scheme and re-join at a later date, the benefits for the future period of membership would only be payable without an early payment reduction at your normal pension age, regardless of any protections that may apply to your earlier membership.
- If you die in service as an active member of the scheme a lump sum of three times your annual pensionable pay would normally be payable. If you have a preserved pension and die before it is paid, a lump sum equal to 5 times the preserved pension is paid. If you re-join the scheme at a later date, only one amount for lump sum life cover is payable from the LGPS so, even if you have preserved benefits separate from your active pension account, only the greater of the lump sum life cover for your preserved benefit or for your active pension account would be payable.
- Benefits built up before 1 April 2014 are calculated using final pay. If you opt out of the scheme, any future pay increases you receive from pay awards and promotion will not be used in the calculation of final pay for your preserved benefits. You will not have the option to combine your preserved benefits with your later membership even if your future pensionable pay exceeds the final pay used to calculate your preserved benefits.
Any decision on opting out is solely for the member. Bedfordshire Pension Fund cannot provide financial advice. If you need advice before making a decision regarding your pension benefits, you may wish to contact an Independent Financial Adviser. However, any costs you incur will be at your own expense.