LGPS pension credit members

"LGPS – Commutation of pension by a Pension Credit member (Technical Group meeting 6 October 2009)
The Technical Group debated at the meeting of 6 October whether Pension Credit members can commute part of their pension under the LGPS in England and Wales to increase the lump sum received.

It was agreed that if the Debit Member ceased membership before 1 April 2008, the Credit Member is awarded a benefit under the LGPS Regulations 1997 and so cannot commute. It was also agreed that where the Debit Member has active membership in the 2008 Scheme but the transfer date following a divorce was prior to 1 April 2008 the Credit Member is awarded a benefit under the LGPS Regulations 1997 and so cannot commute.

However, where the Debit Member has active membership in the 2008 Scheme and the transfer date following a divorce is on or after 1 April 2008, the Credit Member is awarded a benefit under the LGPS Regulations 1997 but the commutation provisions are those contained in the Benefits Regulations, not those under the LGPS Regulations 1997. Whether or not the Credit Member can commute hinges on the definition of “member”, but the Benefits Regulations (which contain the commutation provisions) do not contain a definition of “member”. If one takes the view that, in the absence of a definition for “member” in the Benefits Regulations, one must use the definition in the Pensions Act 1995, then a Credit Member would be allowed to commute. If, however, one takes the view that there is a definition for “member” in Schedule 1 of the Administration Regulations which says “"Member" has the same meaning as in section 124(1) of the Pensions Act 1995 but, except in regulation 68 [Annual Benefit Statements], does not include a pension credit member”, then a Credit Member would not be allowed to commute. This would tie in with the GAD guidance on the LTA and Additional Cash Commutation.

The Technical Group decided that, for consistency, administering authorities should continue with the current practice: i.e. not to permit Pension Credit members to commute part of their pension to increase the lump sum.

CLG indicated at the meeting that they are going to liaise with GAD and change the regulations to permit Pension Credit members to commute part of their pension for a lump sum.

In Scotland, Pension Credit members are already permitted to commute part of their pension for a lump sum."

Well whaddya know?

Hi,

The cynic in me thinks that all Public Sector Schemes are looking at ways of reducing the amount that they have to pay out by way of pension given that the escalation in payment is generous and it costs the taxpayer a fortune to provide.

So if we dangle a higher lump sum carrot would any pension credit member take the bait?

Like anything else it is a matter of personal choice (do I want more cash or pension) and I am always for more choice so long as the client understands what is happpening.

When deciding to take a lump sum from any final salary scheme (where pension is given up) it is always prudent to review the commutation factors to see how much pension has to be given up for the lump sum to see whether you are getting good value.

An interesting development and one I think that we will see more of in the public and private sector over time.

Regards

Phil

The Divorce IFA

Although I am a Resolution Accredited Independent Financial Adviser my comments are given here as general guidance based on the (often limited) information available and does not constitute financial advice. They should not be seen as a substitute for detailed financial and legal advice.

Is this about pension credit members not being allowed to take all of the pension fund as a cash lump sum even if they've less than £16k in pension CETVs overall?
They have to take just 25% as cash and have a LGPS pension instead which must cost the scheme loads more?
Pension Credit members definitely enemy aliens in most schemes?

No just a general rant about watching the costs of giving up pension for lump sum. The commutation factors in private sector DB schemes are not particularly generous.

Trivial commutation is set at 1% of the lifetime allowance (currently £1,800,000) so if ALL your pensions only add up to £18,000 you can take it as a lump sum (less some tax).

Pension credit members have to really analyse what is being offered from the existing scheme. I suppose it is a bit unfair to say they are treated like "enemy aliens" when in the public sector the benefits offered are well worth having - index linked pension etc.

But in the private sector I have seen very poor offers (such as a cash fund only pension scheme) which bear no resemblance to the benefits being given to the debit member.

So check that shadow membership is exactly that. An internal transfer might not be all its cracked up to be and better value might be achieved by taking an external transfer.

Caveat emptor?

Regards

Phil

The Divorce IFA

Although I am a Resolution Accredited Independent Financial Adviser my comments are given here as general guidance based on the (often limited) information available and does not constitute financial advice. They should not be seen as a substitute for detailed financial and legal advice.

Emptors are trying to caveat Phil
I rang the pension manager/trustee for information about sharing my ex's final salary pension and from her reaction I thought I'd be shot at dawn.
Persons responsible for pension arrangements are trained to repel non-members.
Do they know about SI 2000/1048 non-member spouse information entitlement?
"Basic information about pensions and divorce
2. - (1) The requirements imposed on a person responsible for a pension arrangement for the purposes of section 23(1)(a) of the 1999 Act (supply of pension information in connection with divorce etc.) are that he shall furnish -
......

(b) on request from the spouse of a member, the information referred to in paragraph (3);
.......
(3) The information in this paragraph is -

(a) a statement that on request from the member, or pursuant to an order of the court, a valuation of pension rights or benefits accrued under that member's pension arrangement, will be provided to the member, or, as the case may be, to the court;

(b) a statement summarising the way in which the valuation referred to in paragraph (2) and sub-paragraph (a) is calculated;

(c) the pension benefits which are included in a valuation referred to in paragraph (2) and sub-paragraph (a);

(d) whether the person responsible for the pension arrangement offers membership to a person entitled to a pension credit, and if so, the types of benefits available to pension credit members under that arrangement;

(e) whether the person responsible for the pension arrangements intends to discharge his liability for a pension credit other than by offering membership to a person entitled to a pension credit; and

(f) the schedule of charges which the person responsible for the pension arrangement will levy in accordance with regulation 2(2) of the Charging Regulations (general requirements as to charges)."


"the types of benefits available to pension credit members under that arrangement;"
Does that entitle the non-member spouse contemplating pension sharing to an illustration of the benefits from the scheme - as they would when considering any other pension?
Isn't denying them that illegal or at least unfair?
I brought a complaint against the pension scheme for denying me that information - the Ombudsman's investigator advised me the Ombudsman wouldn't consider my complaint justified because the pension scheme had no legal obligation to provide that information before it received the Pension Sharing Order.
I still think that's wrong.

What beats me about this pension information before pension negotiation issue is that for pension equalisation, before negotiations begin actuaries and IFAs are able to source or produce information on the respective post-split incomes - how is that possible for final salary schemes without the co-operation of the scheme member?

Maggie

IFAs and we get the information from the schemes because we have the signed authority from the scheme member.

On Phil’s typically thoughtful and professional comments about different classes of scheme membership. It illustrates why I avoid the phrase “shadow membership” when referring to pension credit membership of schemes following a pension sharing order. Shadow implies a closer comparison of benefits than sometimes exists and can be misleading.

Peter.