Can I Cash in My Local Government Pension?
No, you cannot cash in your Local Government Pension Scheme (LGPS) benefits in the traditional sense. The LGPS is a defined benefit scheme, which means that your retirement income is predetermined based on your salary and years of service. This income is paid out to you as a regular pension, and you cannot access the underlying funds as a lump sum.
What are the Options for Accessing My LGPS Benefits?
While you cannot directly cash in your LGPS benefits, you do have several options for accessing your retirement income:
- Take your pension at retirement age: This is the most common option, and it allows you to receive a regular income for the rest of your life.
- Take your pension early: You can choose to take your pension as early as age 55, but this will result in a reduced pension amount.
- Take a lump sum: You can choose to exchange part of your pension for a tax-free lump sum when you first take your benefits. However, this will also reduce your future pension payments.
- Transfer your benefits to a defined contribution scheme: You can transfer your LGPS benefits to a defined contribution scheme, which would give you more flexibility in how you access your retirement savings. However, this option may not be suitable for everyone, and it is important to seek financial advice before making a decision.
What are the Benefits of the LGPS?
The LGPS offers several benefits over other retirement savings options, including:
- Guaranteed income: Your LGPS pension is guaranteed for life, regardless of how long you live.
- Inflation-linked: Your pension payments will increase in line with the cost of living, ensuring that your purchasing power is maintained throughout your retirement.
- Death benefits: Your spouse or dependents will receive a pension if you die before retirement.
- Tax-free lump sum: You can choose to take a tax-free lump sum when you first take your pension benefits.
What are the Risks of Cashing in My LGPS Benefits?
Cashing in your LGPS benefits can have several negative consequences, including:
- Reduced retirement income: You will receive a smaller pension if you choose to take a lump sum.
- Loss of inflation protection: Your pension payments will not increase in line with the cost of living if you cash them in.
- Tax implications: You may have to pay tax on the lump sum you receive.
- Loss of death benefits: Your spouse or dependents will not receive a pension if you die after cashing in your benefits.
The LGPS is a valuable retirement savings option that provides a guaranteed income for life. While you cannot directly cash in your benefits, you have several options for accessing your retirement income. It is important to carefully consider the benefits and risks of each option before making a decision.
Frequently Asked Questions
Can I transfer my LGPS benefits to another pension scheme?
Yes, you can transfer your LGPS benefits to another pension scheme. However, this option may not be suitable for everyone, and it is important to seek financial advice before making a decision.
What happens to my LGPS benefits if I die before retirement?
If you die before retirement, your spouse or dependents will receive a pension. The amount of the pension will depend on your age and the length of your service.
Can I take a lump sum from my LGPS benefits?
Yes, you can choose to exchange part of your pension for a tax-free lump sum when you first take your benefits. However, this will reduce your future pension payments.
What are the tax implications of cashing in my LGPS benefits?
You may have to pay tax on the lump sum you receive when you cash in your LGPS benefits. The amount of tax you pay will depend on your marginal tax rate.
Where can I find more information about the LGPS?
You can find more information about the LGPS on the website of the Local Government Pension Scheme.
How can I transfer my benefits?
If you wish to transfer and all of your defined benefits have a cash equivalent value greater than £30,000, you are legally required to get independent financial advice from an appointed representative or an authorised independent advisor. Before the transfer procedure can start, you must demonstrate that you have sought this advice. You do not require advice if your net worth is less than £30,000, but it is highly advised. To find out your pension’s cash equivalent value, you must get in touch with us.
Does it affect Local Government Pension Scheme members?
No, the changes only apply to “defined contribution” schemes. Being a “defined benefit” plan, the Local Government Pension Scheme (LGPS) is unaffected by the new flexibilities in terms of how benefits may be used. Members of the LGPS, however, have the option to move their pension benefits to a defined contribution plan, which provides flexible benefits.