Updated: January 16, 2023
Local Government Pension Scheme Drawdown
Should you move your LGPS pension to a drawdown pension so you can take a flexible income? Find out more about this decision and whether it’s right for you.
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Author: Tony Stevens - Finance Expert
Updated: October 21, 2019
The local government pension scheme (LGPS) is a defined benefits pension scheme. The LGPS changed from a final salary scheme to a career average scheme on 1 April 2014. This means that if you joined the Scheme before 1 April 2014, you will have built up benefits in the final salary scheme which calculates your pension based on your final salary and how much pensionable service you have. Pension benefits accrued after April 2014 are calculated at the end of each scheme year, using your assumed pensionable pay and pensionable service, then adjusted for inflation.
However, some people prefer to take their retirement income through pension drawdown. With this method you’re in control of how much and how often you withdraw from your pension savings. If you’re interested in this option, we’ll explain everything you’ll need to consider before switching.
Can you put an LGPS into drawdown?
Defined Benefit (DB) pensions such as the LGPS are paid out as a regular income based on the scheme rules. You can’t cash in your savings or put them into drawdown to take a flexible income as and when you want.
However, if you have an LGPS pension you’re no longer paying into (because you moved jobs or you’ve recently retired), you have the option to transfer to a defined contribution (DC) pension, such as a self-invested personal pension (SIPP).
After the age of 55 (rising to 57 in April 2028), you can enter into a drawdown arrangement with the funds available to you in your DC pension scheme. To find out more about this pension type, read our guide to defined contribution pensions.
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What are the rules?
The following rules apply if you want to transfer your LGPS to a DC pension to drawdown:
- You must have stopped paying into the scheme
- You cannot yet be taking an income through the scheme
- The transfer must take place at least 12 months before you reach your Normal Pension Age (usually 65 years old)
- You must transfer all of your pension benefits
- You must take independent advice from an FCA-registered advisor before transferring (if your pension is worth more than £30,000)
How to put an LGPS into drawdown
The transfer of funds from your LGPS to a drawdown pension will be handled by your chosen drawdown provider, at your request. However, before you reach that stage, you’ll need to follow these three steps.
Check that you’re able to transfer
You can’t usually transfer your LGPS to a drawdown pension if you’re over the age of 64, if you’re still paying into it, or if you’ve started receiving an income from it. Plus, you can only start drawdown if you’re over 55. So, you have a limited window to make the transfer.
Speak to an independent advisor
If your pension is worth over £30,000, you must seek advice before you transfer. It’s sensible to do this even if your fund value is below this figure to be sure that you’re not losing out. Some people could receive far more in income over the years from their LGPS than they would by transferring the value now. Giving up a regular guaranteed income that increases with inflation is also not in everyone’s best interest so it’s important that you fully understand your options and that you are making an informed decision.
To speak to a specialist today, get in touch.
Choose your drawdown provider
Not all drawdown providers accept transfers from pension schemes. Those that do differ in terms of their fees, the level of service they offer, how you can invest your savings, and in other important ways. Your pensions advisor can help you decide which is the best drawdown pension for your needs.
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Alternatives to consider
Keeping your pension with LGPS gives you various options. You can start to take an income from it any time between the age of 55 (rising to 57 in 2028) and 75, as long as you’ve been a member for at least two years.
Retiring at 65
You’ll receive your benefits in full if you wait until you reach your Normal Pension Age (usually 65) to take an income. That income is linked to your average salary throughout the time you were contributing and keeps pace with the cost of living. If you joined the scheme before 2014, part of the income that you receive will be linked to your final salary.
Retiring earlier or later
Starting to take an income after your Normal Pension Age will mean the income you receive is increased. Starting to take an income before your Normal Pension Age will usually mean that it’s reduced, according to your employer’s policy. If you meet the criteria to retire early due to ill health, your pension income will not be reduced.
Partially retiring
If your employer agrees, you can usually start to take your LGPS pension and continue to work. You might reduce your hours or take a position with less responsibility and a lower salary. You’ll need to be over the age of 55.
Taking a tax-free lump sum
If you were a member of the LGPS prior to 1st April 2008, you will have access to an automatic tax-free lump sum. In addition to this, you can choose to give up part of your pension for a larger tax-free cash lump sum. Every £1 of annual pension income you give up will return a lump sum of £12 (i.e. you could accept an annual income worth £1,000 less than you’re entitled to in order to receive £12,000 as tax-free cash immediately). You can only do this at the point you start to take your pension.
Other options when transferring your pension
Transferring your LGPS fund to a DC pension will give you more options, including withdrawing all your savings at once or taking lump sums. However, there are significant drawbacks to these options – most importantly, that you’re no longer guaranteed to receive an ongoing pension income for life that increases with the cost of living.
Speak to a pension drawdown specialist
LGPS is generally considered to be a generous pension with valuable benefits. So, transferring a pension away from the scheme is not a decision to be taken lightly and will not be a suitable option for the majority of people.. You should seek expert advice and ask a specialist any questions you have about what it means for your future.
If you’d like, we can connect you with an independent pensions advisor who specialises in drawdown queries and is completely impartial. To set up a free, no-obligation chat, just call us on 0808 189 0463 or make an enquiry online.
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FAQs
Generally, no. Members of the police force are usually eligible to join a police pension scheme, and you can’t join the LGPS if you’re able to join a different public service pension scheme.
Ask a quick question
We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions Ask us a question and we'll get the best expert to help.
Tony Stevens
Finance Expert
About the author
Tony has worked in a vastly diverse array of areas in the pensions industry for over 20 years. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events.
Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been “Hope for the best, but plan for the worst”, and believes that the biggest impact that an adviser can have on a client’s life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they want their retirement to be.
