Linking Type A2 Print this page (pdf) Important: These notes are based on current scheme rules and our understanding of these at the present time. Future changes in the rules could affect the information given in these notes. How LGPS benefits are worked out How LGPS benefits are worked out Your deferred benefits – benefits built up in the final salary scheme to 31 March 2014 These are based on membership and final pay. This is usually your final year’s pensionable pay, or one of the two previous years if higher. Benefits built up in the CARE (Career average revalued earnings) scheme from 1 April 2014 At the end of March each year a pension equal to 1/49th of your pensionable pay for that year is added to your pension account (1/98th if you are in the 50/50 section). If you receive reduced pay because of sickness, relevant child related leave or reserve forces leave, a notional figure based on the pay you would have received in the 12 weeks prior to reduction is used to calculate your pension. Your pension account is revalued every year in line with the cost of living. If you choose to link your benefits – you’ll then have only one set of benefits – so you’ll have: A current pension account - made up of: 1. Pension bought in the CARE scheme by a transfer of your membership from your old job in the final salary scheme + 2. Pension built up in the CARE scheme in your new job Pension sharing order – if you have a pension sharing order applied to your benefits and your benefits are linked, this order will be transferred to your current pension account. If your benefits remain separate – you’ll keep your deferred benefits and build up separate benefits in your current job – so you'll have: Deferred benefits made up of: Benefits based on membership and final pay from your old job for membership of the final salary scheme (plus cost of living increases) + A current pension account made up of: Pension built up in the CARE scheme in your new job Cost of living increases – Deferred benefits are increased each April so they maintain their value. Comparing benefit values You should compare the current value of your deferred benefits with the pension that linking would buy for you in the CARE scheme Current value of Deferred Benefits – these figures were shown in the annual Deferred Benefit statement we sent you Estimated CARE pension – this figure was shown in the Linking Options Available sheet we sent you At retirement you will be able to give up part of your pension for a bigger lump sum (this applies whether or not you decide to link your benefits) Cost of living increases Deferred benefits are revalued each April so they maintain their value. The total pension in your current pension account is also revalued each April to keep pace with inflation. If we have a year of negative inflation (which is a rare event) – the value of your deferred benefits would remain the same (they can’t be reduced), but the total value of your current pension account could go down. Normal Pension Age (NPA) This is the earliest age you can retire and draw your benefits without having any reductions applied. As a different Normal Pension Age could apply to different parts of your benefits – you should read this section as well as comparing benefit values. Your Deferred Benefits All benefits must be drawn at the same time; but A different NPA could apply to different parts of your benefits, so any reductions would cease to apply to different parts on different dates The reductions decrease the closer you get to NPA Your deferred benefit statement shows the earliest date your deferred benefits can be paid unreduced. Your current pension account The NPA for your CARE pension is linked to your state retirement age If you link your benefits – this will include the pension that is bought by the transfer Your NPA will change if your state retirement age changes Leaving before retirement If you opt out of the scheme with less than 3 months membership in your new job: Any contributions you have paid will be refunded to you by your employer though your pay You will no longer have the option to link your deferred benefits - as you will be treated as though you had never been a member of the scheme If you opt of the scheme with at least 3 months membership, or leave your new job, before being entitled to payment of retirement benefits: If you've chosen to keep your benefits separate - you will be awarded deferred benefits (you won't be able to claim a refund of the contributions you have paid as your earlier deferred benefits give you a benefit entitlement in your new job) If you've chosen to link your benefits - your entitlement will depend on the membership you have in the scheme Transferring pension rights Even if you elect not to link your deferred benefits to your current pension account – you won’t be able to transfer these deferred benefits to a different scheme until you cease to be a member of the scheme in your current job You won’t be entitled to a transfer once you are within 1 year of (or past) your NPA Early retirement If, after completing 2 years membership, you retire early due to: Voluntary retirement over age 55 (reductions may apply); or Redundancy or efficiency over age 55; or Ill health at any age (must satisfy scheme medical criteria) you will only be paid the benefits from your current membership, if you have kept your deferred benefits separate. Your separate benefits will be paid later, from your NPA (unless the ill health criteria for these to be paid early is also satisfied, or other early retirement provisions apply). Conversion rates If, in 2007, you made an election to retain better pension to lump sum conversion rates for your deferred benefits, and you decide to link now - the old rules will no longer apply. Death in service benefits Lump sum death grant - the amount payable would be: If you link your benefits – three times your assumed pensionable pay at date of death (this means any reduction in your pay due to sickness or relevant child related leave is ignored). If you retain separate benefits – the higher of three times your assumed pensionable pay at date of death OR the combined lump sum payable in respect of all deferred benefits and any pensions in payment. Eligible partner’s and children’s pensions – the amount of these would be affected by whether or not you decided to link your benefits. Tax implications In most cases there are no tax implications when linking benefits. However, there is a limit by which the value of all your pension benefits may increase in any one year without you having to pay a tax charge. This is called the annual allowance and includes pension benefits from all pension schemes. If your benefits increase significantly as a result of linking, you may exceed the annual allowance. However, you may still not have to pay a tax charge if you have unused allowance from the 3 preceding tax years. More information about the annual allowance can be found at www.hmrc.gov.uk/pensionschemes/tax-basics In some instances this tax charge can be paid by the scheme and recovered from pension benefits.