Cancelling Your Membership – Opting Out
Membership of the Local Government Pension Scheme (LGPS) is automatic in many cases, but it isn’t compulsory that you remain in the Scheme. As a member you can cancel your membership at any time. This is sometimes referred to as opting out.
Points to Consider Before Opting Out
If you are thinking of cancelling your membership you should consider:
The Local Government Pension Scheme is one of the best occupational schemes in England and Wales and by being a member you will enjoy a complete range of secure benefits.
Whilst a member of the Scheme, your benefits will continue to grow as your membership and earnings increase. You will be issued annually with a statement which provides details of the benefits you have accumulated to date. You will also have the facility to increase your benefits by increasing your contributions.
As and when you leave the Scheme, it is the membership that you have acquired that will determine the range of benefits that you are entitled to.
LGPS Benefits
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A guaranteed index linked pension, based on your pensionable pay and length of pensionable service.
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A tax free lump sum, based on your pensionable pay and length of pensionable service.
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A lump sum death grant of twice your final years pensionable pay.
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Widow(er’s) / surviving registered civil partner’s / children’s pensions.
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A pension if you become permanently too ill to work.
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Early payment of benefits subject to your employer's consent.
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Early payment of retirement benefits for those employees aged 50 or over and who are declared redundant / in the efficiency of the service (this will change to age 55 from 1 March 2010).
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All Scheme contributions attract income tax relief and National Insurance savings.
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Additional contribution schemes available to help you achieve even bigger benefits.
Facts about the LGPS
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Your employer pays a percentage into the Scheme on your behalf.
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The lump sum death grant of twice your pensionable pay is payable from the day you become a member. There is no medical required and it is paid on the death of all current contributing members of the Scheme.
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You will receive tax relief on all your contributions – even on extra payments you choose to make such as buying additional service or contributing into an in house AVC Scheme.
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You have the option of increasing your tax free lump sum.
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There are no hidden fees or charges you just pay a fixed percentage of your salary.
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There is no investment risk to your benefits – you will receive a guaranteed package of benefits, which are backed by law.
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Protection for you in case you have to draw your benefits early through ill health and protection for dependants in the form of survivor pensions if you die.
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Once you are in receipt of your pension it will go up each April in line with inflation to keep your benefits in line with the cost of living.
Employers Contribute
Your employer contributes to the Scheme on your behalf and this alone could be worth up to twice the amount that you pay into it. If you choose not to be a member of the LGPS, your employer cannot pay into any other type of arrangement in preference to the LGPS.
If you opt out you’ll lose out on your employer’s pension contribution.
Cancelling Your Membership
If you decide that you no longer wish to be a member of the LGPS and want to cancel your membership you must let the Pensions Section know in writing or by completing the relevant form (Opt Out Form). Pensions will then inform your payroll department of your decision to opt out. To speed the process and if you are eligible to claim a refund via your pay, you may wish to send a copy of your declaration to opt out direct to your payroll department. Payroll will cancel your membership any time after your request, otherwise they will automatically cancel it from the start of the next pay period.
Claiming a Refund of Contributions
To claim a refund of your contributions you must have less than 3 months membership. Only your contributions are refundable: those paid by your employer are not.
If you have any previous LGPS membership (as a deferred benefit or a pension in payment) or you have transferred any other pension rights into the LGPS, a refund is not permissible.
Your refund payment will usually amount to less than your gross pension contributions. Whilst you are a member of the LGPS, you are not a member of the State Second Pension (S2P). This means that you pay reduced National Insurance contributions at the contracted-out rate (D rate). If you decide to opt out of the LGPS, you must be contracted back into S2P for the period of your Local Government employment. If you are entitled to receive a refund your share of the cost of reinstatement into S2P must be deducted from your refund payment.
The Inland Revenue will claim 20% of all refund payments: this is also deducted from your refund payment. By taking a refund benefits will be lost if you re-enter Local Government employment in the future, as this period cannot count as LGPS membership.
If a refund is paid more than 12 months after you leave the Scheme, interest will be added from the date you left. A refund cannot be paid if you re-enter the LGPS with any employer within a month and a day after you leave or if you join the LGPS again, before receiving your refund.
Opting Out – More Than 3 Months Membership
Members who opt out of LGPS and have more than 3 months (91 days) Scheme membership are not entitled to receive a refund of contributions. Instead such members will be entitled to deferred benefits.
These benefits will remain deferred within the LGPS until they become payable or until you decide to transfer them to another pension scheme.
Deferred benefits can be paid at age 60, but may be subject to an early retirement reduction factor, unless you decide to defer payment beyond the date when the reduction ceases to apply. Deferred benefits may be put into payment at any age in the event of ill health, without reduction, subject to your employers consent. Please note that employer's approval must come from the employer that you worked for whilst you were a member of the Scheme, this may not necessarily be your current employer.
Should you wish to leave the Pension Scheme an opt out form can be downloaded from the link below.
Opt Out Form |