Getting ready for retirement
The moment you’ve been waiting for
Reaching retirement can be a time of mixed emotions. And let’s face it, for the most part, these tend to include joy, happiness and unreserved excitement… along with a dash of good old-fashioned relief.
The truth is, after a lifetime of hard work, we all deserve some well-earned ‘me-time’. And whether this involves travelling the world to explore new lands or putting your feet-up in the garden with a good book, your pension can help to make the experience all the more enjoyable.
The good news is, if you’re at an age where you’re starting to think about retirement, we’re here to help. Within these pages, you’ll find everything you need to know about planning your pension, making the most of your money and putting the wheels in motion.
When can I retire?
The big question
As long as you’ve been paying into your Local Government Pension Scheme (LGPS) for at least two years, you can claim your work pension from the age of 55 – or even earlier if you are retiring due to ill health. But before you start planning any round-the-world trips, there are a few things to consider
What year did you start paying in to your pension?
This is where the fun begins. Due to a number of rule-changes over the years, the date you started paying into your LGPS pension can affect your pension pot and your planned retirement date.
BEFORE APRIL 2008
If you started paying into your pension before April 2008, the good news is you’re likely to have accumulated a decent sum of money. The bad news is you’re going to have to read this next bit very carefully… because it starts to get a little complicated.
To make things easier, try to think of your pension as three separate pots.
Pot 1 – Pension contributions built up before 1 April 2008
With this pot, you get an automatic tax-free lump sum when you retire, along with your monthly payments. The Normal Pension Age (the age you can receive your pension without reductions) is 65.
Pot 2 – Pension contributions built up before 1 April 2014
There is no automatic tax-free lump sum available with this pot. But you can take up to 25% of your total pension value in exchange for lower monthly payments. Plus your Normal Pension Age remains at 65.
Pot 3 – Pension contributions built up after 31 March 2014
With this pot, the Normal Pension Age (NPA) is linked to State Pension Age. Again, there is no automatic tax-free lump sum when you retire, but you can still take up to 25% of your total pension value in exchange for lower monthly payments.
Regardless of when you joined the scheme, you can start taking your pension at any point between the ages of 55 and 75. The only thing to remember, is that the three pots have different rules. This means that if you access them at the same time, it can affect your income.
For example, if you start taking your pension at 65, Pot 3 may be subject to deductions (because it is tied to State Pension Age). Likewise, if you start taking your pension at 66 or over, any funds built up in pots 1 and 2 would be subject to a percentage increase, based on the number of years after their NPA.
BETWEEN 1 APRIL 2008 and BEFORE 1 APRIL 2014
If you started paying into your pension between these two dates, it’s not quite as complicated, but it still helps to think of your pension as two separate pots.
Pot 1 – Pension contributions built up before 1 April 2014
The Normal Pension Age (the age you can receive your pension without reductions) for this pot is 65. There is no automatic tax-free lump sum included, but you can take up to 25% of your total pension value when you retire (in exchange for lower your monthly payments).
Pot 2 – Pension contributions built up after 31 March 2014
The only difference with this pot, is that the Normal Pension Age (NPA) is linked to the State Pension Age. So, if you plan to take your pension at 65, it may be subject to a percentage reduction. Likewise, if you take your pension at 66 or over, any funds built up in pots 1 would be subject to a percentage increase.
AFTER 31 MARCH 2014
If you started your pension contributions after 31 March 2014, you effectively have four simple options:
1. Receive your pension at the Normal Pension Age (NPA)
The Normal Pension Age for this scheme is linked to the State Pension Age. At this point, you will receive regular monthly income, based on your length of service and salary.
2. Start receiving your pension payments early
As long as you’ve paid in for at least two years, you can take your pension as early as 55. Although, if you start taking payments before the Normal Pension Age, they are subject to a percentage reduction.
3. Defer your pension payments
If you want to increase your income, you can defer your pension up to the age of 75. This works on a sliding scale, so the longer you delay, the more money you receive each month.
4. Take part of your pension as a tax-free lump sum
Another option, which can be applied to all three of the above, is to take up to 25% of your pension as a tax-free lump sum when you retire. Although, the more you take as a one-off payment, the less you receive as a monthly income.
Admittedly, this can be a little hard to follow. But don’t worry, when you visit your online account, all of these calculations are done for you – so you can see clearly how much you would receive as a lump sum and income in any given year.
Early retirement and the 85 Year rule
The 85 Year rule is a bit of a brain-teaser, but extremely handy if you’re thinking of early retirement. It was originally introduced to protect people who had been paying into their pension scheme for years and wanted to take early retirement without worrying about payment deductions.
The rule itself is activated when your age plus your scheme membership (both in whole years) adds up to 85 or more. This in itself isn’t too complicated. But because it was phased out from October 2006 and there have been all kinds of subsequent rule-changes, the qualification criteria can get a bit confusing.
Rather than confuse you with the details, we thought it would be easier to lay it all out in a table. This way, you can see for yourself if some, or all of your pension is protected.
|Is your pension protected by the 85 Year rule?|
|Pension built up before 31 March 2008||Pension built up 01 April 2008 – 31 March 2014||Pension built up 1 April 2014 – 31 March 2016||Pension built up 1 April 2016 – 31 March 2020||Pension built up after 1 April 2020|
|Members born before 1 April 1956||Protected||Protected||Protected||No protection||No protection|
|Members born between 1 April 1956 and 31 March 1960||Protected||Partial protection||Partial protection||Partial protection||No protection|
|Members born on or after 1 April 1960||Protected||No protection||No protection||No protection||No protection|
|Bringing the 85 Year rule to life|
|Details||Membership pre 1 April 2008 (16 years)|
As Mrs Jones meets the 85 Year rule when she retires, these benefits will not be reduced.
|Date of birth||31/08/1960|
|Retirement age||60||Membership 1 April 2008 – 31 March 2014 (6 years)|
These benefits will be subject to a five year reduction as Mrs Jones is taking them at 60 instead of 65. Due to her date of birth, she will not have any 85 Year protection for this period of membership.
|Pre 31 March 2008 (Final salary) NPA||65|
|Post 1 April 2014 (career average revalued earnings) NPA||67 (SPA)|
|Years’ membership in the LGPS||28||All membership post 1 April 2014 (6 years) |
These benefits will be subject to a seven year reduction as Mrs Jones is taking them at 60 instead of age 67 (her NPA). Due to her date of birth, she will not have any 85 Year protection for this period of membership.
Yes, there’s a lot to take in. But don’t worry, our online pensions calculator works out any 85 Year rule protection automatically. Log in to your online account to see if you qualify.
How much will I get?
Let’s cut to the chase!
There’s a lot of information to digest when you’re planning your retirement. And you probably have lots of questions. But the one that’s likely to interest you the most is, ‘how much will I get?’
The simple answer is, the more you put in, the more you get out. Obviously, this depends on your salary and the number of years you’ve been paying into the scheme. But there are also a number of factors you can control yourself.
How late are you prepared to leave it?
If you’re approaching the tender age of 55, you may be starting to think about the prospect of early retirement. But before you book any extended holidays or start writing that letter to your boss, it’s worth crunching some numbers.
The table below explains the reductions in your monthly payments and lump sum, based on the number of years before your Normal Pension Age (NPA).
|Years early||Pension reductions||Lump sum reductions|
Log into your online account to get the monetary figures, based on your personal pension contributions.
Do you qualify for the 85 Year rule?
Remember, if you qualify for the 85 Year rule, you may be able to avoid the usual benefit reductions. You can work this out using our online pension calculator in your online account.
Do you want a tax-free lump sum?
If you have built up a pension prior to 1 April 2008, you will automatically receive a tax-free lump sum. This is usually based on your final salary and will vary depending on when you take your pension.
You can increase this lump sum with up to 25% of your total pension value built up after 31 March 2008. Just be mindful that any increase is subject to a reduction in your monthly income.
Visit your online account to calculate your monthly lump sum.