Leavers

The options available to a scheme member who leaves Local Government employment without being entitled to the immediate payment of benefits, or who opts out the LGPS but remains in Local Government employment, are dependent upon a number of factors.

The service standards require the employing authority to notify the scheme administrators of a scheme leaver within 15 working days of the member leaving (or opting out of) the scheme. The details that must be completed on Form LGS15C (or a different form as agreed between the Employing Authority and the Scheme Administrator) are as follows:

1. Employer name
2. Pay Ref
3. Post No
4. Surname
5. Forenames
6. Title
7. Home Address - It is important that we are informed of a leavers home address as a notification of benefits, options of termination of employment, annual benefit statements and newsletters will be sent to your home address
8. Email Address - If you have an email address by which the member can be contacted this should be inserted here
9. National Insurance Number
10. Date of Birth - It is important to note that no benefits will be paid by the Pension Fund until a member's date of birth has been verified either by sight of a member's birth certificate or similar document, such as as passport.
11. Partnership Status - Benefits will not be paid by the Pension Fund until evidence of the member's partnership status has been confirmed i.e. sight of a marriage certificate or civil partnership registration certificate as applicable
12. Job Title
13. Date of Withdrawal from the Scheme - This may be different to the date of leaving employment i.e. if the member has opted out of the pension scheme but not left
14. Has Employment Ceased? - Whether employment has ended or member has opted out of scheme
15. Reason For Leaving or Withdrawal
16. If Augmented Membership is to be granted please state years and days - As an employer you have discretion under Regulation 12 of the LGPS (Benefits, Membership and Contributions) Regulations 2007 to award a scheme member, at any time whilst a contributing member of the scheme, up to an additional 10 years' membership. These extra years must be awarded before a member leaves your employment or within 6 months of leaving. There is a cost to you as the employer in awarding these additional benefits to a member - see section on "Policy Statements"
17. If Reason is Early Retirement is it your intention to release benefits immediately? - Please indiciate here if you mean for the member to start receiving pension benefits from the day after their date of leaving
18. Are you aware of the Capital Cost implications for Early Retirement? - On most occasions, other than ill health retirement, a capital cost will be generated when you decide to retire someone before their Normal Retirement Date. When you request an estimate of benefits for the individual concerned, which you will need to do before any decision to retire an employee early can be taken, you will be supplied with details of the expected cost that you will have to pay to the Pension Fund
19. Final Pay (Actual and FTE if Part-Time) (best of the last 3 years or the average of any three consecutive years within the last ten) - This is the figure that will be used to calculate the pension and lump sum benefits that the scheme member will become entitled to receive. Normally this will be be the earnings on which pension contributions have been deducted for the last 365 days of pensionable employment but can be one of the previous two 365 days periods if these yield a higher figure. This is also the full-time equivalent value of pay if the member was part-time - see section on "Pay"
20. Actual Annual Salary at Date of Leaving - This is the pay being received on the day that the employee leaves employment and is the actual part-time rate where applicable
21. FTE - This is the full time equivalent rate of pay at the date of leaving if the member is a part-time employee
22. Has the member had a reduction in FTE pay during the last 10 years of employment?
23. Last Contractual Hours Per Week - This is the number of hours that a part-time employee was contracted to work per week at the date of leaving. This will be used to check against the last details recorded on the member's pension record
24. Full Time Equivalent - The number of hours that a full-time equivalent employee would have worked
25. Last Contractual Weeks Worked Per Year - This is the number of weeks that a part-time employee was contracted to work per year at the date of leaving. Remember, part-time in pension terms means someone who may work full-time hours per week but not for 52 weeks of the year. This will be used to check against the last details recorded on the member's pension record
26. Term-Time
27. Does the employee have more than one post?
28. Final 2 years' pension contributions - This is the employee's contributions only and will be needed to update the member's pension record (although the year before leaving may already be held)
29. Final 2 years' NICO Earnings - This is the earnings on which the contracted-out part of the National Insurance contributions have been deducted. Only required if the member is entitled to a refund of contributions

The notification must be signed and dated by an authorised signatory.

Refund of pension contributions

An entitlement to a refund of pension contributions is permissible when the member:

• Has less than 3 months' membership and
• Has not received a transfer of former pension rights into the LGPS and
• Is not entitled to the immediate payment of a retirement benefit and
• Has not re-joined the scheme within one month and one day of having previously left it and
• Has not left employment due to an offence of a fraudulent character and
• Has not left employment due to grave misconduct and
• Has not re-entered Local Government employment before the refund has been paid and
• Is not entitled to any other LGPS pension benefits anywhere in England & Wales

Important Note: Where a scheme member opts out of the LGPS with an entitlement to a refund of contributions, the refund should be paid through payroll. If the member leaves employment with an entitlement to a refund the Pension Fund will make payment of the refund. Before a refund is paid, the member will need to sign a declaration that he or she has no previous pension rights in the LGPS anywhere in England & Wales. If it is subsequently found that the member has previous rights having claimed a refund those former rights will be lost.

Similarly, where a new employee wishing to opt out of the scheme fails to do so before deductions of pension contributions are made from pay, payroll should refund these contributions through the payroll system.

The contributions refunded to a member include all employee contributions, including any additional contributions paid into the LGPS, but does not include employer contributions. A scheme member may choose to waive the right to receive a refund of contributions for any period and where a refund is not made within one year following date of termination of employment, interest also becomes payable on any eventual refund.

The contributions to be refunded are reduced by an amount of National Insurance (if the member earned above the Lower Earnings Limit) and income tax. The National Insurance deduction is paid to HM Revenue & Customs so as to reimburse any entitlement due to the scheme member from the state scheme. As pension contributions are deducted before tax, a 20% tax deduction is taken from the balance in accordance with the Finance Act 2004. It is worth noting that HM Revenues & Customs rules state that 20% tax must be deducted irrespective of whether or not the employee received tax relief on the contributions paid.

If a scheme member left local government employment between 1 April 1974 and 31 December 1979 with less than 5 years' membership of the LGPS and claimed a refund of contributions it is possible to repay the refund plus interest within six months of rejoining the LGPS. The administering authority may extend this period.

If a scheme member left local government employment between 1 April 1972 and 31 March 1974 with more than 5 years' membership and claimed a refund of contributions, it is possible to repay the refund plus 10% tax within three months of re-commencing pensionable employment. Alternatively the respective period of employment can be kept separate from the current period of employment and the refunded contributions plus the 10% tax can be deducted from the benefits payable at retirement.

Deferred pension benefits

An entitlement to deferred pension benefits arises when a member:

• Leaves Local Government employment or opts out of the LGPS with 3 or more months' membership or
• Has less than 3 months membership but has elected to transfer former pension rights into the LGPS or
• Has previous LGPS rights anywhere else in England & Wales and Is not entitled to the immediate payment of retirement benefits.

Deferred benefits are calculated in the same way as retirement benefits but based only on membership built up to the date of leaving and final pay at that point.

Since the introduction of the Local Government Pension Scheme (Amendment) Regulations 2006 the date from which deferred benefits become payable depends on a number of factors. This is because those regulations removed the 85-year rule with effect from 1 October 2006. Protection has, however, been given to benefits based on membership accrued prior to the change in regulations and to membership accruing after that date where the member will be 60 before 1st April 2020.

The 85-year rule

The 1997 regulations introduced the rule of 85. This states that where a scheme member who has deferred benefits and elects to take those benefits before normal retirement age they should be reduced unless the member's length of membership (full time equivalent years where employed part time) and age (in whole years) when added together equals 85 or more. The employer's consent is required to release benefits on a voluntary basis between the ages of 50 and 59. From the age of 60, benefits can be paid immediately without the employer's consent. Where the rule of 85 is satisfied, no actuarial reduction will occur.

A member who does not satisfy the rule of 85 may elect to receive benefits from the age of 60 but at an actuarially reduced rate. If an election to receive benefits early is not made, they will become payable from the normal retirement date.

Transfer of pension rights

Other than a scheme member who opts out of the Scheme within 3 months of joining, without having transferred in a previous pension right to the Scheme, all scheme members have the right to transfer accrued pension benefits to another pension arrangement (even those members who cease employment within the first 3 months of membership (without having transferred in a previous pension benefit). Pension rights can be transferred to another local authority operating the LGPS, to another occupational pension scheme or to a personal pension arrangement

Transfers between Local Authority Pension Funds are called Inter-fund Adjustments and are calculated in a totally different way to transfers to other schemes. Such transfers provide day for day service between Local Government Funds. Scheme members who are transferring between Local Government employers need to be aware that their benefits will be based on their final pay so if, by transferring from one employer to another employer, the member's rate of pay is reduced, the member will need to make a decision whether to transfer or opt for deferred benefits.

With effect from 1st April 2004, scheme regulations restrict the time to make a decision to amalgamate different periods of Local Government Pension Scheme membership to 12 months from the time of re-joining the LGPS. There is discretion available to employers to extend this 12 month deadline.

Active members on 1st April 2004 who had a deferred benefit from a previous membership period had until 31st March 2005 to elect to amalgamate their former benefit with their current employment.

Pension schemes are categorised in order to determine what action needs to be taken when calculating the current transfer value. "Club" schemes are those within the public sector, or those outside of the public sector who have agreed to use the public sector method of calculating transfer values, and award service credits derived from incoming transfer values.

"Non-club" schemes is the term used to describe those schemes which can pay and receive transfer values but who do not use the public sector method of calculation and do not award service credits.

For the purpose of this guide it is useful to understand the processes behind completing a successful transfer of benefits rather than the method of calculating transfer values.

When a scheme member leaves local government employment or opts out of the LGPS a Form LGS15C should be completed (or other notification method agreed between the employing authority and the scheme administrators) and sent to the pensions administration team. The member is sent one of two option forms (either LGS20 or LGS21) by the pension administrators depending on whether the member has an entitlement to deferred benefits.

Each form contains an option to transfer the accrued pension rights held in the LGPS. The member should complete the relevant section of the form indicating to the pension administrators that a transfer value should be calculated.

At the same time, the member's new pension scheme administrators should, upon receipt of a request from the member, contact the pension administrators in order to obtain the current transfer value payable. This amount will be guaranteed for a period of three months.

The pension administrators send the details to the new pension scheme administrators who set out the information provided in such a way that the member should be able to make a decision as to whether or not the transfer of the pension rights would be the best option available.

Both administrators will probably ask the member to sign a form declaring the decision made, upon receipt of which a payment will be requested. Providing the decision is made within 3 months of the original calculation there will be no need for a re-calculation to be performed.

A scheme member cannot make a decision until all the facts have been presented and a transfer will not take place until authorised by the member.

Note: Scheme regulations do state that an application by a scheme member to transfer former pension rights into the LGPS should be made before the expiry of 12 months starting from the date that the member joined the scheme. There is discretion, however, for employers to extend that period.

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