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Nilgosc


Freedom and Choice

The 'Freedom and Choice' reforms from 6th April 2015 offer greater flexibility in the way that individuals aged 55 and over can access any defined contribution (DC) pension savings they may have.

It is important that as a member of the Local Government Pension Scheme (Northern Ireland) (the Scheme) you understand that you are a member of a public sector defined benefit (DB) scheme.  Therefore the flexibilities being introduced under 'Freedom and Choice' do not impact on how you can take your defined benefits from the Scheme.   There are, however, some indirect changes which will impact upon any members of the Scheme who are considering transferring the value of their accrued Scheme DB pension rights from the Scheme to a DC arrangement offering 'flexible benefits'.

The following questions and answers aim to help you to understand these changes.

What is Freedom and Choice?

From 6 April 2015 members of certain pension schemes will have more freedom over how they take their money from their pension pot.

These changes affect pension scheme members who are:

  • age 55 or over, and
  • have a pension based on how much has been paid into their pot (a defined contribution pension).

There will now be four main options for members who are in a defined contribution pension scheme which offers flexible benefits from their pension pot including:

  • purchase an annuity (annual pension) or scheme pension if offered by the scheme
  • flexi-access drawdown 
  • taking a number of cash sums at different stages 
  • taking the entire pot as cash in one go.

These new flexibilities do not apply to any defined benefits that you have in a defined benefit pension scheme, including the LGPS (NI) Scheme, and therefore they have no direct impact on your pension benefits from the Scheme.
 

Does Freedom and Choice impact on Scheme members at all?

Not directly. However, if you cease membership of the Scheme with 3 or more months’ membership then, unless you are retiring with immediate payment of your benefits on the grounds of redundancy, business efficiency or ill-health, you will be given information about your right to transfer the benefits you have built up in the Scheme. If you then choose to transfer the value of your Scheme defined benefits to a defined contribution pension scheme which offers flexible benefits, you will be able use the ‘Freedom and Choice’ flexibilities under that scheme.

Are there any new rules around transfers from the Scheme to a Defined Contribution scheme?

Yes.  If you cease membership of the Scheme and wish to use the right to transfer the value of your Scheme defined benefits to a DC pension scheme which offers flexible benefits, you will be obliged by law to obtain appropriate independent advice, at your own cost.  This advice must be from an authorised independent adviser, who is registered with the Financial Conduct Authority (FCA). You must prove that this advice has been taken before any payment of a transfer can be made from the Scheme to a defined contribution pension scheme offering flexible benefits.

You are only entitled to request one transfer quotation in any 12 month period.  If you wish to proceed with a transfer, the election to proceed must be made at least 12 months before your Normal Pension Age in the Scheme or, if you are a Pension Credit member, at least 12 months before your Normal Benefit Age.

In addition, you can only transfer benefits from the Scheme if you have left the Scheme and you have not already drawn benefits from the Scheme (either in your current employment or in any earlier employment).

Are there any exemptions to the rule on advice?

Yes.  If the total value of all your Scheme benefits (active, deferred refund, deferred benefits and pension credit benefits) across the Scheme is £30,000 or less then you are not legally required to take advice. However, given the impact on your Scheme benefits, you are recommended to take such advice regardless of the legal requirement.

In addition, if you leave the Scheme with 3 or more months but less than 2 years’ membership (and you do not have an entitlement to a deferred benefit in the Scheme in respect of that membership) you would not legally be required to take advice. However, given the impact on your Scheme benefits, you would again be recommended to take such advice regardless of the legal requirement.

How will I know the total value of my Scheme benefits?

You will need to request a transfer value quotation from NILGOSC for each of your separate benefits.   The total value of your benefits is the sum of all these transfer values. If the total amount is more than £30,000 then you will be legally required to take advice.

What happens to my Scheme benefits if I do transfer to a defined contribution scheme?

From the point of transfer, all rights to any benefits of any description in any circumstance in the Scheme included in the transfer are extinguished.

You may have more than one set of benefits in the Scheme (for example, because you hold two separate deferred benefits in the Scheme from two separate periods of employment.) If you decide to transfer one and not the other, only the benefits in respect of the one that is transferred will be extinguished; you will still be entitled to benefits in the Scheme in respect of the one that you have not transferred.

Who do I need to get authorised independent advice from?

By law you must receive appropriate independent advice from an independent adviser who is authorised by the Financial Conduct Authority (FCA). You can check if an adviser is authorised by the FCA using the Financial Services Register on the FCA website.  The adviser must not only be authorised but also must be qualified to give specific advice on transfers between pension schemes. It is important that you ensure that this is the case before committing to receiving advice.

Please do not ask NILGOSC to advise you as you cannot by law receive advice on this matter from us.  We are not authorised by the FCA to provide such advice.

Can NILGOSC give me names of an authorised independent adviser?

NILGOSC cannot give you details of an authorised independent adviser. You can however locate details of an authorised independent adviser on the FSA register, the Personal Finance Society website, the Association of Professional Financial Advisers website or contact your local Citizens’ Advice Bureau.

How much will this advice cost and who pays for it?

The cost will vary depending on the authorised independent adviser you decide to use. You, as the member choosing to transfer, will be expected to meet the cost of the advice. You should ensure that you get a clear and understandable quotation of the cost from the authorised independent adviser before committing to receiving advice from them.

Do I have to follow the advice that I receive from the authorised independent adviser?

No. However, if you choose to ignore the advice and proceed with the transfer to a registered defined contribution scheme offering flexible benefits (or to a qualifying recognised overseas pension scheme) you will have no redress from either the authorised independent adviser or from NILGOSC, should that decision prove to be financially disadvantageous to you.

If I follow the advice to transfer what protection do I have?

If the advice you are given from an authorised independent adviser is to proceed with the transfer and it proves to be financially disadvantageous to you, you would need to seek redress from the authorised independent adviser who provided that advice. There will be no redress from NILGOSC, or reinstatement in the Scheme.
 

How will NILGOSC know that I have taken appropriate independent advice?

If you are required to take appropriate independent advice, you will have to prove to NILGOSC that this advice has been taken before NILGOSC will release the transfer value payment. As part of the transfer information provided by NILGOSC there will be an 'Advice Confirmation Form' which the adviser must complete. The information on this form will include confirmation:

  • that advice given to you was specific to the transfer
  • that the adviser is authorised to provide such advice 
  • of the FCA reference number of the company for whom the adviser works 
  • of your name, and the name of the scheme from which the transfer is being sought and in respect of which the advice was given.

You must also sign the 'Advice Confirmation Form' and return it along with the completed transfer option to proceed forms that NILGOSC will send you.
 
On receipt of the above proof of advice, NILGOSC must check the authorisation status of the adviser’s company. We will do this by checking the company’s entry in the FCA register using the FCA reference number provided by the adviser on the 'Advice Confirmation Form'.

If you are not required to take appropriate independent advice (because the total value of your benefits in the Scheme is £30,000 or less, or the scheme to which you are transferring benefits is not one that offers ‘flexible benefits’) you will be asked to confirm this in writing.

Are there any other new rules which could impact on the transfer value of my accrued Scheme pension benefits?

Potentially, yes. In circumstances where the Government is convinced that the number of transfers to defined contribution schemes offering flexible benefits may result in a risk to the Scheme Fund and, hence, to local taxpayers, the amount of the transfer value can be reduced.  NILGOSC will confirm if this applies when you are considering your transfer.

General Points to note about transferring from the LGPS (NI):

  • You cannot transfer your benefits, other than Additional Voluntary Contributions (AVCs), if you leave the Scheme when you are less than one year away from your Normal Pension Age.
  • An option to transfer must (other than in respect of AVCs) be made at least 12 months before your Normal Pension Age or, if you are a Pension Credit member, at least 12 months before your Normal Benefit Age. 
  • If you wish to investigate a transfer of your pension rights, NILGOSC has to (other than in respect of AVCs) provide you with a transfer value quotation within three months of receiving your request and the quotation will be guaranteed for a period of three months from the date of calculation (known as the ‘Guarantee Date’). 
  • If you wish to proceed with the transfer, a written option to proceed must be received by NILGOSC within three months of the ‘Guarantee Date’. 
  • If you opt to proceed, the normal time limit for payment of the guaranteed transfer value will be six months from the ‘Guarantee Date’. 
  • If payment is not made within this period, NILGOSC will need to recalculate the value as at the actual date of payment and pay the recalculated value or, if it is greater, the original value plus interest. 
  • If you are considering whether to transfer benefits, make sure that you have full information about the two pension arrangements, i.e. details of what your benefits are worth in the Scheme and details of what your benefits would be worth in the new pension scheme, if transferred.