You may be thinking of opting out of the Local Government Pension Scheme (NI) (the Scheme) for a variety of reasons. Whatever the reason, it’s worth taking some time to look at the benefits you could be giving up.
Currently, the full amount of the new State Pension is £221.20 per week (2024/25 rates) for a single person. The money you get from a workplace or other pension could make it much easier for you financially when you are retired.
Opting out will not save you as much in take-home pay as you may think. In most cases, you will pay more tax if you opt out. For example, a basic rate taxpayer paying pension contributions of £100 a month will pay £20 more tax if they opt out.
If you opt out of the Scheme, we cannot pay you your pension until you leave that employment and have reached the age at which pension benefits can be paid (i.e. your Normal Pension Age or your pension can be paid earlier on a reduced basis from age 55).
As a member of the Scheme you will be provided with:
- a secure future retirement income – a pension
- early retirement benefits on permanent ill-health
- benefits payable on redundancy or efficiency retirement providing you are aged 55 or over
- options for early, late and flexible retirement
- tax relief on your pension contributions
- the option at retirement to exchange part of your pension for some tax-free cash
- life cover of three times your assumed pensionable pay
- survivors’ pensions payable to your spouse, civil partner, eligible cohabiting partner and/or eligible children
If you are thinking of opting out for financial reasons, you might want to consider reducing your contributions using the 50/50 section instead. The 50/50 section allows you to pay half the contributions and build up half the amount of pension. However, you will still keep the full value of life cover. This can be used as a short-term option if your financial circumstances are difficult, instead of opting out of the Scheme. To move to the 50/50 section please complete form LGS12 (see link on the bottom of the page) and return to your employer.
If you do decide to opt out you should complete all sections of the LGS2 – Opt-out Notice and return section A to your employer and section B and C directly to NILGOSC (see links on the bottom of this page).
Opting out if you have been ‘automatically enrolled’
Your employer will have sent you a letter telling you that you have joined the Scheme. If you wish to opt out and you have not met the two year qualifying period you may get back any money you’ve already paid in. If you opt out later, you will not get your payments refunded – they will stay in your pension until you retire.
What if I have multiple jobs?
If you have multiple jobs your employer may assess each job separately. If this is the case you have the option to opt out of the Scheme for one position and stay enrolled in the Scheme for the other. Alternatively you can opt out of the Scheme for both jobs.
Opting back in
You can do this at any time by writing to your employer. However, you cannot combine any pension benefits that relate to a period of membership where you opted out with your new ongoing active membership.
Re-joining automatically
Once you have left your employer’s scheme, they will normally automatically enrol you back into their scheme after three years, as long as you still qualify. Your employer will write to you when they do this. You can choose to opt out again at this stage if you wish.
If I opt out and have deferred benefits in the Scheme, how is that different to having active membership in the Scheme?
| Factor | Active | Deferred |
|---|---|---|
| Death Grant | 3 x assumed pensionable pay | 5 x annual deferred pension |
| Survivors’ benefits | Calculation based on accrued benefit plus potential pension to Normal Retirement Age | Calculation based on accrued benefit |
| Ill-health | Benefits payable are based on the pension that you have built up so far plus (depending on the tier awarded) an enhancement to Normal Retirement Age. When calculating the enhancement, the impact of a reduction in hours or grade can be ignored if the same condition caused the reduction and the ill-health retirement. | Benefits based on the pension that you have built up so far. No enhancement. |
| Early retirement reduction factors | Same for both | Same for both |
| Redundancy/efficiency retirement | Payable on an unreduced basis if member aged 55 or over. Employer picks up cost. | Not payable. Member could elect for early payment if over age 55 but benefits will be reduced |
| Cost of living increases | In line with Revaluation Orders issued by the Department of Finance – could be negative | In line with Pensions Increase Orders – cannot be negative |
| Other factors | Could apply for flexible retirement if aged 55 or over | |
| Applicable Scheme regulations | Usually current principal regulations plus any transitional protections | Usually the regulations that the person left under. |