The government has reconsidered allowing members of the Local Government Pension Scheme (LGPS) to access pension freedoms rules, with these individuals being told they can't take lump sums directly from their fund.
The ministry of Housing, Communities and Local Government has published its response to a consultation to introduce amendments to Local Government Pension Scheme regulations, which would allow scheme members to take an uncrystallised funds pension lump sum (UFPLS) from their additional voluntary contributions, which are built as a defined contribution (DC) pot.
The government said introducing this rule – which allows savers to access their pension pot, with 25 per cent tax-free and the rest taxed as income – “would create substantial administrative complexities”, primarily due to difficulties standardising procedures among a large number of additional voluntary contributions providers existing in the Local Government Pension Scheme.
With 5.3 million members, the Local Government Pension Scheme is administered locally through 101 regional pension funds, and has members in local government, education from primary to higher, police staff, the voluntary sector, environment agencies and private contractors.
Instead, Local Government Pension Scheme members that want to take advantage of the rule, introduced in 2015 with pension freedoms, need to transfer their additional voluntary contributions pot out of the scheme.
The government said: "This approach ensures that individual members can take advantage of the pensions freedoms in respect of their additional voluntary contribution, whilst avoiding new administrative requirements for Local Government Pension Scheme administering authorities and additional voluntary contribution providers."
According to Bart Huby, partner at consultant firm LCP, allowing Local Government Pension Scheme members to take lump sums would mean a lower cost for them.
He said: "It would mean that they wouldn't have to go through a transfer process, they wouldn't have to identify a separate pension fund to which to take their additional voluntary contributions and then access them."
Mr Huby said at least 10 per cent of employees in the UK will have additional voluntary contributions, generally speaking.
He added: "It is an extra saving, if you are in a pension scheme and you are earning some benefits, if you want to put some extra savings in, you can do an additional voluntary contribution.
“It is a defined contribution pot alongside a [defined benefit] DB pension.”
According to Paul Gibson, managing director of Granite Financial Planning, the decision on whether to implement the pension freedom rules is ultimately with the scheme trustees.
He said: "The administration complexities are an issue but you would have hoped a scheme as large as the local government one would have the resources and capability to do so.
"It ultimately will be a disadvantage to some members so hopefully they may reconsider the decision."
In the same consultation, the government also made a U-turn on introducing new legislation for the LGPS which would protect the scheme members from losing their pensions in Carillion-like cases.
maria.espadinha@ft.com
