Deciding to retire can be both exciting and stressful, but knowing exactly what to expect from the process (and how much you’ll receive) can help you feel more prepared. Below, we’ll explore what the scheme means for your retirement and the steps involved in retirement, to help you learn more about the Local Government Pension Scheme (LGPS) and what happens when you retire.
Considering Retirement
As a member of the Local Government Pension Scheme, you have several available options when you retire. For instance, you can choose to receive a lump sum and/or an annual pension.
One key benefit of the LGPS is that you can choose when to take your pension, with the youngest age being 55 (although this is increasing to 57 from the 6th April 2028). Of course, you must claim your pension by 75 at the latest.
Alternatively, you may decide upon flexible retirement. This option has to be agreed with your employer, but allows you to reduce your hours or move to a less senior position, while claiming some or all of your pension benefits.
Key Features of The Scheme
As a defined benefit scheme, your pension is based on your salary and length of service, but provides a guaranteed income throughout your retirement. You should also find that your pension is protected against inflation, so if the cost of living increases, your funds should also increase. This is excellent for helping you to maintain a consistent standard of living and letting you fully enjoy your retirement.
Another key benefit is that taxpayers will receive tax relief on all their contributions. This reduces the personal cost and can allow for larger contributions to your pension. Additionally, if you are forced to retire early due to poor health, the scheme will still allow you to collect your pension.
The Steps Along The Way
The retirement process can take several months, which is why it’s important to plan ahead. When you’re ready to retire, notify your employer. In turn, they’ll communicate with your pension fund and provide you with an estimate of your benefits. Once you’ve received this estimate, you should have a better understanding of your future potential income.
It’s important to note that, if you’re choosing to retire early, you will face deductions. These start at 4.9% for 1 year early, through to 43.9% for 13 years early. If these apply, factor them into your calculations as you fill in the necessary forms. Finally, you’ll receive a letter which will require careful review before you settle on payment dates.
Important Considerations
Getting a full understanding of the Local Government Pension Scheme can be complicated, especially if you’ve got a complex situation. In that case, we highly recommend talking to professionals about your situation. Pension fund experts will be able to walk you through the full effects of early retirement and how to add your state pension to your retirement planning.
One final point to consider is that, when you start receiving your LGPS pension, you will have to pay income tax on the amount you receive.
