Freedom and choice

The Government made significant changes to the way people can take their money for retirement back in April 2015. They are mainly for defined contribution (DC) pension schemes, where members had built up a pot of money consisting of contributions from themselves and their employer. The money was invested and the returns (if any) were added to the pot and then re-invested.

It’s important to know that the Local Government Pension Scheme (LGPS) does not work this way and isn’t a DC scheme. This means that many of the changes that took place in April 2015 don’t directly apply to members of the LGPS.

What does it mean?

The biggest change meant that members of DC schemes no longer have to buy a guaranteed income for life (also known as an annuity) with their pension money. The Government introduced something called ‘freedom and choice’, which meant that people could use their money in the following ways:

  • Take an annuity in the same way as before;
  • Take the money as cash, either all at once or in separate instalments; or
  • Mix ‘n’ match – for example, buy an annuity with some of the pension pot and then take the rest of the cash when they wanted to.

When members choose to take their pension pots as cash, the first 25% of that cash is paid tax-free and rest is taxed in the same way as any other income is e.g. a salary.

What about the LGPS?

Remember that the LGPS isn’t a DC scheme, so members won’t be able to take their money as cash in the same way as members of DC schemes can.

The LGPS is a defined benefit pension scheme, which means the benefits you get at retirement don't depend on how well your investments perform or how large an annuity an insurance company will sell you. Instead your LGPS pension at retirement is based on how long you've been in the scheme and how much you have earned. This means your benefits are secure and predictable.

The LGPS also has a feature that allows members who are retiring and want to have access to additional cash, to swap some of their pension for a bigger lump sum. At retirement you can usually take a lump sum up to 25% of the total value of all your LGPS benefits which is paid tax-free.

Transferring out of the LGPS

The freedom and choice rules do allow members of the LGPS to leave the Scheme and transfer the money they have built up to a DC scheme that would allow them to make use of the extra flexibilities.

Transferring pension benefits between schemes is highly complex and if you’re considering transferring out of the LGPS it’s important that you think very carefully about your decision.

If you’re thinking about transferring your LGPS benefits to a DC scheme and the value of that transfer is over £30,000 you must seek independent financial advice from an adviser who is qualified to advise on pension transfers before you move any money. We will require written evidence that you’ve received this advice before we will pay out any transfer value of your benefits. To find an adviser, visit and note that you will be responsible for arranging and paying for any advice you receive.

Pension Wise is a free, impartial service that offers guidance to consumers. It can help if you are:

  • Aged 50 or over;
  • Have a personal or workplace pension; or
  • Want to make sense of your options.

You can book a free appointment online at

Beware of pension scams

It’s important to learn the differences between what’s real and what isn’t. Our useful tips will help you!

The Pensions Regulator (TPR) has listed some common tactics used by scammers which include:

  • Cold calls (now illegal), text messages, website pop ups, or door salespeople offering pension reviews or enticing opportunities involving your pension;
  • Convincing marketing materials promising over 8% returns on investments;
  • Paperwork delivered to your door by courier that requires immediate signature;
  • A proposal to put your money in a single investment;
  • Claiming that you can access your pension before age 55; and
  • Transfers of your money overseas.

TPR recommend three top tips to avoid being caught in a scam:

  1. Never be rushed into a decision;
  2. Check the adviser is approved by the Financial Conduct Authority at:; and
  3. If you’ve already accepted an offer, speak to Action Fraud on 0300 123 2040.

Remember, if it’s too good to be true, it probably is!