LGPS: leaving — before retirement.
If you leave a local authority job before retirement, your LGPS benefits don't disappear. They stay preserved as a deferred pension, revalued by CPI until you draw them. This guide covers the rules, the refund option, and the transfer question.
- ▸The LGPS vesting period is just 3 months — far shorter than most occupational schemes. Benefits are preserved after this point.
- ▸Deferred LGPS benefits are revalued by CPI each year until you draw them.
- ▸A short-service refund is only possible if you have under 2 years of membership — and the tax penalty makes it poor value in most cases.
- ▸LGPS deferred benefits can in some circumstances be combined if you rejoin LGPS at a later employer.
The vesting period: 3 months to qualify
The LGPS has one of the shortest vesting periods of any occupational pension scheme in the UK. After just 3 months of LGPS membership, your pension rights are preserved when you leave.
What "preserved" means in practice: rather than losing your contributions, you retain a deferred pension entitlement that will be paid when you reach retirement age. The value of that entitlement is based on your LGPS accrual up to your leaving date.
Before the 3-month threshold is reached, you have a different option — a contribution refund — but this is rarely the better outcome. Once you are past 3 months, a refund is only available if you also have under 2 years of total membership.
For context on how the LGPS accrual structure works, the defined benefit guide explains the key principles. Detailed projections are available through the LGPS Calculator.
Deferred pension: CPI revaluation each year
When you leave and your benefits are preserved, the LGPS does not freeze the pension at its current value. It revalues it annually by CPI (the Consumer Prices Index).
The revaluation happens on 1 April each year. If you leave with a deferred pension of £4,000 per year, and CPI for the previous September was 3%, your deferred pension becomes £4,120 the following April. This continues every year until you put the pension into payment.
Over a long deferral — say, leaving at 35 and drawing at 67 — the cumulative CPI uplifts can significantly increase the nominal value of your deferred pension. The real (inflation-adjusted) value remains broadly stable, which is the point: the revaluation is designed to preserve purchasing power, not to deliver real growth.
Deferred LGPS benefits also carry the same inflation protection once in payment. When your pension starts, it increases annually by Pensions Increase, which tracks the September CPI figure.
- ▸The LGPS vesting period is 3 months of qualifying membership. [LGPS Member]
- ▸Deferred LGPS benefits are revalued annually by CPI until drawn. [LGPS Member]
- ▸A short-service refund is only available to members with under 2 years of LGPS membership. [LGPS Member]
Short-service refund: only if under 2 years
If you leave with under 2 years of LGPS membership, you have the option to take a refund of your own contributions rather than a deferred pension. This is called a short-service refund.
The refund amount is your own contributions, less tax. The tax deduction is 20% on the first £20,000 and 50% on any excess (this represents a recovery of the tax relief you received when the contributions were paid). The employer's contributions are not refunded — they stay in the scheme.
In most circumstances, taking a refund is worse than leaving the pension deferred. Here is why:
- A deferred pension, even a small one, is a guaranteed income for life — it carries implicit mortality insurance and inflation protection that cannot be replicated by investing the refund equivalent.
- The deferred pension continues to revalue by CPI, so its real value does not erode.
- The tax deduction on the refund reduces the cash you receive — a member on the standard employee rate who contributed £2,000 receives £1,600 after the 20% deduction.
The only scenario where a refund might be considered is if you are in acute financial difficulty and need the cash immediately, with no prospect of needing pension income later. Even then, the LGPS administering authority can advise on alternatives.
If you are approaching the 2-year membership mark, it is worth noting that staying past 2 years removes the refund option entirely and locks in a preserved pension — which in most cases is the better outcome anyway.
Transferring out to a DC pension
Leaving your deferred LGPS pension in place is the default. You can also transfer the cash equivalent transfer value (CETV) to a defined contribution pension or a new employer's scheme, but there are significant considerations.
What a transfer involves: The LGPS administering authority calculates the present value of your future pension entitlement and pays it as a lump sum into your designated receiving scheme. The deferred pension is extinguished.
The key trade-off: The LGPS is a defined benefit scheme — it promises a guaranteed, inflation-linked income for life regardless of investment performance. A DC pension is a pot that grows or shrinks with markets, pays whatever it can fund, and runs out if you live long enough. The guaranteed income, inflation protection, and death benefits of the LGPS cannot be replicated in a DC pension.
Legal requirement: For any LGPS transfer above £30,000, you are legally required to take regulated financial advice from an FCA-authorised adviser before the transfer can proceed. This is not optional. In practice, most advisers will recommend retaining the DB benefit unless there are strong personal reasons not to.
Transfer value mechanics: CETVs from the LGPS are calculated on a basis set by the scheme actuary. The implied annuity rate in the CETV is often better than the equivalent commercial annuity — meaning you are, in effect, getting a better-than-market deal from the LGPS, and a transfer gives that up.
For projections of your LGPS deferred pension at different retirement ages, use the LGPS Calculator. For broader context, the public sector pensions guide covers the DB versus DC comparison in detail.
Rejoining LGPS later: can deferred benefits combine?
If you leave an LGPS employer and later join another employer that also participates in LGPS, you re-enter the scheme and start accruing new benefits. The question is whether your old deferred benefits combine with the new ones.
The answer: it depends on the fund.
The LGPS in England and Wales is administered by 87 separate local pension funds, not one central body. If you move from one LGPS employer to another within the same administering fund, the deferred benefits and new active benefits are usually combined automatically.
If you move to a different LGPS fund — for example, from a council in Yorkshire to a council in Kent — the two funds are separate. Your deferred benefits in the old fund remain as a deferred pension there. Your new benefits accrue in the new fund. You end up with two separate LGPS pensions, both payable at state pension age.
You can request a transfer of your old fund deferred benefits into the new fund if you prefer. This consolidates everything into a single pension. Whether to do this depends on whether the transfer calculation is favourable — ask both administering authorities for a transfer quotation and compare.
The administering authority for your former employer will send you a leaver statement within a few weeks of leaving, setting out your preserved pension value and your options. Keep this document — it contains everything you need to track the benefit.
- •LGPS transfers over £30,000 require regulated financial advice — this is a legal requirement.
- •A deferred LGPS benefit provides guaranteed income inflation-linked for life. This cannot be replicated in a DC pension.
- •Contact your LGPS administering authority for your specific deferred benefit statement.
This is factual information, not financial advice. If you're unsure what's right for your situation, speak to an FCA-regulated financial adviser.