Deferred Benefits (for former members of PPS 1987)
Your benefits will be deferred if you no longer work for the police, and the benefits have not yet come into payment. Or, you may be an officer that is still employed by your force, but decided to opt-out of the pension scheme and didn’t qualify for a refund of pension contributions.
Deferred pensions in the 1987 scheme are calculated as a proportion of the pension you would have expected at Normal Pension Age (NPA), or the date you would have achieved 30 years’ maximum scheme membership, had you remained in service. The pension calculated is then proportioned by the actual scheme membership achieved:
B * C / D
B = Notional Pension
C = Period in years of pensionable service
D = Period in years of notional service
Notional Pension and Notional Service is the service and pension a police officer would have expected to receive if they had not left the scheme.
Deferred PPS 1987 pensions are payable from age 60, or from an earlier date if you become permanently incapable of performing the ordinary duties of a police officer.
Deferred benefits will be paid from age 50 if you had at least 25 years, but less than 30 years pensionable service. Benefits can also be paid if early if you have reached age 55 and received a compensation lump sum on voluntary retirement; you can elect, by giving at least one month’s notice, for immediate payment of your pension. In this scenario, the pension would be reduced, but the compensation payment could be used to reduce or negate the reduction; details are available on request from the Pensions Unit.
At retirement, you will have the option to receive a lump sum; generally you can commute (convert) up to a quarter of your pension in exchange for a lump sum. However, if you had at least 25 years’ service, and ask for your pension to be paid from age 50 but before age 55, the maximum lump sum allowed cannot be more than 2¼ times your gross annual pension.
Under HMRC rules, the maximum amount of tax free lump sum is restricted to 25% of the capital value of your pension benefits. If, when you claim your benefits, your lump sum exceeds the HMRC allowance, the excess amount will incur tax charges. We will advise you at retirement, if you exceed this limit. This is calculated using the formula;
[20 x pension + lump sum] divided by 4.
Notice of commutation must be given no earlier than 4 months before and no later than the day before your intended retirement date.
Please note: Kier’s annual deferred statement do not include details of the commuted lump sum (other than it is an option at retirement to commute some of the pension to receive one). As the factors governing commuted lump sum can change with little, or no, advance notice, we believe it imprudent to quote a lump sum figure that could be very different from the actual amount at retirement.
If you had pensionable service before 1 April 1980, this would likely have resulted in a modified pension (superannuation) contribution rate being paid (the basic rate less 6p per week). If you paid this ‘modified’ rate your pension will be reduced at State Pension Age by £1.70, for each year of service that the modified rate was paid.
HMRC Tax Rules
The PPS has to comply with rules set by HMRC. There are, for example, limits on the amount of pension and lump sum which can be taken by a pension scheme member before tax charges apply. When benefits are due the total value must be tested against the lifetime allowance, which is set annually.
If the value exceeds this limit (currently £1 million), tax will be deducted and paid over to HMRC. This test is in respect of all pension benefits you may have accrued over your working life, not just PPS. You will be asked to provide statements in respect of any other pensions you may have so we can check for breaches before making payment. For more information visit: www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm080000.
PPS 1987 benefits are designed to keep pace with inflation and are index linked every April, both in deferment and after they come into payment. Deferred PPS 1987 benefits increased by 1% in April 2017, as this was the measure of increase identified by the Consumer Prices Index (CPI) in the year to September 2016. If you left the pension scheme during 2016/17, the benefits shown will include the proportion of the 1% increase to which you are entitled to for this first year.
Please note: if your deferred benefits are paid before age 55, annual pension increases won’t be paid until you attain age 55, unless the pension was paid early due to you being permanently disabled from regular full-time work of any kind.
Transfers to other pension schemes
As an alternative to keeping benefits deferred in PPS 1987, you may be able to transfer your police pension rights to another pension arrangement, but not to other occupational or personal defined contribution pension schemes that provide flexible benefits.
You should be aware that there may be time limits that apply. The regulations allow benefits to be transferred to another pension scheme, providing the application for a transfer payment is made within 6 months of leaving the police service or opting out of the scheme – this may only be extended by the police authority at their discretion.
If your new scheme is another public sector pension scheme, an election to transfer must be made within 12 months of becoming eligible to join the new scheme, otherwise the right to preferential transfer terms will be lost.
Finally, any transfer of benefits to a new pension scheme must be made no later than age 59 (this being a year before your deferred benefit age of 60).
Death before payment
If you die before your benefits come into payment, there are benefits payable to eligible dependants.
Details of the pensions payable to adult survivors, as well as children, can be found in the ‘Death Benefits ’ area, but in brief PPS 1987 pays dependents’ pensions to spouses or civil partners, equal to half of your deferred pension (albeit pensions for civil partners will be based on your service from April 1988 only).
However, if the surviving spouse or civil partner later remarries, forms a new civil partnership or cohabits, their pension will stop.
PPS 1987 does not pay a death grant (lump sum) following the death of a deferred member.
If a court has issued a Pension Sharing Order, your pension, lump sum and survivors’ benefits are reduced to reflect the percentage of their pension rights allocated to their ex-spouse.
As an alternative, a court could issue an Earmarking Order, that also awards pension rights to an ex-spouse, but these do not take effect until your benefits come into payment, and is therefore not taken into account in the annual benefit statements we produce.
Re-joining the Police Service
If you re-join the police service (or recommence pension contributions if you are still in service but had opted out of the pension scheme) you will not be allowed to re-join PPS 1987. You will be eligible to join either PPS 2006, or PPS 2015, depending on your age and how long ago it was since you left PPS 1987.