A member’s benefits will be deferred if they no longer work for the fire service, and the benefits have not yet come into payment. Or, the firefighter may still be employed by their Fire & Rescue Authority, but decided to opt-out of the pension scheme and didn’t qualify for a refund of pension contributions.
Deferred pensions in retained modified section of the Firefighters’ Pension Scheme 2006 (FPS 2006) are payable from age 60, or from any earlier date if the individual becomes permanently incapable of performing any regular employment (defined as a minimum of 30 hours per week for a minimum of 12 months).
At retirement, a deferred member of the retained modified section of FPS 2006 also has the option to commute part of their pension; up to a quarter of their pension in exchange for a lump sum. However, under HMRC rules, the maximum amount of tax free lump sum is restricted to 25% of the capital value of the individual’s pension benefits. If, when the individual claims their benefits, their lump sum exceeds the HMRC allowance, the excess amount will incur tax charges. We would advise any affected members, at retirement, if they exceed this limit. This is calculated using the formula;
[20 x pension + lump sum] divided by 4.
To avoid any tax charges a notice of commutation must be given no earlier than 4 months before and no later than the day before the intended retirement date.
Please note: XPS’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); full details will be provided nearer the time the benefits are paid.
The FPS 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 FPS. 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.
Benefits from the retained modified section of FPS 2006 are designed to keep pace with inflation and are index linked every April, both in deferment and after they come into payment. Deferred benefits in the retained modified section of FPS 2006 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: annual pension increases are paid if the pension was paid early due to the individual being permanently disabled from regular full-time work of any kind.
As an alternative to keeping benefits deferred in the retained modified section of FPS 2006, the individual may be able to transfer their fire pension rights to another pension arrangement, but not to other occupational or personal defined contribution pension schemes that provide flexible benefits.
Deferred members should be aware that there may be time limits that apply. The regulations allow benefits to be transferred to another pension scheme, providing the election to transfer is signed within 6 months of joining the new scheme or such longer period as the member’s former Fire & Rescue Authority allows. If the 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 election to transfer must be made before your 59th birthday (this being a year before your deferred benefit age of 60).
If a deferred member of the retained modified section of FPS 2006 dies before their benefits come into payment, there are benefits payable to eligible dependants. Survivors’ benefits are the same following the death of either a standard or modified deferred member.
Details of the pensions payable to adult survivors, as well as children, can be found in the ‘Death Benefits’ area, but in brief FPS 2006 pays dependants’ pensions to spouses, civil partners and nominated cohabiting partners (who meets the criteria to receive a partner’s pension) equal to half of the member’s deferred pension (albeit pensions for civil partners and nominated partners will be based on the member’s service from April 1988 only).
Please note: the unmarried partner’s nomination form is available within the ‘Death Benefits’ pages. Whilst it is no longer a requirement for this form to be completed, it is a useful document in that it informs XPS that a partner exists (assuming the member’s circumstances haven’t changed since the form was completed!).
Entitlement to a partner’s pension will be determined following the member’s death. Details of the criteria to be met are quoted on the form.
FPS 2006 does not pay a death grant (lump sum) following the death of a deferred member.
If a court has issued a Pension Sharing Order, a firefighter’s (or former firefighter’s) 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 the firefighter’s (or former firefighter’s) benefits come into payment, and is therefore not taken into account in this benefit illustration.
If FPS 2006 deferred members re-join the fire service they will be eligible to re-join FPS 2006, or will become a member of FPS 2015, depending on their age and how long ago it was since they left FPS 2006.