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Millions of savers blocked from transferring their final salary pensions

Laura Miller
The Government has stopped members of the Local Government Pension Scheme transferring their money while it recalculates contributions - EPA/BORIS ROESSLER

Members of one of Britain’s largest final salary pension schemes face a temporary ban on moving their retirement money while the Government works out how much their funds are worth.

The Local Government Pension Scheme (LGPS) covers 14,000 employers and has five million members. 

A Government spokesman declined to give a deadline for the ban, leaving soon-to-be retirees in limbo, though eventually better-off.

Unlike most defined benefit public sector schemes, including the NHS, pensioners in the fully-funded LGPS had been able to transfer out in order to withdraw their money with fewer restrictions under pension freedoms.

Transfers have been suspended, as first reported by FTAdviser, because of Government plans to change the calculation used for employer contributions into public sector schemes, announced in the Budget in October.

LGPS pensioners who are able to transfer once the ban is lifted will get a bigger payoff in exchange for giving up the scheme’s guaranteed income, as a result of the changes.

A spokesman for the Ministry of Housing, Communities and Local Government confirmed the suspension.

They said: “We have temporarily suspended transfers out of the local government pension scheme in England and Wales. This is necessary while work is completed to update the underlying basis for calculating such transfers.”

At issue is the so-called the “discount rate”. Public sector defined benefit schemes are funded by taxpayers, and so payment of them is linked to the health of the economy.

In the Budget, the Government announced it was changing the discount rate to 2.4pc above inflation, after the Office for Budget Responsibility scaled back Britain’s growth prospects. 

A slower growing economy makes public sector final salary pensions more expensive, meaning schemes are more willing to give pensioners large lump sums to leave.