Case Study: Voluntary Redundancy at 58 — What Happened to Claire’s LGPS Pension (2026 Guide)

When Claire received a voluntary redundancy letter from her employer — a large East Midlands local authority — she felt a mixture of relief and anxiety. At 58, with 32 years of LGPS (Local Government Pension Scheme) membership, she knew her pension position was strong. But she’d seen colleagues make rushed decisions and regret them. She wanted to understand every option before doing anything.

Claire’s Pension Position

Before approaching a pension transfer specialist, Claire gathered her paperwork. Her pension landscape looked like this:

• LGPS Main Pension (current employer): 32 years’ membership. Projected income from Normal Pension Age (67): £21,400/yr + automatic tax-free lump sum of £64,200. Current CETV: £520,000. Her early retirement factors: retiring now at 58 would reduce pension to approximately £16,800/yr (from 67’s £21,400, reduced by 9 years).
• Deferred DB (former private sector employer, 1994–2001): 7 years’ membership in a company final salary scheme. Projected income from 65: £2,900/yr. CETV: £42,000. FCA mandatory transfer advice required for this one (over £30,000 threshold).
• SIPP (personal pension): £67,000, accumulated through AVCs and a brief period of self-employment. Invested in a balanced multi-asset fund.
• State Pension: 38 qualifying NI years → full new State Pension of £11,502/yr (2024/25 rates) from age 67.

The Redundancy Decision

Claire’s employer was offering a voluntary redundancy package: statutory redundancy pay of £14,400 (30 weeks × £480/week, capped at statutory max), plus an enhanced payment of £8,500. Total: £22,900.

Importantly, the LGPS rules for Claire’s situation were favourable. Under LGPS regulations, members made redundant or facing a business efficiency dismissal at age 55 or over with at least 2 years’ membership are entitled to immediate payment of their pension without early-retirement reduction, in most cases.

After reviewing the rules with her adviser, Claire’s situation was confirmed: if made redundant at 58 by her employer, her LGPS pension would be paid immediately and unreduced — the same £21,400/yr she would have received at 67, starting now. This dramatically changed the financial calculation.

Should Claire Transfer Her LGPS Pension?

Claire had read articles online suggesting that some people with large pension pots should consider transferring to a SIPP for flexibility and inheritance planning. Her CETV of £520,000 seemed large. She asked her adviser to model the transfer option.

Transfer Value Analysis

The critical tool used here was the Required Rate of Return (RRR) calculation — what investment growth rate would a SIPP need to achieve to match the guaranteed income of the LGPS pension over Claire’s lifetime?

Key assumptions:

• LGPS income (unreduced): £21,400/yr from age 58
• CETV: £520,000
• Life expectancy: 87 (ONS tables for 58-year-old female)
• Pension escalation: CPI-linked (currently capped; for DB schemes pre-2014 LGPS, different rules may apply)
• Spouse’s pension: 50% survivor pension payable to Claire’s husband (£10,700/yr)

The RRR came out at 7.2% per annum after charges, consistently. The FCA’s benchmark for a “reasonable” RRR before a transfer is considered is typically around 5–6%. At 7.2%, the SIPP would need to outperform most cautious investment strategies reliably and over decades — an unrealistic expectation for someone of Claire’s risk profile.

Adviser recommendation: DO NOT transfer the LGPS pension.

Claire’s guaranteed income stream, inflation-linked escalation, spouse’s pension, and PPF-equivalent LGPS protection collectively outweighed the flexibility benefit of a SIPP. The 2027 pension inheritance tax changes (under which defined contribution pensions will fall within estates for IHT purposes from April 2027) further weakened the IHT argument for transferring to a SIPP.

What About the Deferred DB Pension (£42,000 CETV)?

Claire’s former private-sector employer’s scheme had a CETV of £42,000, above the £30,000 threshold requiring regulated advice before any transfer.

The income at 65 was £2,900/yr. The RRR on this smaller pot was 5.6% — more borderline than the LGPS figure, but still above the prudent threshold, and the income had modest RPI-linked revaluation in deferment.

Considerations specific to this pot:

• Revaluation in deferment: RPI (capped at 5% per annum under the scheme rules), currently accruing
• Scheme funding level: 96% (checked via The Pensions Regulator’s scheme return data) — not at immediate risk
• Benefit at transfer would become SIPP drawdown income — subject to investment and longevity risk
• No spouse’s pension in the private scheme (unusual gap, but confirmed) — this slightly weakened the retention case

However, at £2,900/yr guaranteed from 65, the small deferred pension would act as a reliable supplementary income. The lack of a spouse’s pension was a legitimate concern, but the income certainty outweighed the flexibility benefit for Claire’s circumstances.

Adviser recommendation: Retain the deferred DB pension.

Redundancy Accepted: Planning the Income Bridge

With both DB pensions retained and the redundancy accepted, Claire needed an income plan for the years between 58 and 67, when State Pension would begin.

Her income from 58 (following redundancy):

• LGPS pension (unreduced): £21,400/yr + lump sum £64,200
• Redundancy payment: £22,900 (the first £30,000 is tax-free)

Income from 65:

• LGPS pension continues (with CPI escalation from 58): approximately £22,800/yr by 65
• Deferred DB pension: £2,900/yr (with RPI revaluation from 58 to 65: approximately £3,400/yr by 65)

Income from 67:

• State Pension: £11,502/yr (full new State Pension, 38 qualifying years)
• LGPS + deferred DB continuing
• Total from 67: approximately £37,700/yr (plus any further CPI escalation)

Tax-Free Cash Planning

Claire’s LGPS automatic lump sum was £64,200. Her Lump Sum Allowance (LSA) is £268,275. She had used none of her LSA previously.

She also had a £67,000 SIPP. The 25% tax-free element of the SIPP = £16,750.

Plan: Take the LGPS lump sum (£64,200) at retirement (age 58). This leaves £204,075 remaining LSA headroom. In future she can take 25% of SIPP drawdown withdrawals tax-free up to that headroom — approximately £16,750 of the SIPP, comfortably within LSA limits.

Total tax-free cash available: approximately £80,950. Claire chose not to take additional commutation from LGPS (exchanging pension for extra lump sum) because her income target was achievable without it, and every £1/yr of pension surrendered provides only £12 of lump sum — not always the best trade.

The 2027 Pension IHT Change: Impact on Claire

From April 2027, most unused defined contribution pension pots (SIPPs, personal pensions) will fall within the estate for Inheritance Tax purposes. This is a significant change for pension planning.

Claire’s situation:

• LGPS pension — DB income; no lump sum to inherit beyond the 5-year guarantee period. Not directly affected by the 2027 IHT change.
• SIPP (£67,000) — from April 2027, any unused portion will form part of her estate. Claire is married; her husband would inherit pension assets exempt from IHT via the spousal exemption. But for estate planning beyond the first death, they discussed using the SIPP more actively — drawing it down earlier and topping up ISAs.

The 2027 change strengthened the case for drawing the SIPP efficiently across ages 58–65, rather than leaving it to grow and potentially pass through the estate at a higher tax cost.

What Claire Learned: 7 Lessons for Public Sector Workers

1. Redundancy rules can unlock unreduced pensions early. If you’re over 55 with sufficient LGPS membership and your employer triggers redundancy, you may be entitled to an immediate, unreduced pension — this changes the financial calculation entirely compared to voluntary early retirement.
2. A high CETV doesn’t mean you should transfer. Claire’s £520,000 CETV looked attractive, but the guaranteed income, inflation protection, spouse’s pension, and low RRR threshold all pointed firmly to retention.
3. Small deferred pensions can be overlooked. The £42,000 deferred DB was easy to undervalue, but £2,900/yr from 65, escalated and guaranteed, has significant lifetime value — especially alongside the State Pension.
4. Income sequencing matters. Using the SIPP to bridge income in early retirement, then turning on the deferred DB at 65 and the State Pension at 67, creates a natural stepped income increase aligned with typical spending patterns in retirement.
5. The 2027 IHT change affects DC pots, not DB income. Defined benefit pensions (LGPS, final salary) are not directly caught by the 2027 rule change. DC pots (SIPPs, personal pensions) are. This affects where you hold your money.
6. Tax-free cash has a lifetime limit. The LSA of £268,275 caps total tax-free cash across all pension sources. Claire’s plan used £80,950 — well within limits — but anyone with large DC pots and multiple DB schemes should model this carefully.
7. Employer discretion matters. Not all councils or public sector employers will apply LGPS redundancy rules the same way. The Discretionary Policy Statement of each administering authority can vary. Always confirm in writing.

Seeking Professional Advice

Claire’s case involved multiple pension types, early retirement trigger analysis, tax-free cash planning, SIPP drawdown sequencing, and the 2027 IHT change. It illustrates how seemingly straightforward pension decisions quickly become multi-dimensional.

If you are facing redundancy with a significant pension pot, or if you are a public sector worker weighing up whether to transfer or retain your DB pension, the decisions you make now could affect your income for 30 or more years. Getting regulated, independent advice is not optional — it is essential.

For any defined benefit pension with a CETV above £30,000, FCA rules require you to take regulated advice from a Pension Transfer Specialist before any transfer can proceed.