50-50 take up remains low, but tax changes could spur interest

The 50-50 option was introduced as part of the reforms to the LGPS that came into effect in 2014. It allows members to pay half their normal contributions while also receiving only half of employer contributions, making the scheme more affordable for those who struggle with the LGPS’s often high contribution rates. 

I think it indicates that people who understand pensions are a good deal, 'Just go for it', and those that don’t are just leaving

Mark Packham, PwC

Take-up of the option has been low since its introduction, with some schemes seeing as few as six members signing up for it. 

A spokesperson for the West Midlands Pension Fund said the scheme had only 261 members using the option at present. It had 104,250 active members as at March 31 2015.

However, the spokesperson added: “That is the number we have registered on the scheme as a 50-50 member… We only know they are 50-50 if we are told.”

Mark Packham, director for government and public sector at consultancy PwC, said the take-up was similarly low across many LGPS schemes.

“From what I’m hearing, 1 per cent to 2 per cent is high,” he said. “I think it indicates that people who understand pensions are a good deal, 'Just go for it', and those that don’t are just leaving [the scheme].”

However, he added a small group were using the option for tax purposes, in order to avoid breaching the annual allowance limit.

“I suspect it will be a growing number of people as we move to the new tax regime next year,” he said. Next year a tapered annual allowance limit is being introduced for those earning above £150,000.

Packham added this was not the original intention for the option.

“I would like to see it taken up more,” he said, specifically for those who might not otherwise be saving into the scheme.

Stopgap for opting out

A spokesperson for the Merseyside Pension Scheme said: “Since the introduction of the 50-50 option in 2014, there continues to be minimal take-up within the 46,000 active members; only around 200 members have made a positive election.”

The option has been communicated to members through the website, scheme literature and in newsletters sent out alongside annual benefit statements, he said, adding: “It is important that both the fund and employers do not promote 50-50 to reduce employer cost or scheme liabilities.”

“To ensure there is no third-party inducement, it remains only as an option for individual members to enter the 50-50 section.”

He said the scheme was “mindful in its message management” of the 50-50 option as an alternative to opting out entirely “as it is intended as a short-term option for times of financial difficulties.”

However, he added: “As part of the statutory disclosure requirement to inform members of the change to the contracted-out status of the LGPS from April 2016, where members will see an ending of national insurance rebates, the fund has again raised awareness of the 50-50 section for consideration to ameliorate loss of net pay.”