Pension v property

Fireflyaway
Fireflyaway Posts: 2,766 Forumite
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in Pensions, annuities & retirement planning
I've just enrolled in LGPS. Everyone keeps telling me how good it is. I mentioned in a previous post about using calculators as a rough guide to estimating retirement income and I did that today using my new LGPS contributions and again was disappointed! Seems I would get around £550 a month even though to me the monthly contributions seem high. To be fair I am nearly 40.
The alternative is to save £1000 a month and buy a property to rent as a retirement income. Right now I'm considering cancelling my LGPS and enjoying extra money each month and then going down the property route. What would you guys advise?
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Comments

  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    The taxpayers of this country would be eternally grateful if you declined the LGPS. Highly commendable.
  • Triumph13
    Triumph13 Posts: 1,730 Forumite
    First Anniversary Name Dropper First Post I've been Money Tipped!
    Many people would say opting out of the LGPS was tantamount to shooting yourself in the foot. I disagree. If I were in your position, and owned a gun, I would choose shooting myself in the foot ahead of opting out every time.
  • Fireflyaway
    Fireflyaway Posts: 2,766 Forumite
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    Thrugelmir wrote: »
    The taxpayers of this country would be eternally grateful if you declined the LGPS. Highly commendable.

    I'm also a tax payer and local government isn't some exclusive club. Anyone can apply to work there.
    So I guess you don't have a constructive piece of advice? Never mind , someone else will.
  • worried_jim
    worried_jim Posts: 11,631 Forumite
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    Fireflyaway wrote: »
    I'm also a tax payer and local government isn't some exclusive club. Anyone can apply to work there.
    So I guess you don't have a constructive piece of advice? Never mind , someone else will.

    I believe the point they were trying to demonstrate is the pension is better and therefore more expensive than one could obtain either in a personal capacity or through a private , therefore if they made (the rather stupid) decision to opt out we as tax payers should be grateful as it will save us all (except the OP) some money.
  • Fireflyaway
    Fireflyaway Posts: 2,766 Forumite
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    worried_jim wrote: »
    I believe the point they were trying to demonstrate is the pension is better and therefore more expensive than one could obtain either in a personal capacity or through a private , therefore if they made (the rather stupid) decision to opt out we as tax payers should be grateful as it will save us all (except the OP) some money.

    Fair enough. Lets forget what type of pension it is . Does anyone have an opinion on the pension v property aspect? A rental could bring in £850 a month and once paid could be sold and the proceeds banked. A pension no matter how high the employer contributions will only ever be £550 a month.
  • Stubod
    Stubod Posts: 2,167 Forumite
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    I suppose a BTL is an option, but you need to fully understand all the costs associated with this and also what changes the next few governments may make to make BTL less attractive.

    We got into BTL via an inherited property. (We decided it would be better to rent the property rather than sell and get 1.5% as we do not need the capital at the mo and assume the house value will continue to rise).

    In hindsight (wonderful), I wished we had invested in property when we had the chance 20 years ago, (but who knows what the next 20 yrs will bring).

    The property needs to be in the right area, (ie a good value to rent ration)...and then there is always the risk of "iffy" tenants which could cost you thousands...

    I still think the "less hassle/stress" option particularly with guaranteed index linking would be a government back pension scheme. But run some "models" and see what you get.....
    .."It's everybody's fault but mine...."
  • JoeCrystal
    JoeCrystal Posts: 3,013 Forumite
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    edited 27 November 2017 at 7:17PM
    Okay, assuming that you earn £24,000 a year and pay 6.5% contribution aka the net cost of £104 per month. Every year, you get 1/49th of your pensionable pay and assuming you are 39 years old and your state pension age is 68. You decided to work for LGPS for 29 years and assuming that you get 1% pay rise every year along with 1% of the cost of living adjustment. You will get £14,200 a year pension.

    A same person want to do the same thing in a DC pension scheme would need to put aside £1340 per month or 66% of the salary based on wanting up to 3% index linked annuity and 50% spouse pension. And that is not even taking into account of ill health retirement or death in service either.
    Fireflyaway wrote: »
    A pension no matter how high the employer contributions will only ever be £550 a month.

    So... if you work with LPGS for 29 years, you only get £6,000 at SPA??? So you got a salary about £10,000 a year? Assuming that, then you would need to pay £550 per month then to get the same benefit. Not bad for something that cost £45 per month net.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    Fireflyaway wrote: »
    Fair enough. Lets forget what type of pension it is . Does anyone have an opinion on the pension v property aspect? A rental could bring in £850 a month and once paid could be sold and the proceeds banked. A pension no matter how high the employer contributions will only ever be £550 a month.

    Crunch the numbers fully and properly. Understand the tax implications. The potential downsides of letting a property. As simply not just a question of collecting money from the tenant every month and paying down the mortgage. Nor is rent index linked as a pension is. There's no reason why you can't save additional money into another scheme or top up the LGPS. If you can save a £1k a month.

    Once you've established a good solid foundation. Then's the time to widen your horizons.
  • Silvertabby
    Silvertabby Posts: 9,021 Forumite
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    Are you making the classic mistake of comparing 1 year of pension contributions against 1 year of accrued pension? If so, try comparing one year of pension contributions against 1 year of accrued pension x number of years you expect to live in retirement.

    Is that looking like a better deal now?
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
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    Fireflyaway wrote: »
    Fair enough. Lets forget what type of pension it is . Does anyone have an opinion on the pension v property aspect? A rental could bring in £850 a month and once paid could be sold and the proceeds banked. A pension no matter how high the employer contributions will only ever be £550 a month.


    There’s nothing magic about property. It has a return, that return is typically in the range of 5% or so. That £850 didn’t come to you magically it has a cost, which is the interest rate you are paying on a mortgage and the opportunity cost of the deposit which coudlnahve been invested elsewhere, and in your case, the lost income from your pensionwhich would likely tip you into negative territory. Plus the CGT when you sell it when you don’t fancy managing tenants later in life.

    Now fair enough you want more than £550 but the way of doing that isn’t to throw out the baby with the bath water but retain the LGPS and look at enhancing it by other means. That also gives your pension a solid underpin rather than be stuck with a risky all your eggs in one basket (and high hassle) rental property.

    Now, what that top up consists of is a different matter, it could be a rental, it could be a diverse investment in the stock market which also would long term be less prone to the ups and downs of the housing market, and could be sheltered from tax either in an pension or an ISA, or a combination of both.
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