Army Pension and new work pension

Tally-Ho_2

Hi,

My brother left the army recently after serving 12 years. He has a 'preserved pension' under the Armed Forces Pension Scheme 1975 (he didn't transfer to the newer scheme) payable at age 60. When it pays out, it will be increased by inflation and gives a 3 times lump sum and a small but significant pension as it stands. He can apparently transfer this preserved pension to another scheme if he wishes.

He has now got a civilian job with a Police force and is eligible to join the Local Government Pension Scheme. He intends staying there for a lot of years as he already loves the job. He is now 31 and single.

He has leaflets inviting him to join the Local Government Pension Scheme, is it a good scheme or should he opt out and buy a private pension?.

Also, should he 'transfer' his army pension into either the Local Government Scheme, or a private scheme or just leave it where it is?.

Any help is appreciated as we don't know much about pensions and things.

Thanks

Tally

jem16

Tally-Ho wrote: »

He has leaflets inviting him to join the Local Government Pension Scheme, is it a good scheme or should he opt out and buy a private pension?.

It is one of the best schemes around and government backed so totally safe. He will pay somewhere around 6% (less with tax relief). If he goes for a private pension he would need to pay around 20% and still not get the same benefits. he would be mad to opt out.

Also, should he 'transfer' his army pension into either the Local Government Scheme, or a private scheme or just leave it where it is?.

He would ned to get a transfer value and then take advice. His only option would be to transfer to the LGPS. It's not normally good advice to transfer a final salary pension to a private pension

Tally-Ho_2

Hi,

Many thanks. Apparently his 12 years Army service would equate to 14 and a half (roughly) years in the local government pension.

However I did notice that the local government one pays at 65 where as currently his army one pays out at 60. So I presume leave the army one alone?

Its so confusing for him.

Thanks
Tally

jem16

Tally-Ho wrote: »

However I did notice that the local government one pays at 65 where as currently his army one pays out at 60. So I presume leave the army one alone?

Much may depend on the salary he might expect to eventually get in his new job. His army one will be deferred and will relate to the salary he finished on plus index linking over the years. His salary in his new job might increase more especially if he is promoted.

There is of course the disadvantage of the later retirement age.

Tally-Ho_2

Thank you both for the replies.

Is his deferred army pension 'safe' ie it cannot be tampered with to make it less valuable or paid later anything if he just leaves it? Having thought about things, having a lump sum payment and army pension at age 60 seems his preferred option, rather than transfer it to the Local Government Scheme and have to wait until he is 65.

I take it from your replies the Local Government Scheme is a good one, however should he get married is there any pension provision for his spouse to benefit from it, should anything happen to him? The booklet he has doesn't seem to mention this scenario.

Also he had a chat with a financial adviser chap at his bank last week who seemed to be trying to steer him away from the local government scheme and into a bank scheme, but I suppose the chap at the bank wouldn't be impartial or would he?

Thanks again.
Tally

jem16

Tally-Ho wrote: »

Is his deferred army pension 'safe' ie it cannot be tampered with to make it less valuable or paid later anything if he just leaves it?

Can't imagine it wouldn't be anything other than safe.

Having thought about things, having a lump sum payment and army pension at age 60 seems his preferred option, rather than transfer it to the Local Government Scheme and have to wait until he is 65.

Being able to take it at age 60 would be a good option.

I take it from your replies the Local Government Scheme is a good one, however should he get married is there any pension provision for his spouse to benefit from it, should anything happen to him? The booklet he has doesn't seem to mention this scenario.

It's an excellent scheme. Benefits include a spouse pension and lump sum death grant should he die in service.

Also he had a chat with a financial adviser chap at his bank last week who seemed to be trying to steer him away from the local government scheme and into a bank scheme, but I suppose the chap at the bank wouldn't be impartial or would he?

The bank's FA is a tied salesman who can only offer very limited products. He would not be impartial. Any Independent Financial Advisor would tell him that he was mad not to go with the LGPS. It's a final salary pension with absolutley no risk and employer contributions of around 15%. Does he want to throw away 15% free money and go with a private pension that is subject to market fluctuations and has no spouse benefits?

Stay away from the bank!

mikemoate

At the moment you can still retire from the LGPS at age 60 although there would an actuarial reduction made to benefits paid in your brothers situation.

The scheme is in transition having recently changed and some members at the time of change may not actually suffer this actuarial reduction, there are various key dates.

I say at the moment in your brothers case as the scheme has recently changed and of course may change again in future.

This is a link to the merseyside local government pension fund. I find it more informative than the official lgps site, and gives examples of different scenarios.

jh2009

100% ignore whatever advice was given by the bank. The police pension scheme is one of the best schemes in the country to join, and most people (including i would guess the bank adviser he saw) would kill to get the offer of such a benefit. I find it to be honest appalling if it is true that they tried to sell him one of their own pension products instead.

In terms of the army pension, then legally its very difficult if not almost impossible to alter historical benefits already earned under current law. Any changes that may be made would probably only apply to future service and as hes out of the army that won't affect him.

I would also imagine also that even if the law does change, its not exactly going to a vote winner reviewing armed forces pensions given the outstanding service and bravery many are showing in Afghanistan, Iraq, etc.

He seems happy in his mind to have the army pension seperate as he likes the idea of the benefits it gives at 60. Sometimes on these matters if someone is happy with something like this, then may be best all round to leave it be and let him live happily ever after.

On the otherhand if hes going to transfer now is the time to do it and for him to take proper financial advice (not from the bank). He would need to think about how well he thinks he might do in the policeforce and if its a job for life. If he gets to be head of the Met or another very similar role, then he probably should transfer now. If he stays in his current role/similar salary then maybe he should leave it as it is.

If he marries then both the army and police will pay a pension for any wife if he died.

CAE

The pension scheme in question is the LGPS not the Police Pension Scheme. Although still a good scheme of course.

If he does want to transfer in to LGPS this should be done within 12 months of joining the LGPS.

Although it may be better for him to keep his Army Pension separate for reasons stated earlier.

Andy_L

He should join the LGPS, although as a new entrant he will have a retirement age of 65 not 60.

He should get a transfer quote to see what his army pension will get him if transferred to the LGPS. Generally speaking his 12years in the Army will buy him X years in the LGPS. As the Army pension is "better" than the LGPS (eg earlier retiremt age) X will be higher than 12
However if he's had a pay cut on joing the LGPS it may be better to not transfer, also his army pension wil be increasing by RPI every year which may be better than the pay rises he will get from the police.

If he is a member of a Union they will probably have financial advisers on retainer who understand public sector pensions and will be able to help with advice