Transfer of LGPS/buying additional pension

agnesm

Hi, I would be grateful for opinions/comments on the benefits or pitfalls of transferring my LGPS to civil service and buying additional civil service pension.

I am 37 years old, single with no dependents. My mortgage will be fully paid in 3 months time. I have an emergeny fund of 6 months salary in cash ISA, equating to one years living expenses post mortgage. Given that I am the only income coming into the home, I am risk averse and so do not have S+S ISA.

I have 11.5 years LGPS service made up of 10.5 years pension based on 1/80 of final salary plus a tax free lump sum of 3/80. The remainder 1 year service is based on 1/60 of final salary.

I joined the CS and its premium scheme. My salary has went up slightly since leaving local government.I have the option to transfer my LGPS service in return for just under 13 years service based upon 1/60 of final salary.

Although the first 9.5 years of my LGPS service was pre April 2008, with a potential retirement age of 60, given my age I do not think I can take the pension unreduced under the "85 rule," so either way I will be looking to take my pension at 65.

As my mortgage will be paid I cannot see the lump sum as being a necessity. I understand, from other posts, that taking the monthly payments rather than lump sum is better value, providing obviously I live long enough.

The 1/60 rate appears more favouable plus there the extra 1.5 years credit. So I am swaying towards transfer. Have I missed anything obvious?

After completing my mortgage I am considering splitting the funds previously allocated between this year's cash ISA allowance and buying additional CS pension, which is not contribution matched.

According to the online calculator if I pay £650 net per month (£813 pre current tax relief) for 4 years, a total of £31200, I will get an extra £5K pension per year on retirement at 65. Is that a good deal? (My apologies if that turns out to be a stupid question)

I thought I would pay extra into my pension now and that would (in theory) "guarantee" the boost to my pension, in case I leave the CS before I have completed my full 40 years service. I appreciate that the main downside is tying up £31k without access for a long time. What do you think?

Many thanks in advance for taking time to read my post, which I appreciate has been rather lengthy.

Best wishes

AM

kidmugsy

A friend of mine bought extra pension in the Universitities scheme, using an "extra years of service" option. Then he moved to a different university which had a later retirement age, and his money had been wasted.

You'd want to be sure that no such misadventure could happen to you.

Andy_L

The transfer rate will be "fair" ie both departments will have used the same assumptions about longevity, investment returns etc. Whilst the new scheme has a better accrual rate the old LGPS is significantly better due to the earlier age, hence you get more "years of service" in the new scheme.

What the transfer does not consider is any change in salary thus if you've scored a pay rise that fovours transfering, if a pay cut leaving it where it is would be a better deal.
Leaving it where it is means it increases with CPI, transfering it will link it to pay rises - do you think career progression/cost of living pay rises will be better or worse than inflation?

kidmugsy

Can you do the transfer at any time or is there a deadline?

Frozen_up_north

The transfer value looks good to me... However a couple of considerations:

1. You could freeze your LGPS pension which would also freeze the terms and conditions at the point of leaving (check the small print though). This may allow you to draw your LGPS pension in full aged 60 and also be isolated from any unforseen changes in the future with the new pension scheme.

2. A frozen pension may not increase at the same rate as inflation.

Good luck in your new job!

agnesm

Many thanks to all of you for taking the time to consider my question and post responses.

Andy L - you say the old LGPS is significantly better due to the early age, could you explain that please? I assumed the CS was better because of the better accural rate, or am I mistaken?

Kidmugsy - the offer in its current terms is open for another month only.

Frozen up north - thanks for the suggestion and your kind wishes, I will ask LGPS administrator about that.

Have a good evening.

Agnesm

kidmugsy

"Although the first 9.5 years of my LGPS service was pre April 2008, with a potential retirement age of 60,...": I suppose it's hoping for too much that you could split your old pension, transferring only the part that doesn't offer a pension at 60?

Andy_L

agnesm wrote: »

Andy L - you say the old LGPS is significantly better due to the early age, could you explain that please? I assumed the CS was better because of the better accural rate, or am I mistaken?

The 1/60ths accrual is better than the 1/80ths & 3x lump sum (unless you take the lump sum option in the 1/60ths scheme in which case they are much the same). However the retirement age of 60 is a lot better than 65.
Combining the 2 that makes "1/80ths + 3x lump sum, age 60" slightly better than "1/60ths, age 65", hence you were offered about 15% more years of service in the new scheme than the old

agnesm

Ahh, Andy, I see now. Thank you. I spoke to the pensions dept of my old employers today and they said I could not claim the earlier payments unreduced at 60. They did not explain why. I wonder if it is because of the "rule of 85". I will e-mail them for further info. Presumably if I cannot take either pension before 65 I would be better transferring.

AM

Frozen_up_north

AM I would carefully check your terms and conditions applicable at the time of leaving the last job. I have a pension from a LGPS with service from 1994 until Dec 2010. Mine had a full pension age of 60.

agnesm

Hi, thanks to you all again for responding. Sorry for the delay in getting back to you but I thought I'd wait until I got the final response back from my local government pension providers. I double-checked and they still say that I cannot get an unreduced pension before the age of 60.

Frozen up north - do you mind me asking what age you are? I wonder if that is the reason you could claim at 60.

So either way my retirement age will be 65. I will mull it over for the next few days but it's looking like I will transfer.

Best wishes to you all and thanks again.

AM