Pension, Debt, Savings or Mortgage?

CharlieRabbit01

taktikback wrote: »

I originally thought this must be a wind up? Now I understand why the government feel it necessary to push auto enrolment.

I can also see the wisdom in teaching financial management in schools

The most amazing thing is that the op has been to the LGPS website but still doesn't appreciate the relevance of a final salary pension and how that fits in with his priorities.

I wonder how many people are in this situation - disconnected from engaging with basic financial planning -perhaps put off by all the media coverage, but more likely never introduced to, or meaningfully engaged with the ABCs.

Now I understand why the unions are saying that nobody will look beyond the basics of higher contributions in the event of scheme changes, and just bale out.

No wonder pension reform is such a hard sell

My question was/is totally genuine. If you don't ask how can you ever know the answer?

Financial Investment is not my forte, so I came this forum to ask the advice of people more knowledgeable in this area than myself to make sure I make the right choice.

taktikback

There is no intention to run you down -and asking is how to find things out -no problem with that. What bothers me is that your post and various responses suggest that, if you are an average person in, or considering joining the LGPS - then the powers that be have got a serious problem.

Joining, or remaining in the LGPS, is such a clear cut decision given the alternatives, plus their website is really straightforward.

I can only conclude that pensions must put people off so much, they blank them out of their thought processes - that is a problem for the scheme administrators - to find a way to engage their members that is.

The scheme hasn't managed to make it clear to you that it has little or nothing to do with "financial investment" - it merely pays you a pension based on how much you earn and how long you have been there - and you pay very little for a lot in return.

I would wager that if you were buying a new i-phone you would be tuned in to getting best deal -yet that process is many times less transparent and many times more complex.

You've worked out how to use 0% credit card deals to your best advantage, so you are clearly not as financially illiterate as you fear you might be, so I can only conclude that pensions are a mental block for you and many others..

CharlieRabbit01

having nothing to compare the LGPS to made it harder for me to appreciate the value of it.

Many times I have heard bad things about pensions in the news and my own grandfather lost much of his pension and he was very wise when it came to money and investment, unfortunately he is no longer with us and unable to offer me sound advice.

Like many people my age we simply see £££'s leaving out pay check and nothing in return for it (at least not straight away).

To use you example but with a HTC HD7 which is my current phone, I'm not a fan of apple products. I did indeed shop around for the "best deal" and found that buy paying a lump sum for the phone and cheaper monthly payment was much better than getting the phone "free" on a higher monthly contract and saved myself over £150. A much clearer financial gain.

The way I see the LGPS from what I've been told is its basically a membership fee, please correct me if i'm wrong (note all figures are based on my current salary and contribution rate):

I pay 5.9% (£72pm or £864pa) to be a member of the LGPS for each complete year I get 1/60 of my salary if I stay with my current employer for 40 years (£34,560 paid towards pension) i'll get 66.66% of my final salary as a pension £12,577.40pa.


Three final things:

The LGPS website doesn't appear to say what my employer will pay in, is that simply a case of speaking to my payroll dept?

How long will I get a pension for? Since we are all apparently getting older if I retired at 65 when would me pension stop?

Since the new scheme comes in April 2014 can I take that to mean I have until then to join under the new scheme? The new scheme although not based on FS is at 1/49th rather than 1/60th, is it worth the risk of a CARE scheme if I can accrue it at a faster rate?

dunstonh

having nothing to compare the LGPS to made it harder for me to appreciate the value of it.

Think about having to pay 25% of your money into other things to match the benefits that LGPS gives you.

Many times I have heard bad things about pensions in the news

There is rarely any bad things in the press about pensions. Typically it is misinformation or scaremongering by the media to suit an agenda (or advertiser - yes that happens a lot - look for articles that get comment from someone that just happens to sell products which the article hints as being best).

and my own grandfather lost much of his pension and he was very wise when it came to money and investment, unfortunately he is no longer with us and unable to offer me sound advice.

Its virtually impossible to lose a pension unless you do silly things. Historical events of 30 years ago brought in legislation preventing employers raiding pension funds (not an issue with Govt schemes anyway). Personal pensions or investment backed pensions invest in the areas you choose. Unless you pick silly investments then you are not going to lose your money.

I pay 5.9% (£72pm or £864pa) to be a member of the LGPS for each complete year I get 1/60 of my salary if I stay with my current employer for 40 years (£34,560 paid towards pension) i'll get 66.66% of my final salary as a pension £12,577.40pa.

Dont forget that you get tax relief on that 5.9% and you pay lower NI contriubtions.

The LGPS website doesn't appear to say what my employer will pay in,

It's irrelevant what funding they make to sustain the scheme. You are buying defined benefits.

How long will I get a pension for? Since we are all apparently getting older if I retired at 65 when would me pension stop?

You can only accrue benefits whilst you are an active member and to be an active member you need to be an employee.

Since the new scheme comes in April 2014 can I take that to mean I have until then to join under the new scheme? The new scheme although not based on FS is at 1/49th rather than 1/60th, is it worth the risk of a CARE scheme if I can accrue it at a faster rate?

Most people are no worse off on the CARE scheme. Typically, it will avoid the historical issue where people in low paid jobs for most of their working life get promoted to a high paid role late in life and then get a pension based on the salary of that high paid role). There are suggestions that it was manipulated over the years (and I have seen it in action).

jamesd

The pension will stop when the last person covered by it dies.

sleepless_saver

CharlieRabbit01 wrote: »

How long will I get a pension for? Since we are all apparently getting older if I retired at 65 when would me pension stop?

It will continue (index linked) till you die, longer if you leave a widow/widower/partner who will also benefit from it.

CharlieRabbit01

dunstonh wrote: »

Think about having to pay 25% of your money into other things to match the benefits that LGPS gives you.

intersting point my rent is more than 25% of my monthly income and apart from a roof over my head for a month I don't get much else.

There is rarely any bad things in the press about pensions. Typically it is misinformation or scaremongering by the media to suit an agenda (or advertiser - yes that happens a lot - look for articles that get comment from someone that just happens to sell products which the article hints as being best).

Its this scarmongering and a lack of impartial advice which has put me off.

Its virtually impossible to lose a pension unless you do silly things. Historical events of 30 years ago brought in legislation preventing employers raiding pension funds (not an issue with Govt schemes anyway). Personal pensions or investment backed pensions invest in the areas you choose. Unless you pick silly investments then you are not going to lose your money.

He was a builder (self employed) and I think his pension was tied into property? but not really sure, everyone tends to be quite secretive about money in my family.

Dont forget that you get tax relief on that 5.9% and you pay lower NI contriubtions.

I looked at a salary take home calculator and saw that my actual loss per month is £62. So thats getting better than my initial thought.

Most people are no worse off on the CARE scheme. Typically, it will avoid the historical issue where people in low paid jobs for most of their working life get promoted to a high paid role late in life and then get a pension based on the salary of that high paid role). There are suggestions that it was manipulated over the years (and I have seen it in action).

So I could potential pay off my debt and join the new scheme and not be putting myself in a bad situation? (hoping to have the debt cleared before April 2014)

mulronie

CharlieRabbit01 wrote: »

I looked at a salary take home calculator and saw that my actual loss per month is £62. So thats getting better than my initial thought.

So the net cost to you is £62 a month, or £744 a year. This will give you 1/60th of your final salary as pension, paid EVERY YEAR from when you retire. So that £744 this year will give you £300 a year (in today's money, because it will go up automatically by inflation) in your retirement. So, if you lived to enjoy just 3 years of retirement, this year's contribution has paid for itself.

The best part is that while you pay £744 this year, you actually buy 1/60th of your FINAL salary - so if you get promoted a few of times, your £744 this year might actually end up buying you 1/60th of a salary much higher than £18,000.


This is all guaranteed by the scheme, so your employer is obliged to pay in whatever it needs to give you this benefit. This is effectively a huge amount of free money, that those of us in the private sector can only dream of and that many of your colleagues are fighting hard to retain. Please find the £62 a month and sign up.

dunstonh

Its this scarmongering and a lack of impartial advice which has put me off.

Thats the modern media for you. You must have seen articles in your sphere of knowledge and thought that is just rubbish and wrong. Its the same across the board. Be informed. Learn and understand. Don't rely on headlines.

He was a builder (self employed) and I think his pension was tied into property? but not really sure, everyone tends to be quite secretive about money in my family.

It probably wasnt a pension. Personal pensions didnt exist before 1988. Prior to that you had retirement annuity contracts which are often so much better than modern pensions (more expensive, poor performing - more in line with cash savings) but big guarantees such as guaranteed minimum maturity values or guaranteed annuity rates that more than made up for it). They would be in insured funds. Not property.

CharlieRabbit01

I really wish more advice was given to young people about this.

Having now been given real advice and a proper explanation that I understand I am now trying to convince friends and colleagues who I know had the same thoughts as me to try to also find the money to put into the pension.

Interestingly I came to this forum because a friend told me about the auto opt in and I've now passed on your advice to her as she also had no intention of joining a pension scheme (not sure which one it is, probably not LGPS as she's in the private sector).

Her intentions are in her words "you’d just put it in decent savings accounts and stuff. Even if me saving is only like a tenner a month or something and more if I can afford it."

Now I know I didn't understand the pension scheme but I certainly knew sticking £10 a month into a decent savings account isn't going to do me any good.