Transfer LGPS to private pension or not?

jonnypb

I have 10 years service in the local government and have been paying into their pension for 10 years. We were transferred to a private firm who have got admitted body status for the pension but I have been offered one of their contracts (more money) which would mean going onto their T&C's which means going onto their pension scheme. They pay 5% and I'd pay 5% into it whereas the council pay 11% into the local government one.

If I do take out one of their contracts what would people recommend I do with my government pension? Freeze it or transfer it?

ps I know very little about pensions!

dunstonh

They pay 5% and I'd pay 5% into it whereas the council pay 11% into the local government one.

They are not likely to be comparable schemes. The private firm is likely to be offering a money purchase pension where yours and the employer's contribution buys investments whereas the LGPS doesn't buy investments but is paid for by the tax payer at the end and the amount is based on years of service and your final pensionable salary. The 11% you mention is irrelevant.

typically, you would need around 15% employer contribution to match the final salary scheme. So, the pay rise they are offering needs to be 10% higher than what you are currently getting. Any less than 10% then the new contract is worse off.

I have made some assumptions about the scheme you are moving into but providing the new scheme is money purchase and not defined benefit the info will be correct.

jonnypb

thanks for the info

would be a good idea just to freeze the local government pension or if possible would it be advisable to transfer it into the private pension scheme?

dunstonh

99/100 its best left where it is. Its not frozen as such as it does get increased each year to more or less maintain it's real terms value. It's a cast iron guaranteed pension. No reason to move it.

Andy_L

dunstonh wrote: »

whereas the LGPS doesn't buy investments but is paid for by the tax payer at the end and the amount is based on years of service and your final pensionable salary.

The LGPS is one of the few public sector schemes that actually does have an invested pot of money - no idea why it does whilst, eg, the civil service one is pay as you go.

Like most FS schemes its underfunded, about 25% short IIRC, although that's probably changed with the recent stockmarket recovery. Ultimately the employer will have to make good the shortfall by higer council tax and/or lesser services

seven-day-weekend

I'm not apensions expert, but I'm pretty sure you should just leave your LGPS pension scheme where it is as the private scheme is probably nowhere near as good. It is index-linked so that deferred nebefits (both pension and lump sum) rise in line with inflation.

torridon_2

Andy_L wrote: »

The LGPS is one of the few public sector schemes that actually does have an invested pot of money - no idea why it does whilst, eg, the civil service one is pay as you go.

Like most FS schemes its underfunded, about 25% short IIRC, although that's probably changed with the recent stockmarket recovery. Ultimately the employer will have to make good the shortfall by higer council tax and/or lesser services

Andy L is correct in stating that the LGPS does invest contributions (employee and employer) in order to fund the pension scheme. However it is not just one scheme but a number of separately administered schemes. The one of which I am a member is slightly underfunded at the moment but is basically very healthy.

To the OP - I would agree with other posters that the best option is probably to leave the LGPS pension where it is. You should certainly research it closely before doing anything else.