Local Government Pension Scheme and Private Pension

SkyandSun

Hi all,

I am about to start a new job in my local council. I have some questions about the local government pension scheme - I plan to do more reading and research myself, but thought I'd ask the questions here too.

I'm 31 and have a private pension with Standard Life that currently stands at about £18,000. I took advice from a financial advisor whom I trust who recommended this pension for me.

Would I be able to opt out of the LGPS (I believe yes) and instead ask my employer to contribute the same amount to my private pension each month? Or, while I know I can opt out, would that also reduce or possibly remove the employer contributions? At my last job i know I put in 3% of my salary each month and my employer contributed the equivalent of 5%, which was the maximum contribution they offered.

My limited reading of the LGPS is that it is a pretty good scheme. In general, would it perhaps be advisable to instead transfer my private pension into the LGPS?

I think it is quite likely that in a few years I will not be in local government. If I move jobs, and I had fully enroled & contributed (with my employer) to the LGPS, I assume at that stage it is possible to move everything to a private pension, including all the employer contributions? What do people think of the option of not contributing anything to my private pension while I am with local government, but leaving it where it is, and also starting the LGPS wth my new job... and then when/if I leave local government, merging the two into the private pension? I guess that means the capital in the private pension might not be working as much as it could be in the LGPS...

I plan to retire from work by the age of 60 - take early retirement. I believe this is possible with the LGPS, but is this something that can change as the government keep raising the retirement age? Or will I always be able to take the pension when I reach 60 (or even 55)?

Thanks - any advice is appreciated. I don't know much about the intricacies of pensions so have a tough time spotting a good deal.

Devon_Sailor

Whilst not an advisor, or indeed anything to do with the financial world, I do possess a public sector pension (Armed Forces).

I would bet all the money in my pocket that 99% of the replies that you get on this question will be along the lines of "you would be absolutely stark raving bonkers" to do anything other than grab LGPS with both hands and never let it go. If you can transfer some of that private pension in to buy you extra credit/years under the LGPS scheme, similar sentiments would apply....especially if your desire is to retire early!

Regards,

D_S

Southend1

Don't do it!

Join LGPS. Even if you only plan to work there a couple of years.

Even if the employer would give you the same contribution for your private pension, which I doubt they would, if it were me I would bite their hands off to join LGPS.

JoeCrystal

SkyandSun wrote: »

My limited reading of the LGPS is that it is a pretty good scheme. In general, would it perhaps be advisable to instead transfer my private pension into the LGPS?

Pretty good? It is one of the best in the country by the virtue of defined benefit scheme and so on. It would also cost you very little for greater return.

So yes, grab it with both hands! And be jolly pleased with yourself when you retire eventually. The general rule of thumb is that in order to pay for that kind of scheme privately, you need to pay 25% of your income for forty years and pray very hard for a good investment return.

LGPS do not have that, ALL risk rest with the employer. You know excatly what you will be expecting when you retire. From my limited point of view, it will still be worth transferring private pension scheme and get a good start!

Just to show how good defined benefit schemes are in general. Supposing you leave your LGPS job and want them to merge into the private pension scheme. Virtually over 99% of the cases, the IFA will refuse to approve the transfer since it is so valuable.

Cheers,
Joe

hyubh

SkyandSun wrote: »

Would I be able to opt out of the LGPS (I believe yes)

Yes

and instead ask my employer to contribute the same amount to my private pension each month?

No. More exactly, while it is possible for certain employers in the LGPS ('admitted bodies') to also have a company defined contribution scheme that employees eligible for LGPS membership can choose instead, that will be rare, and the staff affected would be extremely shortsighted to opt out of a very good DB scheme in order to opt into a DC one.

At my last job i know I put in 3% of my salary each month and my employer contributed the equivalent of 5%, which was the maximum contribution they offered.

The LGPS is a defined benefit scheme, so things don't work like that - the employer contributes whatever the pension fund's actuary determines is necessary to fund your and your predecessors' pension benefits, as set out by the rules of the scheme.

My limited reading of the LGPS is that it is a pretty good scheme.

Yes.

In general, would it perhaps be advisable to instead transfer my private pension into the LGPS?

Possibly. Complete a transfer request form to get an estimate of the LGPS membership the private pension will buy you - the form to complete should be on your LGPS administrator's website, and it should be sent back to them (rather than your employer's payroll or HR).

I think it is quite likely that in a few years I will not be in local government. If I move jobs, and I had fully enroled & contributed (with my employer) to the LGPS, I assume at that stage it is possible to move everything to a private pension, including all the employer contributions?

Yes, though it's usually case that a deferred defined benefit pension (public or private sector) is best left where it is, since the transfer value won't reflect the market rate for buying an equivalent annuity.

I plan to retire from work by the age of 60 - take early retirement. I believe this is possible with the LGPS

Yes, though you will suffer reductions for taking it early (the current normal retirement age in the LGPS is 65, though it's moving to a person's state retirement age from next April).

but is this something that can change as the government keep raising the retirement age?

That doesn't affect when you can draw the pension, and until next year, doesn't even affect the reductions for taking it early given the scheme retirement age is currently unconnected to the state retirement age.

Or will I always be able to take the pension when I reach 60 (or even 55)?

Currently the earliest is 60, or 55 if made redundant. The 'new' scheme next year is proposed to move to 55 regardless, though if taking it at 55 out of your own volition, the reductions will be accordingly significant (if made redundant, the employer takes the hit instead).

SkyandSun

Thanks for all your replies. Sticking with the LGPS sounds like a good idea, then. To clarify, I will always be able to claim the pension when aged 60, even as the years go by and the state retirement age rises? Will this be reduced to 55 next year - or will this only affect people who are employed after that date?

I guess the other question unresolved is do I transfer some or all of my private pension into the LGPS. Also, I think it is at least 50% likely I won't be in local government in a year or two's time (minimum time is probably a year, but equally I could stay in local government for ten years). Even if I was only here for a year, starting the LGPS and then leaving it until retirement seems like a good idea, right?

jem16

SkyandSun wrote: »

Thanks for all your replies. Sticking with the LGPS sounds like a good idea, then. To clarify, I will always be able to claim the pension when aged 60, even as the years go by and the state retirement age rises? Will this be reduced to 55 next year - or will this only affect people who are employed after that date?

The normal retirement date for the LGPS is 65. It is possible to take the benefits from age 55 but it will be actuarially reduced by approximately 5% for each year you take it early. So taking it at age 55 would lose about 50% of the pension.

The only way this would change is if the government changed to age at which you can access your private pension.

Even if I was only here for a year, starting the LGPS and then leaving it until retirement seems like a good idea, right?

As it's a defined benefit scheme then yes it's an excellent idea. Nothing else will come remotely close.

hyubh

jem16 wrote: »

The normal retirement date for the LGPS is 65. It is possible to take the benefits from age 55

A straight early retirement (employer not involved in the decision) is currently 60, not 55. Is proposed to be 55 with the 'new' scheme next year however.

http://www.lgps.org.uk/lge/core/page.do?pageId=102178
http://www.lgps.org.uk/lge/core/page.do?pageId=174042

The only way this would change is if the government changed to age at which you can access your private pension.

Not really. The scheme rules must of course respect general pension law, but that doesn't mean they have to enable something if it is merely allowed under that law.

SkyandSun

hyubh wrote: »

A straight early retirement (employer not involved in the decision) is currently 60, not 55. Is proposed to be 55 with the 'new' scheme next year however.

So is this 'early retirement' comparable to private pension schemes (such as my Standard Life one) that similarly says 'normal' retirement is 65, but 'early' retirement can be taken at age 60? As I do plan to retire at 60. I am wondering if the LGPS is still comparatively good in this circumstance when compared to private pensions.

Am also still a bit unclear on whether this early retirement age could be made later (eg 65) according to the whim of the government of the day.

hyubh

SkyandSun wrote: »

Am also still a bit unclear on whether this early retirement age could be made later (eg 65) according to the whim of the government of the day.

The goverment sets the law, and in the LGPS case, the scheme regulations on top of that. I would think the government unlikely to raise the age in this second capacity, given the actuarial reductions applied on an early retirement are intended to remove what would otherwise be a strain on the pension fund. As such, there is no obvious scheme/pension fund rationale for restricting it (also, keep in mind the age is soon to be *rolled back*, not forward).

What the government does with its 'general legislator' hat on is potentially another matter however, and I would be foolish if I attempted to predict the future on that score. This is by definition not an LGPS specific issue though.

SkyandSun

Thanks, you've all been very helpful and I'm getting a clearer picture of how the LGPS works as well. Having it based on my final salary (multiplied by years I've been enrolled in the scheme) is a bit risky for me as I cannot say whether the year before my retirement will be the 'peak' of my career - but I can see there are flexible retirement options too?

Regardless, I think it is more likely I won't spend the next 30 years working for local government.

The LGPS is changing next year, I can see. What are people's opinions of the new scheme - is it any better or worse... and still objectively very good... ?

Thanks again.