Pension Auto-enrolment - LGPS (Surrey Pension Fund)

CharlieRabbit01

Hi

So I've buried my head in the sand for a while and not been in the pension scheme, as of today I have been auto enrolled and will have contributions taken from my pay as of this month.

I think I have correctly worked out that I will pay £60 a month, which is basically what I have been putting into a savings account each month as this is what is left at the end of the month.

Being enrolled will obviously make money harder because I will be losing what would normally go into savings for emergencies or moving house (living in rented).

I do not understand the pension at all and HR send me to the Surrey pensions website, can anyone explain in laymans terms what that £60 a month means I'll get in the end.

and what happens when I move jobs (I intend to leave in the next 12 months or so, depending on finding a new job).

Lokolo

Well for starters, the £60 will come out before tax, so you won't see £60 reduction in your take home pay. More likely see a £48 reduction.

What you get at the end is currently undertermined. The money will go into a pension and will be invested in some way. Depending on the amounts you deposit, and the quality of the investments you will end up with a pot where you can choose to take an annuity (income for the rest of your life).

When you move jobs you can either leave it where it is in the investments, or transfer it to your new pension provider.

Although I am a little confused as I believe LGPS is a final salary pension scheme, so wouldn't have an impact on auto enrolment because you would usually already be enrolled.

CharlieRabbit01

Lokolo wrote: »

Well for starters, the £60 will come out before tax, so you won't see £60 reduction in your take home pay. More likely see a £48 reduction.

What you get at the end is currently undertermined. The money will go into a pension and will be invested in some way. Depending on the amounts you deposit, and the quality of the investments you will end up with a pot where you can choose to take an annuity (income for the rest of your life).

When you move jobs you can either leave it where it is in the investments, or transfer it to your new pension provider.

Although I am a little confused as I believe LGPS is a final salary pension scheme, so wouldn't have an impact on auto enrolment because you would usually already be enrolled.

The reduction before tax is £96.

I opted out when I started here.

atush

I thought the LGPS was a Defined Benefit scheme? If so, it can be determined you will get say 1/60 of your FS or AS by the time you retire. So it can be determined now.

And if it is DB, it is likely to be best thing to do with your 60 quid, far better than what you were doing before (ie saving in cash that is shrinking each month due to inflation. You should kick yourself for not joining before.

CharlieRabbit01

I need the savings for emergencies etc.

atush

So keep what you have saved so far, and increase it when you can by lowering your outgoings. This is always possible.

Insufficient excuse for not joining (and staying in) a DB pension.

CharlieRabbit01

atush wrote: »

So keep what you have saved so far, and increase it when you can by lowering your outgoings. This is always possible.

Insufficient excuse for not joining (and staying in) a DB pension.

Of course I'll keep what I've saved so far though its not much as we've just moved.

I have already lowered my outgoings as much as i can and willing to do.

CharlieRabbit01

in any case can anyone tell me in laymans terms what the scheme is, why is it good etc etc.

JoeCrystal

Okay. A very quick summary on what it is and why it is so good.

1. You pay into a pension scheme so you can get an income when you retire in your old age. There are different pension schemes but tend to be divided between defined benefit pension scheme and defined contribution pension scheme.

The defined benefit pension scheme is what LGPS is and the employer will pay you benefit accrued. So, under the current scheme, let say you work for five years on 60th rate and you left a job with a salary of £20,000. The LPGS WILL pay you £1666 per year (index-linked to your salary you was on when you left and when the pension starts paying, it will be index-linked as well.)

The employer took on all the risks and prices to pay you that benefit. Which is why it is very expensive for the employer and indeed, the price you would be paying is pittance compared to what your employer is paying into.

Another advance with the defined benefit pension scheme that there are extra benefits such as ill retirements and death in service payout if you died.

As your employer HAVE to pay it out when you retire and for rest of your life, it is safe and will be honoured from the Council taxes.

If I want to do something similar privately (which I do), I am paying in 25% of my income (roughly) for the next four decades and it is entirely depending on how well my investments perform, how the pension funds performs and how the annuity rates are. I might have to pay even higher to meet the target income. If I am unlucky, I may find the income I was counting on would be too little and I will still be working.

On the other hand, you know exactly what you are getting and the pension income will rise with each passing year of service and pay rise as it is linked to your income. As I said, the cost is very cheap for you and you will be losing out massively by not opting in.

Needless to say, not opting into such a generous scheme would be highly likely would be either your worst financial decision ever or among the worst decisions you would ever make.

You do not have to do this but if you give us your income and how many years you have work for LG, I could work out how much you lost in potential retirement income.

Thanks,
Joe

xylophone

http://www.lgps.org.uk/lge/core/page.do?pageId=100340

Have you read this?

jamesd

If you know anyone who is eligible for the LGPS please do tell them that they should be in the pension. It's one of the best around and it's pretty much guaranteed that anyone who doesn't join while they are able to is going to regret it later.