Final Salary Pension query - hopefully simple one!

maxisadog

Hello all, just joined as I'm sure this is the best place to get simple answers from people who know what they're talking about

I am currently in a local government final salary pensions scheme. I have just accepted a new job, also local government, on a little bit less money (about £2K lower), but have reduced a 2 hour commute to 10 minutes in the process, so a no brainer for me!

The simple query is, should I just transfer the pension to the new authority, or stop it and start afresh in the new job? The new job's salary will hopefully be back to the level of current job within a couple of years.

Thanks for any pointers or advice. I admit to have no knowledge of the subject, shame on me

jem16

maxisadog wrote: »

The simple query is, should I just transfer the pension to the new authority, or stop it and start afresh in the new job? The new job's salary will hopefully be back to the level of current job within a couple of years.

I would be tempted to say that you should leave the other one where it is as the LGPS (in England & Wales) change to a career average scheme in April so you won't have a chance to get back to the same level.

Teaandscones

The question is actually not a simple one as it depends on the OP's particular circumstances and view of their future pay growth. If you combine, then your service up to March 2014 including the previous service transferred in will be based on your final salary when you leave the fund, not that as of March 2014. Only new service from April 2014 will be based on career average. If you expect your salary to increase by more than CPI over time, then it is probably preferable to combine.

I would check first though as to what age your transferred pension (or separate parts) can be taken without actuarial reduction compared to your current position from your pension fund administrator.

However, if you think that your pay will increase by less than CPI then it may be best to leave the pensions separate. The big downside to this is that if you were made redundant after the age of 55, then only new pension accrued in your current job could be paid without actuarial reduction whereas your deferred pension from your old job couldn't be taken until age 60.

hyubh

maxisadog wrote: »

should I just transfer the pension to the new authority, or stop it and start afresh in the new job? The new job's salary will hopefully be back to the level of current job within a couple of years.

In the current final salary LGPS, the default position - i.e., what happens if you don't do anything - is separate benefits regardless of whether old and new employer participate in the same LGPS fund or not. If you choose to transfer, then from your point of view, the pension membership relating to your old employment just gets put against your new job (the exception would be if transferring between an English or Welsh fund and a Scottish one, but even then, the difference with a simple 'cut and paste' of the service will be minimal).

While the LGPS is losing its final salary basis from April, the protections in place will mean that if you do choose to combine, it will still be your leaving salary in your new job that determines the pension earned by the membership from your old job. If you don't combine, then you will get two pensions, and the first one will be determined with reference to the final salary in your old job, uprated in line with CPI.

As such, on the face of it, combining memberships would be a bad move for you, assuming the '2K lower' relates to a drop in your rate of pay. However, if it actually relates to working less hours (*) or you have a reasonable expectation that your rate of pay in the new job will eventually outpace the rate of pay in your old job in real terms, then it might be better to combine. I say 'might', because if you keep your old pension separate, it can be taken separately - if you combine, then you would have to take all your LGPS benefits at the same time, with those relating to your post-April membership being reduced if you take it before your state pension age...


(*) Pension benefits in the final salary LGPS are worked out in relation to whole-time equivalent pay.

hyubh

jem16 wrote: »

I would be tempted to say that you should leave the other one where it is as the LGPS (in England & Wales) change to a career average scheme in April so you won't have a chance to get back to the same level.

Closing off final salary benefit calculations on 31 March would indeed be sensible from an admin POV. That isn't what is happening however - if the OP combines, then it's still the final salary on leaving (not 31 March 2014) that will determine how much all their pre-April membership is worth.

maxisadog

And there was me foolishly thinking it was a simple question - haha! I should have known better, that financial products are devised to confuse from the outset - seemingly.
I have to serve (probably) 3 months notice, so will be starting new post in early June. I had no idea about the career average scheme that is coming in to being In April, if I've understood correctly?
The £2K drop is in basic pay for the same number of hours.
Anyway, many thanks for the fantastic replies. I will study and try and understand them in the morning. My brain is in no fit state to try and do so now.
I think I need to do some more research of my own also.

kidmugsy

Remember that if a decision looks finely-balanced it doesn't much matter which you choose. It might matter in retrospect, but you can't know in advance what is going to happen on many issues that might be important.

One way to look at this is to say that you've essentially asked "would I be bonkers to leave the old arrangement in place?" and also "would I be bonkers to move it?". The answers you've received seem to me to be "no" and "no". Fine: whichever you opt for isn't bonkers.

hyubh

maxisadog wrote: »

I have to serve (probably) 3 months notice, so will be starting new post in early June.

In that case, the default will (I think) be to combine and you can elect to keep the old benefits separate (in other words: the default and what you can elect to do is switching round from April). If you will be moving to a different LGPS fund as well as a different employer that won't make much of a practical difference (the new fund won't find out about your deferred benefit with the old unless you tell them). However, if you won't be, then you might need to proactively seek out an election form if you decide to keep the benefits separate.

Neasy

kidmugsy wrote: »

Remember that if a decision looks finely-balanced it doesn't much matter which you choose. It might matter in retrospect, but you can't know in advance what is going to happen on many issues that might be important.

One way to look at this is to say that you've essentially asked "would I be bonkers to leave the old arrangement in place?" and also "would I be bonkers to move it?". The answers you've received seem to me to be "no" and "no". Fine: whichever you opt for isn't bonkers.

This is a really good and subtle point, very well made.

FatherAbraham

maxisadog wrote: »

I had no idea about the career average scheme that is coming in to being In April, if I've understood correctly?

Wow.

You LGPS pension rights are probably the most valuable asset you will ever buy. It's far more valuable that any commercial investment you could make. Its capital worth will far exceed that of any house you are likely to be able to afford.

The change to CARE is an important variation to your largest net asset. I would recommend you stay on top of your pension rights. Were there no presentations about the new scheme by your local pensions unit? Did you really receive no literature about the change? This is incredible (but then I'm worried about my future pension income).

FWIW, the change to CARE will make moving to a lower-paid post a perfectly safe thing to do, without the punitive retrospective reduction in pension rights.

Warmest regards,
FA

maxisadog

kidmugsy wrote: »

Remember that if a decision looks finely-balanced it doesn't much matter which you choose. It might matter in retrospect, but you can't know in advance what is going to happen on many issues that might be important.

One way to look at this is to say that you've essentially asked "would I be bonkers to leave the old arrangement in place?" and also "would I be bonkers to move it?". The answers you've received seem to me to be "no" and "no". Fine: whichever you opt for isn't bonkers.

Good answer - no point looking too far into the future - I think history and recent events have taught us that anything financial is extremely volatile.