Should I transfer to LGPS

chris024

Could anyone please offer advice as to whether I should transfer a previous pension plan with Standard Life to LGPS.

I am 29. My previous pension is split 50/50 between the 'Pension Millennium with profits fund' & 'Standard Life Managed Pension Fund' worth a total of £23,204.05.

I stopped contributing 14 months ago, when I left my previous job and joined Local Government.

Today I have been told that my Standard Life Pension will buy me 5 years 166 days membership with the LGPS, being £1,719.62 per year.

I am not sure whether I should leave my previous pension where it is or transfer it over to the LGPS. I would be grateful for any advice given. Many thanks.

Linton

Its impossible to say definitively which is best as everything depends on the investment return you would get as opposed to the average inflation rate until you retire.

However lets try some numbers.
Assume
- you take you pension at 65, 36 years time.
- average inflation 2.5%
- your LGPS pension increases with inflation
- inflation matching annuity rate of 3%

After 36 years your LGPS = £1719 X 1.025^36 = £4165
To buy this commercially would cost £4165/0.03 = £138833

For your current pension to reach this value at 65 would require an annual increase factor of: (138833/23204)^(1/36) = 1.05. So you would need an average annual return of 5%, which does not seem unreasonable.

The conclusion then is that the offer is fair rather than mean or overly generous. Do you fancy taking the risk of staying with SL (or managing your own investments in a SIPP) for greater flexibility (eg lump sum drawdown) and the chance of getting a much better return or take the guaranteed income that LGPS are offering?

xylophone

I stopped contributing 14 months ago,

http://www.yourpension.org.uk/LPFA/Scheme/LGPS-guide/Transfers.aspx
" You have only 12 months from joining the LGPS to opt to transfer your previous pension rights, unless your employer allows you longer. This is an employer discretion; you can ask your employer what their policy is on this matter."

You have checked?

kidmugsy

The personal pension will presumably be drawable at ten years before State Retirement Age e.g. at 58. You may find that valuable.


Does the LGPS provide free life insurance? What is that worth to you? Any other benefits?

kidmugsy

kidmugsy wrote: »

The personal pension will presumably be drawable at ten years before State Retirement Age e.g. at 58. You may find that valuable.


Does the LGPS provide free life insurance? What is that worth to you? Any other benefits?

And then there's presumably the possibility of ill health early retirement at LGPS. That might be a great comfort in middle age.

Drp8713

Linton wrote: »

Its impossible to say definitively which is best as everything depends on the investment return you would get as opposed to the average inflation rate until you retire.

However lets try some numbers.
Assume
- you take you pension at 65, 36 years time.
- average inflation 2.5%
- your LGPS pension increases with inflation
- inflation matching annuity rate of 3%

After 36 years your LGPS = £1719 X 1.025^36 = £4165
To buy this commercially would cost £4165/0.03 = £138833

For your current pension to reach this value at 65 would require an annual increase factor of: (138833/23204)^(1/36) = 1.05. So you would need an average annual return of 5%, which does not seem unreasonable.

The conclusion then is that the offer is fair rather than mean or overly generous. Do you fancy taking the risk of staying with SL (or managing your own investments in a SIPP) for greater flexibility (eg lump sum drawdown) and the chance of getting a much better return or take the guaranteed income that LGPS are offering?

I know not much of annuities, but from your calculation it seems you using a 3% annuity rate at 65? I know people use this as a standard here, but what sort of annuity is that buying ie spouses benefits,increasing etc


The LGPS increases by CPI in payment, is guaranteed for 10 years and comes with a spouses/partners (and if applicable childrens) pensions. So that may or may not be priced into the 3% rate or just increasing?

Southend1

I had a similar dilemma a few years back with my pension. I was the same age as you and had approx £28k in a DC plan which at the time was invested 100% in L&G 60:40 equity fund. I could have transferred in to USS and bought 2 yrs and 79 days service. After weighing up the options I decided to leave it where it was in the hope that the investment returns over the next 35 years or so beat my salary increases. I also felt it important not to put all my eggs in one basket so to speak. For example if I leave my current employer in the next few years and stop contributing to USS the capped inflation increases could knock down the value of my accrued USS pension by the time I retire, whereas I would hope the investments will keep up.

Linton

Drp8713 wrote: »

I know not much of annuities, but from your calculation it seems you using a 3% annuity rate at 65? I know people use this as a standard here, but what sort of annuity is that buying ie spouses benefits,increasing etc


The LGPS increases by CPI in payment, is guaranteed for 10 years and comes with a spouses/partners (and if applicable childrens) pensions. So that may or may not be priced into the 3% rate or just increasing?

3% is a ballpark figure for an inflation matching pension comparable with an LGPS one. Whether it includes a spouses pension and the length of guarantee is a small factor compared with the great uncertainty in all the assumptions over the next 36 years. So for the sake of getting a comparison you may as well assume it matches the LGPS pension.

Triumph13

Do those years' service count as LGPS 2008 years or 2014 years? 2014 has a retirement age of state pension age so you'd presumably be getting an actuarial reduction if you went at 65?

chris024

Thank you for all your comments

Linton -I did consider a SIPP. But to be honest I don't think I would be comfortable making my own investment decisions. If I took out a SIPP I would probably bung it all in a fund like the Vanguard Life Strategy and hope for the best & possibly even contribute to it monthly, if it would be worthwhile.


xylophone - I requested a quote from the administrators of LGPS shortly after joining. It has taken them this long to get back to me!. They have confirmed that I can still transfer.


Kidmugsy -Whilst I am contributing to the LGPS believe my spouse would get 3 x my annual salary if I die.

The quotation from LGPS also included a Spouse's / Civil Partner's pension of £644.80.


Southend1 - Interesting, I don't know how long I will stay in local government. I still have 36 years to retirement so my existing pot could beat inflation. It would be nice to have a separate pot at retirement as well as some LGPS contributions.

I have some thinking to do.....

chris024

Triumph13 wrote: »

Do those years' service count as LGPS 2008 years or 2014 years? 2014 has a retirement age of state pension age so you'd presumably be getting an actuarial reduction if you went at 65?

I am not sure but it says the following on my quotation 'If you retire prior to age 65 the pensions benefits derived from this membership may be actuarial reduced'