Transfer to LGPS?

Searcher2

From 1989 to 1999 I worked for a large multinational company contributing to their pension scheme. After that I was self employed or worked for companies without a pension scheme. Last year I started working for a school and have since joined their LGPS. I was offered the opportunity to transfer over my old pension over so I filled in the forms to request a no obligation overview of what LGPS would offer. I was convinced my old pension would be a better option. However, the "quote" that came through surprised me.

The details my old fund gave LGPS are roughly :

Member contributions included in the transfer value : £5,600
Guaranteed Transfer Value £280,000
Pension at date of leaving (1999) £6,100

My salary at time of leaving in 1999 was about £30,000

I have checked and the current value of my pension is about £10,000pa.

Now the letter from LGPS says : "If the transfer value offered were paid into the County Council, this would enable you to count an amount of CARE pension of £29,000 per annum in the LGPS. This amount of CARE pension is soley in respect of your transfer and does not include any benefits already accrued in the LGPS".

This amount seems very high to me. I have rung the LGPS to ask if this amount is my pension at retirement (as I wondered how they could guarantee this amount) and they said yes. They had rung my old pension company who wouldn't give them any more details but insisted the figures are correct. I have asked the LGPS to give me a value of the pension as of now so I can compare with the £10,000 pa my old pension company is quoting. I should get this next week.

To me it seems that in the last 17 years my pension has gone from about £6,000 to £10,000 (66% rise) and in the next 17 years (when I will be 65) it will go from £10,000 to £29,000 (almost 200% rise) if I move to the LGPS.

Am I missing something here as it seems too good to be true? I think one of the negatives of moving to the LGPS is that I will never be able to move it again whereas leaving it where it is would enable flexibility in that respect.

redbuzzard

Can't wait for the answers to this. It sounds as if I need to get a little job with the local authority so I can drain the LGPS too :j

Keep_pedalling

You don't say what your new salary is, but I don't read that as though you will have a pension of £29k, but there the Care pension will be based on an average salary of £29k for the years worked in your previous company.

Also to be considered is when does your your deferred pension pay out? If it is at 60 you will probable be delaying its payout by 5 years.

hyubh

Searcher2 wrote: »

The details my old fund gave LGPS are roughly :

Member contributions included in the transfer value : £5,600
Guaranteed Transfer Value £280,000
Pension at date of leaving (1999) £6,100

In the jargon, yours would be a 'non-Club' transfer in buying extra CARE pension. The first and third figures quoted are irrelevant; the administrator will use the second plus any GMP accrual figures (your old pension will very likely include post-88 GMP), your age and sex. See pp.15 and 17 of this:

http://www.lgpsregs.org/images/SecStateGuidance/TransfersGuidance.pdf

I have checked and the current value of my pension is about £10,000pa.

What's the normal retirement age? Your LGPS one (including for any transfer in) will be your state pension age.

This amount seems very high to me.

I would expect it higher than the pension you would be forgoing given the higher normal retirement age - presumably your old one is at most 65, and possibly as early as 60. However, £29K still sounds pretty high I agree.

I have rung the LGPS to ask if this amount is my pension at retirement (as I wondered how they could guarantee this amount)

A transfer in will buy you additional CARE pension that increases by CPI every year. How the administrator calculates it is determined by the secretary of state and the Government Actuary's Department (GAD) given the LGPS is a statutory scheme.

I have asked the LGPS to give me a value of the pension as of now so I can compare with the £10,000 pa my old pension company is quoting.

Sounds a bit weird to me why they would quote a hypothetical figure.

To me it seems that in the last 17 years my pension has gone from about £6,000 to £10,000 (66% rise) and in the next 17 years (when I will be 65)

If you're 65 in 17 years time then surely your retirement age in the CARE LGPS is 67 (at the moment)...?

I think one of the negatives of moving to the LGPS is that I will never be able to move it again whereas leaving it where it is would enable flexibility in that respect.

If you transferred it would become an integral part of your LGPS pension, yes.

Searcher2

Keep_pedalling wrote: »

You don't say what your new salary is, but I don't read that as though you will have a pension of £29k, but there the Care pension will be based on an average salary of £29k for the years worked in your previous company.

Also to be considered is when does your your deferred pension pay out? If it is at 60 you will probable be delaying its payout by 5 years.

Sorry - I didn't think it was relevant what my current salary is because the letter said "this amount of CARE pension is soley in respect of your transfer and does not include any benefits already accrued in the LGPS" but in any case is about £20K pa.

When I rang I asked what the £29K was - was it payout at retirement - she said it was. I hopefully will know more when she sends a breakdown. She admitted the Guaranteed transfer value looked high to her but that is what they have in writing from my old pension scheme.

I would have to ring up to be sure about the retirement age on my deferred pension but it seems to me that it is at 62 (from a document in 1995 which says Normal retirement date = 2029). So you could be right - 5 years delay if I move to LGPS

hyubh

Keep_pedalling wrote: »

You don't say what your new salary is, but I don't read that as though you will have a pension of £29k, but there the Care pension will be based on an average salary of £29k for the years worked in your previous company.

It doesn't work like that - salary is irrelevant for CARE LGPS TV in, similar to how it is if a member wants to do an APC.

hyubh

Searcher2 wrote: »

When I rang I asked what the £29K was - was it payout at retirement - she said it was. I hopefully will know more when she sends a breakdown.

Intrigued, I've stuck the numbers into a spreadsheet and still not quite getting the £29K. However, you haven't quoted your GMP figure in the old scheme - do you know what it is? I'm assuming it was a final salary, contracted-out scheme - if it wasn't, then the GMP would be nil and the CARE pension earned would be more like £23K.

Searcher2

hyubh wrote: »

In the jargon, yours would be a 'non-Club' transfer in buying extra CARE pension. The first and second figures quoted are irrelevant; the administrator will use the second plus any GMP accrual figures (your old pension will very likely include post-88 GMP), your age and sex. See pp.15 and 17 of this:

http://www.lgpsregs.org/images/SecStateGuidance/TransfersGuidance.pdf

What's the normal retirement age? Your LGPS one (including for any transfer in) will be your state pension age.

I would expect it higher than the pension you would be forgoing given the higher normal retirement age - presumably your old one is at most 65, and possibly as early as 60. However, £29K still sounds pretty high I agree.

A transfer in will buy you additional CARE pension that increases by CPI every year. How the administrator calculates it is determined by the secretary of state and the Government Actuary's Department (GAD) given the LGPS is a statutory scheme.

If you're 65 in 17 years time then surely your retirement age in the CARE LGPS is 67 (at the moment)...?
.

Thanks for the link and all the other info.

Good point which I hadn't twigged on to (as mentioned above).... my deferred pension appears to pay out at 62 and the LGPS at 67.

I only asked the pension service to give me a value as of now as that is what I have from my deferred pension. I was trying to compare like with like. I didn't understand how LGPS could give me a precise figure down to pennies how much I would be paid when I retire. I pointed out that the wording says I can "count on an amount of CARE pension of..." which sounds like a guarantee but then later in the same letter it says "please note that the figures above are estimated figures only and are not a guarantee of the benefits that would become payable". Hopefully I will gleen more when they send a breakdown through.

I admit (and it is probably obvious) I know little about pensions and just put money into them as I understood the scheme to be a good one. I was surprised that the Guaranteed transfer value was so high given that my member contributions seem to only be £5,600.

The Guaranteed Transfer Value £282,000 is made up of :

Pension built up before 1997
Transfer value of GMP : £60,000
Non contracted-out benefits : £164,000

Fund Pension built up after 1997
Contracted-out salary-related rights : £58,000

hyubh

Searcher2 wrote: »

I didn't understand how LGPS could give me a precise figure down to pennies how much I would be paid when I retire. I pointed out that the wording says I can "count on an amount of CARE pension of..." which sounds like a guarantee but then later in the same letter it says "please note that the figures above are estimated figures only and are not a guarantee of the benefits that would become payable".

Well there's estimates and there's estimates... if and when you elect to proceed with the transfer, that should be it, albeit keeping in mind future CPI rates are inherently unknown. (It's unclear whether you have a formal quotation however - presumably you have...?)

I admit (and it is probably obvious) I know little about pensions and just put money into them as I understood the scheme to be a good one. I was surprised that the Guaranteed transfer value was so high given that my member contributions seem to only be £5,600.

The transfer value is based on the benefits earned, not the contributions paid, and going purely by the numbers you've quoted your old scheme was potentially a bit more generous than the LGPS of the time, for example (which was 1/80 final salary, 3/80 lump sum, with a contribution rate of 6%).

kidmugsy

Searcher2 wrote: »

Now the letter from LGPS says : "If the transfer value offered were paid into the County Council, this would enable you to count an amount of CARE pension of £29,000 per annum in the LGPS. This amount of CARE pension is soley in respect of your transfer and does not include any benefits already accrued in the LGPS".

It's a pity they don't employ someone who can write clear, unambiguous English.

hyubh

hyubh wrote: »

The transfer value is based on the benefits earned, not the contributions paid

Although, that makes the key figure for determining the CETV the 10K pa in current money from age 62. If this were an old LGPS FS pension I wouldn't expect a CETV of 280K for that, especially as you're still in your forties (transfer values go up the nearer to retirement). If that's what the old scheme will pay though, I'd be inclined to get the transfer done before they change their mind. The extra LGPS pension bought will more than offset the early retirement reduction due if you were still to take the pension at 62 - a man drawing five years early will at present suffer a reduction of 25%, per p.9 of this:

http://www.lgpsregs.org/images/SecStateGuidance/EarlyRetirementGuidance

Caveat is that you wouldn't be able to draw the transferred-in benefits separately from your other LGPS benefits.