LGPS - did I misunderstand?

Dird

Hi,

I've been on the LGPS for about 9 months but sent a request to leave last month (the next couple days will be my first pay without).

Reading the document it seemed like some money laundering scheme to me and when I asked out pension people as well as the actual scheme providers (both by email and phone) they had no answer to my concerns...perhaps someone here does?

The document says "Each year, you will build up a pension at a rate of 1/49th of the amount of pensionable pay. The amount of pension you build up is added to your pension account at the end of each scheme year. "

My contribution is 6.8%. Assuming, for simplicity, my company pays 3.2% then where is the rest of the money? Instead of 10% in my pension I only get 2% (1/49th)? Or am I understanding it wrong?

To me, 2% from 7% is like having a 60% tax charge which is why I'm under the impression that I'm better off taking the normal tax hit.

My LGPS contribution for 1 year would be about £2532 but 1/49th only becomes about £750 towards my pension?

Am I right in thinking the 1/49th goes into a "pot" and then that pot is what I have to live off (along with the state pension)...e.g. 40 years of contributions would mean the equivalent of 40/49ths or about £30,000 and then that would have to cover me until death...it wouldn't be per year? If the former is true then it seems taking the monthly tax hit & saving myself works out better unless the the cost of living increases more than 3 fold.

Thanks for any clarity

missbiggles1

I do so hope that this is a wind up!

Dird

How would it be a windup? Even in the email they said "I confirm that your contribution rate is 6.8% and the pension added to your account is equal to a 49th of your pay in that year."

They don't let you see your current pension state online or anything to confirm either way.

Edit: the alternative seems even more unlikely. If I paid in for 40 years and the 40/49th was a per year payment then I would use up all my contributions after like 3 years of retirement...where would it come from for subsequent years? [FONT=Times New Roman,serif][FONT=Calibri,sans-serif]
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atush

that 1/49 is FOR EVERY YEAR OF THE REST OF YOUR LIFE and is indexed to keep pace with inflation so will grow every year.

You are comparing it as if it would be a one off payment..

In actual fact, it is worth far more than what you are putting in (with Death in service it is worth about 30% of your salary ie that is what it would cost for such a benefit if you bought it on the open market). Add in the tax relief, and Nics you would have to pay on t hat money and you are clearly missing everything.

You are a complete, 100% Giant numpty if you pull out of this pension. Get back in it ASAP. It is Gold.

Dird

omg...why did the woman on the phone not mention it was per year o_O

but then where does it all come from once I've burned out my contributions after 3 years?

missbiggles1

Definitely a wind up!

Dird

Or just 26 & working where no pension/HR people explained things to me
Even if the company paid 6.8% also you'd be talking £5k/year * 40 = £200k in contributions.
Assuming no salary change 40/49th = £30k/year (state pension on top?)
In the 7th year of retirement I'd be taking more than I contributed. Or does it reduce over time?
People always talk about a pot you have to arrange...is that not the case with LGPS?

kidmugsy

Ignore all the wiseacres here, Dird. Just you leave the scheme as you originally intended. The taxpayers could do with some encouragement.

Dird

OK so I guess right now I'm being taxed to pay for someone else's LGPS then when I retire others will be taxed for mine.

But why is there so much talk in the news about a "pot" and £100k? A pot suggests a finite amount but 40/49th every year is like a never ending money train.

Edit: OK I found a thread on here which seems to suggest LGPS is unique to most pensions (can't post links~ ?t=2525409)

Daniel54

Dird wrote: »

OK so I guess right now I'm being taxed to pay for someone else's LGPS then when I retire others will be taxed for mine.

But why is there so much talk in the news about a "pot" and £100k? A pot suggests a finite amount but 40/49th every year is like a never ending money train.

Edit: OK I found a thread on here which seems to suggest LGPS is unique to most pensions (can't post links~ ?t=2525409)

Simply put,there are two main types of pension

Defined contribution ( DC) - you pay in money and so does your employer.You take the investment risk and hopefully it grows into a large enough pot of money that you will have a comfortable retirement.

Defined Benefit (DB) - you pay in money and so does your employer.You have no investment risk and the employer promises to pay you an annual inflation indexed amount for all your retirement,and also a pension to your spouse if you die first.If there is not enough money to pay the promised amount,the employer must put more money in but you don't need to.You do not have a "pot".

Most private sector pension sceme are now DC because they are less expensive for the employer and a worse deal for the employee

LGPS is a DB scheme.and will enable you to retire on something close to two thirds of your final salary if you work for 40 years

A pension of £30,000 pa with the spousal benefit and inflation linked would cost you in the region of £ 900,000 today from a DC pot

Your pension is costing you a maximum of 5.44% net after tax of your salary per year ,less if you are a higher rate tax payer

You have misunderstood - badly -and should apply to rejoin the LGPS at the earliest possible opportunity .

Dird

Thanks for the nice sumary Daniel. The 80 page LGPS document I read from didn't make it so clear as it only spoke about the first 2 years of contributions. I've now found a document full of real examples e.g. 10+ years of contributions and the pension outcome.

I've been able to undo my withdrawal & just need to make 2 contributions next month to make up for this month's.

Thanks again atush & Daniel