LGPS - what option should I take - advice please

bsmm228

Hi

I would really appreciate any help.

I am 56 and have worked for a local authority for the last 32 years paying in to the pension for that period. I have opted to take voluntary redundancy and am due to leave in Feb 2016. I no longer enjoy my job and the thought of staying any longer feels unbearable. Also this could also be the last time that enhanced redundancy terms are offered. I am awaiting my final figures but going on my last statement I should be offered there or about the following:

Lump sum - £42,000
Pension - £19,000 p.a
VR - £24,000

I will still need to work as we have a large mortgage of £125,000 over another 12 years, but hope that I can do something less stressful and maybe part time.

My question is - should I be considering giving up some of the pension for a larger lump sum, maybe to pay off more on the mortgage.

Will I be better off tax wise with a smaller pension if I carry on working with a new employer.

I am worried about the tax implications of receiving a pension and additional income, but not sure which forum thread to post any questions!

I am really confused and what should be an exciting time is now causing me no end of worry, and I am wondering if I am doing the right thing

thanks for any advice

mania112

Tricky to say with just this limited information but I would say take as higher pension as possible.

I'm saying this because of your age. The pension will grow each year with inflation and if you're in good health you will receive so much more by having a higher pension... even with the effect of paying tax on it.

saver861

Each individual case is different of course, but generally it is not good value to swap annual pension for bigger lump sum. The rate is 12:1 so for every £1000 of annual pension given up you receive £12,000 lump sum.

Disregarding tax, after 12 years you would be losing out. Even with tax the break even would be around 14 years. So other than situations of ill health etc, keeping the annual pension is the better option.

hyubh

bsmm228 wrote: »

I am 56 and have worked for a local authority for the last 32 years paying in to the pension for that period. I have opted to take voluntary redundancy and am due to leave in Feb 2016.

Potentially good timing - a few months later and you may be affected by the government's incoming public sector exit payments cap, which will be inclusive of LGPS strain charges. By which I mean, the capital sum your employer will be charged for you going 4 years early (assuming full 85 year rule protections) on a pension of 19K, plus a redundancy payment of 24K, may well be north of the 'fat cat' 95K. (This is irrespective of your salary, which I'm assuming is in the low 30Ks.)

atush

I agree, higher pension (with what little we know about you).

bsmm228

Thanks for the responses so far.

The exit cap is one of the reasons why I am going now.

My salary is actually £46k, why would you think I was earning low £30ks, do my figures sound incorrect? I haven't actually got the final figs yet I am waiting for my letter, any day now.

What other things do people want to know in order to give me more specific advice?

Nick_C

I also think you should keep the maximum amount of pension.

£46K down to £19K sounds like a big drop, but you don't pay national insurance or pension contributions. You will take home £17,320. That is equivalent to a salary of £22,300 with NICs and 6.5% pension contributions. You will no longer have the cost of getting to work, lunches out, and buying smart clothes for work. That's assuming you retire completely.

Get a state pension forecast. Work out how many years voluntary NICs you will need to pay to maximise your SRP.

Work out a budget. Assume the worst. Assume you can't get another job. How is your budget looking? Consider remortgaging. Your income will improve dramatically once you hit state pension age.

My personal experience. I retired at 55 three years ago under the 85 year rule. I took out a mortgage this year with Santander. They will give you a mortgage up to age 75. I'm currently paying base rate + 2%. If mortgage rates go higher than investment or interest savings rates, I will use capital to repay some of my mortgage.

You obviously have a senior position. So did I. I was bored after a year, and started looking for jobs in my own field for half the salary I used to earn. I was interviewed by three councils and turned down by all of them. The problem with applying for less stressful jobs is (i) people will think you are overqualified (ii) you will be interviewed by people half your age with half your experience. They will feel threatened by you. They will worry about their own ability to manage you.

You may not get another job. Be prepared to do work that is menial compared to what you have done in the past.

Having said all that, you will love retirement. You will feel younger and fitter. The stress will disappear. Have a long and happy one.

loskie

I presume being local gov you are likely to be in a union. They will provide professional pension advice I think as part of your membership.

hyubh

bsmm228 wrote: »

My salary is actually £46k

My apologies, very much fat cat then ;-)

, why would you think I was earning low £30ks, do my figures sound incorrect?

Hmm, on second thoughts no -

25 years on the pre-2008 basis (1/80 FS pension 3/80 lump sum)
6.5 years 2008 scheme (1/60 FS pension)
1.5 years 2014 scheme (1/49 CARE)

-> (46K / 80 x 25) + (46K / 60 x 6.5) + (46K / 49 x 1.5)
-> 14K + 5K + 1.5K
-> 19.5K

bsmm228

Hyubh - what's your advice regarding the lump sum option?

NickC - your post made me smile. I thought you could only go under the 85 year rule if you were over 60 ��

finallyretired

I retired earlier this year, with very similar figures to you. The 12x factor for lump sums was very unattractive. Giving up 4k a year to get another 48k did not make sense. You could only get an index linked annuity of well under 2k a year for a 48k lump sum.

You do not mention your partners position but I would guess that you'd be best to pay some of your lump sum off your mortgage and hold a bit back in reserve in case needed.

If you could qualify for R85 by sixty then I think the pension is just reduced by the shortfall in years to 60, but if you get ER at 55 or later the LGPS picks up the strain anyway.

Retirement is bliss !!!!!!!!!!!!