LGPS or Lifetime ISA?

Kynthia

How long do you think you'll live? You'll need money to live on beyond the state pension and a DB pension is low risk, guaranteed and as you yourself said has a great ROI compared to other pension alternatives. Will anything else return your investment in under 3 years but pay out for the rest of your life, however long that could be?

Not joining it will almost certainly be something you regret when you are older and probably are in a worse pension scheme. Read some other threads on this part of the forum and you might get an idea of how expensive pensions are and how people generally wish they'd started one earlier. You could be robbing your future self to save some money now.

hyubh

assa96 wrote: »

First point - However, the LGPS I can't retire until I'm 69?

Your normal pension age (NPA) in the scheme, i.e. when you can draw your benefits without a reduction, is aligned with your state pension age. You are free to 'retire' when you want, and within that, draw your future LGPS pension from age 55 (or whatever the statutory minimum comes to be). However, when someone has a mixture of DB and DC arrangements, a common strategy is to take the latter earlier and more aggressively in order to avoid taking the former before its NPA.

Second point - unlikely to happen

Lifetime ISAs aren't even on the market yet!

the current government is planning to charge 5% for withdraws along with other penalties. Can't see there being anymore.

Why not? The government of the day fiddles with things all the time. The same point, of course, goes for pensions. However, there the risk is less because there is less to lose (the 25% tax free lump sum - contributions in have already benefited from tax relief).

assa96 wrote: »

my finances are run like a business, and will continue to be.

You still live with your parents 'rent free'. Does your mum still do your washing? Maybe in the future you'll be the tightest of tight b'stards, maybe you won't; maybe you'll fall in love with someone who ends up leaving you in financial ruin; who knows, as you don't have much of a track record yet!

It's all about the ROI. No point in investing if you are not returning (and with that, within reasonable amount of time).

A pension is insurance for not running out of money in old age, not making money 'within a reasonable amount of time'.

I'm sure the current Prime-minister, along with many others, will not entirely be in the same position as many of us, with her £2m net worth.

Got to enjoy life while you still have your health

My point was, for many people, 'you still have your health' when - from your teenage vantage point - they should be at death's door.

RickyB2000

assa96 wrote: »

First point - However, the LGPS I can't retire until I'm 69?
Second point - unlikely to happen, the current government is planning to charge 5% for withdraws along with other penalties. Can't see there being anymore.
Third point - It would be miracle for me to get into debt; my finances are run like a business, and will continue to be.


It's all about the ROI. No point in investing if you are not returning (and with that, within reasonable amount of time).

I'm sure the current Prime-minister, along with many others, will not entirely be in the same position as many of us, with her £2m net worth.


Got to enjoy life while you still have your health

Lots of reasons even running your finances like a buisness could see the bailiffs come knocking. Once you buy a house (and thus have debt) a job loss, accident that means you can't work anymore or even say getting sued for some reason could all see you LISA confiscated to pay the bills. You also wouldnt qualify for means tested benefits in the case of a sizeable LISA. You would have to spend it first, paying the penalty. Pensions do offer some protection in these cases - and many DB schemes come with ill health provision as well.

Though it sounds like you just don't see pensions as the priority if you are looking for instant return. The 69 year old you will not thank the 19 year old you very much, though I do appreciate the fact you want to get onto the housing market. It seems a moot point though, your second post sounds like a plan! Though maybe put some of the extra money into a personal pension or SIPP - invest it and use it to cover retirement from 55 to 69!

atush

Lgps, 100%

assa96

So based on the advice above, I'm edging towards paying the £75 a month.

However, should I capitalise on the opportunity of living rent free, and while eligible for this scheme, increase my contributions drastically? I've heard I can buy up to £6,675 extra pension, so putting £1200 a month away will give me an extra £3,423 pa so nearly 4k pension, including my current contribution.

So once I've maxed out this pension within two years to the full £6,675 extra a year (£7073 including current contributions), start saving entirely for a mortgage using the lifetime ISA and other savings accounts (still paying the £75 a month of course to keep bumping it up further).

My calculations then based on a five-year financial strategy.

First two years

£14,400 pa for a an extra £3,423 pension - so total 29k after two years for the full £6,675 pension (approximatly).

2 - 5 years

4k pa into lifetime ISA - so 3 years * 5k including interest = 15k for deposit

Leaving 12k pa in savings - 12k * 3 = 36k

So at the end of my five-year strategy...

= 15k from ISA + 36k from savings = 51k deposit for a flat so interest will still be minuscule, with a pension that is completely sorted. An extra pension of over 7k a year, leaving 11k including state pension.

jamesd

I'd say yes into the pension at the standard level for now. But beyond that, maximum into HTB ISA then Lifetime ISA and normal ISA until you buy a home. Partly because people end up naturally wanting to leave home and parents often eventually want them to leave home anyway after a while. This way you get the option to leave and buy and can still do the buying of extra pension later once you've sorted out enough for the home. The HTB bonus is really good and can help a lot with the costs.

This doesn't mean that I think the pension is a bad idea, just that I think it's better to do it after saving the money for the home. If it turns out that you leave this job you can probably switch the money into the pension before you have to leave, so you don't lose that option.

hugheskevi

so putting £1200 a month away will give me an extra £3,423 pa so nearly 4k pension, including my current contribution.

£4,000 of annual pension accrual would be valued by HMRC as a pension input of £64,000 (it isn't worth anything like that amount for you, but that is how HMRC would value it). That is above the Annual Allowance of £40,000 and unless you have carry-forward available you would be paying a tax charge.

2 - 5 years

4k pa into lifetime ISA - so 3 years * 5k including interest = 15k for deposit

That may imply a plan which does not involve any pension at all in this period, which would be a mistake.

= 15k from ISA + 36k from savings = 51k deposit for a flat so interest will still be minuscule, with a pension that is completely sorted. An extra pension of over 7k a year, leaving 11k including state pension.

Remember that extra pension would be indexed by CPI. Over 50 years the difference between earnings growth and CPI will be significant. You are likely to want something like 50-67% of final salary as a retirement income, and the contribution of that £7,000 pension to the 50-67% of your final salary will be small due to the low indexation level. You cannot ignore indexation levels over periods of decades.

So based on the advice above, I'm edging towards paying the £75 a month.

However, should I capitalise on the opportunity of living rent free, and while eligible for this scheme, increase my contributions drastically?

In general, you seem to be looking for corner solutions, ie, focusing all on one thing at any given moment. That is not often the right thing to do financially, you are looking to be optimising across a variety of goals and products at any given time. Considering opting-out and then shortly afterwards considering contributing large amounts of voluntary contributions is very odd, and suggests your plans need a lot more consideration as they are not stable and hence changing significantly when you consider new options. That isn't bad - a stable plan will develop over time, but you need to be aware of this, and a key part of any plan should be flexibility to change over time...at 19, the one thing you can guarantee is that your financial plans will change significantly several times, even over just the next decade or so. You therefore need to be careful not to commit too heavily in any one direction - take the best of what is on the table for each investment option, but don't take too much of any one thing.

Very broadly, you have pensions, protection/insurance, ISAs, property/mortgage, savings and unwrapped investments to be managing, and should understand what the optimal arrangement is for each of these now and in the future. Unwrapped investments probably come quite a lot later, but the others categories are all likely to need some contributions to get optimal outcome.

In your case, you get a big benefit from employer pension contributions, so take that but no reason for extra at the current time - that will be for when you have excess money to invest, and particularly if you are a higher rate taxpayer. You also get benefit at the moment from Help to Buy/LISA so that looks good (remember you can transfer Help to Buy ISA into LISA) for whatever is left after the LGPS.

It sounds like you will have a net income of £14,222 including income from interest and after £200 p/m spending that is £11,822 for savings/investment. I suspect your expenditure may well increase once you start work so treat that as a maximum amount. Personally I would be making the normal contributions to the LGPS, the rest into maximum contributions to a Help to Buy ISA for now, transferring it to a LISA in due course and making maximum contributions to that, with everything left going into savings at highest interest rate possible (probably exploiting a number of current accounts and regular savers).

Malthusian

assa96 wrote: »

72 years old to get a ROI...

Let's hope I've got good genes then!

You would have to have very poor genes or very bad luck not to see age 72. Not only should you easily make 72, but still be highly physically and mentally active. Unless you are planning on spending your life sitting on the sofa stuffing yourself with crisps. I'm assuming you'd have said if you had a life-limiting condition. What makes you think you need hope to reach 72?

hugheskevi

You would have to have very poor genes or very bad luck not to see age 72.

There is a 78% chance of a 19 year old male in England reaching age 72 (period basis, so a bit pessimistic but cannot find cohort-based stats).

It would be anti-percentage to gamble on a 1 in 5 outcome, but you might get lucky (or unlucky, depending on how you view it )

Malthusian

hugheskevi wrote: »

There is a 78% chance of a 19 year old male in England reaching age 72 (period basis, so a bit pessimistic but cannot find cohort-based stats).

22% sounds about right for the number of 19 year old males who have bad genes, life-limiting conditions, or choose to stuff themselves with crisps, plus those who will suffer from accidents / terminal diseases / other bad luck.

We know that the OP does not have a terminal illness or severe life-limiting condition so his odds are well above that 78%. Even the fact that he is on a personal finance forum and asking intelligent questions using good spelling and grammar pushes his odds above the average.

It would be anti-percentage to gamble on a 1 in 5 outcome, but you might get lucky (or unlucky, depending on how you view it)

The bit in brackets is important. Even if you get "lucky" by gambling on early death, any satisifaction you get from knowing you bet on a long shot and it paid off is rather spoilt by the whole dying early thing.