What to do with LGPS pension

Deneb

Sorry if this goes on a bit, I tried to keep it as short as possible. I would appreciate thoughts please on the best approach to taking my (relatively) small LGPS pension.

I have decided to retire in a few months time, just after my 60th birthday. My income at that point will be £25.3K from a FS pension already in payment. I have also been contributing to an LGPS pension for the last few years. Current projections are £2,240 p.a. if taken on VR at 60, or £3,025 p.a. at 65.

Mrs D, who is 3 years younger than me, is also currently receiving a FS pension of £8.7K and earning £7.5K, but also intends retiring completely in 3 years time. We are both intending to buy additional NICs which should entitle Mrs D to the maximum nSP, although the most I will be able to get is around £7.6K

So, by the time Mrs D is 66, we should have a combined income of just under £50K without my LGPS pension, but before then we will be somewhat below that figure, particularly between Mrs D retiring and my reaching SPA 3 years later (£34K). We both have SIPPS totalling just under £100K between us, and a further £200K in other savings and investments however.

With regard to my LGPS pension, my thoughts are:

1. Defer it until I am 65. The additional £3K may provide a useful boost to our income if our existing (CPI linked) pensions fail to fully keep up with inflation, although our SPs will be coming into play shortly after that time, and in the meantime we can draw down from our SIPPs, which is what they were intended for.

2. Take the voluntarily reduced LGPS pension, either on my retirement or possibly in 3 years time when Mrs D also retires. This would slow the depletion of my SIPP and allow me to keep more invested for longer. I have to admit here to suffering the same reluctance to draw from capital as Triumph13 mentioned here: https://forums.moneysavingexpert.com/discussion/5571971 and the difference in monthly pension is "only" about £52 net at current figures.

Finally, would it be worth exploring a CETV for the LGPS pension? Although I understand that LGPS transfer values may not be a stellar as currently appears to be the case with some other pensions, but is it an option that I should perhaps consider?

Unless you all convince me otherwise, I don't see my LGPS pension as critical to our long term retirement income, and wonder it I am better off using it as a way to increase income in the shorter term without burning through quite as much of our capital. I suspect that the cold hard facts favour deferring it until I am 65/66, but I'm not sure that this should be the only consideration.

I should perhaps add that, according to the benefit projections, any survivors pension appears to be unaffected by taking the pension early, being quoted as £1012 p.a. in both cases.

So, all observations greatly appreciated!

geoffers4

You're about 5 years ahead of me, and I too have a mix of different DB pensions + capital, so am playing around with different scenarios as you are. Trouble is; no-one can say how long retirement will last until it's too late (!). But all of your options are good ones, really.

kidmugsy

Deneb wrote: »

Finally, would it be worth exploring a CETV for the LGPS pension? Although I understand that LGPS transfer values may not be a stellar as currently appears to be the case with some other pensions, but is it an option that I should perhaps consider?

It's hard to see how you could lose by asking for a CETV quotation.

mgdavid

You seem to be well placed; the bit that's missing is your calculation / estimation of your required income in retirement.
Some people are happy living on £12k pa, others can live a full and active life on £30k and consider themselves well-off as this is above national average salary. Yet others will forecast a lifestyle that requires £50k or £60k or whatever.
Or perhaps you want to front-load it so you can spend more while still fit enough and see a diminishing need with older age.

In short, what are you planning to DO with all that time and money?

OldBeanz

My wife did this with a smaller DB pension to help fill a bigger gap between retiring and SP age so nothing wrong in principle in my opinion. No harm in asking.

Triumph13

Firstly, congratulations on your imminent retirement! I'm assuming from those numbers, and the fact you are retiring early, that you see your income figures as being more than adequate (I know I would). Your decision is therefore much more about maximising utility / happiness rather than maximising income.
In our own case, we will probably not take my wife's LGPS until SPA. Most of our funds are DC rather than DB so that puts a significant premium on guaranteed income. You are the other way round, with guaranteed income coming out of your ears, (relatively speaking) so there is potentially more of a premium on flexible capital - which would push you towards taking your LGPS early.
The important question though, is what is that capital FOR. Clearly part of it needs to be an emergency fund, but what about the rest? If you have a clear use for it, eg buying a holiday home somewhere warm for the winters, then it becomes an easy decision - take the LGPS early and spend the capital on the thing that will give you happiness. At the other end of the scale,what if you are someone who is okay spending income, but finds spending capital so difficult that it will probably just sit there untouched? In that situation it might make more sense to use deferring the LGPS as a justification to yourself for spending some of it in the bridging period and then have a higher income that you might actually do something with.
If you just see the capital as something to generate income, then it does become a more mathematical question of which route gives a higher number - but I'm willing to bet that you are a lot more complicated than that! Time for some introspection and some challenging conversations with your other half.

Deneb

Some very interesting replies, thank you. I'm a bit pushed for time right now, Mrs D's just reminded me that we have to be somewhere, so I'll get back to you all with more detailed responses either later today or tomorrow.

Silvertabby

I should perhaps add that, according to the benefit projections, any survivors pension appears to be unaffected by taking the pension early, being quoted as £1012 p.a. in both cases.

Deneb - your survivor's pension would also be unaffected by commutation. Your own pension would be reduced for early payment, and then reduced again by how much you want to give up in commutation - but your survivor's pension will still be £1012 p.a. Just something you may wish to bear in mind.

Deneb

mgdavid wrote: »

You seem to be well placed; the bit that's missing is your calculation / estimation of your required income in retirement.
Some people are happy living on £12k pa, others can live a full and active life on £30k and consider themselves well-off as this is above national average salary. Yet others will forecast a lifestyle that requires £50k or £60k or whatever.
Or perhaps you want to front-load it so you can spend more while still fit enough and see a diminishing need with older age.

In short, what are you planning to DO with all that time and money?

Well, we can live more than comfortably on our two existing pensions plus my wife's part time earnings. It's basically what we already live on, as I've been putting all my salary into SIPP and savings for the last 5 years, so we won't actually see any difference in disposable income when I retire.

So that is what we'd like to have as a minimum and I believe it is easily possible as we can replace my wife's earnings with her SIPP for 6 years until she draws her SP.

We bought a new motorhome last year intending to make use of it as much as possible in retirement, so although I will be making savings on commuting and not buying lunch each day during the week, that will more than likely be swallowed up in running costs for the van. Additional income would buy additional happiness in being able to use it more than might otherwise be the case.

Other than that, we don't have an expensive life style or feel any need to keep up with the Jones's. We enjoy walking, being in the hills and mountains, and reading. We both want to pursue our pastimes whilst we are still fit enough to be able, so yes, I really think we would prefer to front load our income, or at least bump it up pre SPA to somewhere near what we should get from that point on.

Triumph13, you are pretty much spot on. We have spent years saving hard to get to this point, and want to enjoy what we have achieved BUT I feel an aversion to overspending capital, as I feel it takes a lot of hard work and time to accumulate, but can be spent all too easily. So a bit of a balancing act and something I need to get my head around.

Kidmugsy, I will ask for a CETV and see what turns up. I can always say no, but from all replies so far, I feel more inclined to at least investigate a transfer of the LGPS benefits, or otherwise take them early.

Silvertabby, thanks. I realised the survivors pension is not affected. I'm not going to entertain commuting any of the LGPS pension as the rates are so poor (12:1) but I would like to know by what margin a CETV might beat that.

I did commute part of my current pension at 20:1, although not to the maximum permitted, and I know that the survivor's pension on that is half of the pre-commutation figure and CPI linked also.

Thank you all. I'll keep you updated on the CETV and will probably be back to ask your opinions at that time.

If anyone wants to add anything more in the meantime, please do.