LGPS - had my hours reduced

mozzy10

Looking for a bit of advice please...
I work in a school and pay into the LGPS, I was working 37 hours a week but had my hours (and pay grade) reduced at Xmas - made redundant and re-hired to a new job.

I am now only working 18.5 hours at the school.

I was told this would reduce my pension quite considerably!

I've had a look at my documents and I have about 10 years in the final salary pension then it was changed to a career average pension.

Is it worth continuing to pay in or should I opt out for the time being? What are my options?

I'm 45 and this is the only works pension I've ever paid into.

My work collegues have given me all sorts of advice that my head is spinning!

Thanks in advance for any advice

k6chris

Taken from Google (because I had the same question):

What is the impact on my pension benefits if I reduce my working hours?
Under the Local Government Pension Scheme (LGPS) rules, your retirement benefits are based on your final pay and your scheme membership. Your final pay is the pay on which you have paid pension contributions during your last 12 months. If you work part time your final pay will be the full time equivalent, which means that it will be the pay that you would have received and paid pension contributions on if you had been working in your job full time.
Membership is the length of time you have paid into the pension scheme. If you work part time then your
membership is scaled down to reflect your working hours. If you reduce the number of hours you work each week, your ongoing membership will be adjusted to take account of the reduction in hours. Membership built up before the reduction in hours will not be affected. The pension contributions you pay will be reduced as you will be paying contributions based on the reduced hours.

How your scheme membership will change
If you reduce your working hours, your membership will be adjusted as shown in the following example.
For a member joining the pension scheme on 1 April 2008 and working full time until age 65 on 31 March
2018, with a final pay of £12,000, the pension is calculated as follows:
Scheme membership (01/04/2008 – 31/03/2018) = 10 years
Final Pay = £12,000
Retirement pension
10 years x £12,000 = £2,000 a year
60
However, if the member’s working hours reduce to 18.5 hours per week for the last two years of employment,
the pension would be:
Scheme membership (01/04/2008 – 31/03/2016) = 8 years
Scheme membership (01/04/2016 – 31/03/2018) = 2 years x 18.5/37 = 1 year
Retirement pension
9 years x £12,000 = £1,800 a year
60
Please note that there is also an option to exchange pension for tax free cash.

Apodemus

I would continue to pay in, as the LGPS is still a good scheme, even under career average terms.

I would also ignore the Google quote above as it is merely showing the difference in pension between full time and part-time working rather than the difference between continuing to contribute versus not contributing.

Your final salary at the end of the 10 years in the final salary component continues to rise with inflation and is locked in. (In fact, an anomaly of this is that for many local government workers, after a long period of below inflation pay awards, the implied final salary is now higher than their actual salary!).

Your years in the career average scheme also mean that each year counts at that year's salary. This means that people who gain a late promotion no longer have their entire pension based on a higher final salary, (which must have been nice) but it also means that those whose salary declines towards the end of their career no longer have to opt out and preserve their pension at their former higher final salary.

In your case, your pension continues to rise, but since you are earning less and contributing less to the pension fund, your pension will simply rise less than if you had been working full time.

daveyjp

What alternative provision will you consider which pays out as well as LGPS?

An LGPS pension should be seen more as deferred pay. Opt out and it is effectively a pay cut in later life.

You will also lose death in service benefit, so will you need to pay additional life insurance?

How many of your colleagues have opted out and believe its the greatest financial decision they have ever made? Ask them why.

Malthusian

If someone is giving you £100 a week in free money and then they tell you that due to a change in circumstances they're only going to give you half that henceforth, do you turn down £50 a week in free money?

Which of your work colleagues think the answer is "yes"?

System

Hi

Your part in the LGPS prior to 01/04/08 would be at 1/80 and let me assume 4 years.

Then 01/04/08 until 31/03/14 and it is 6 years.

So 4/80 is 100 divided by 80 giving 1.25 %, multiply by 4 years = 5%

Then 6/60 is 100/60 * 6 years is 10%

Total 15% at whatever leaving salary it was. This is subject to CPI, and should have a 3/80ths lump sum as well.

Add on 2 years CARE, roughly 4%, at that same salary + CPI.

Meaning you have 1/5th of that salary as a pension, plus state pension to live on.

It should a Preserved / Deferred Benefit.
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WARNING WILL ROBINSON

You need to clarify that it is deferred and at your leaving salary, rather than being calculated at the new lower salary.
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Going forward the LGPS is probably the best pension provision you could have in your current employment, and I would suggest keeping it going.

It will be worth 2% ish per year of your earnings, adjusted for inflation, and has the potential to create 40+ % of your current income as a pension.

Whether this is enough, 20% + 40% and a state pension is upto you, but not having it seems worse to me.

You may change your job in the future, and be able to improve on the above.

If in doubt please ask.

woolly_wombat

mozzy10 wrote: »

I work in a school and pay into the LGPS, I was working 37 hours a week but had my hours (and pay grade) reduced at Xmas - made redundant and re-hired to a new job.

I am now only working 18.5 hours at the school.

I was told this would reduce my pension quite considerably!

I've had a look at my documents and I have about 10 years in the final salary pension then it was changed to a career average pension.

The difficulty you face is that most of your pension is final-salary and now you have been down-graded which will, in time, reduce the value of your final-salary pension.

Hopefully a LGPS expert will be along shortly to advise whether it would be worth opting out of the LGPS then rejoining (but keep the previous membership separately deferred to retain your previous higher final-salary link).

Off-topic but why was your previous position made redundant and why is your new position lower grade?

.

Triumph13

You definitely need our resident LGPS expert, but a quick read of various things on line seems strongly to suggest that if you do nothing then pre 2014 service will get valued on your final salary when you leave / retire, not on final salary at 2014 plus CPI. The way to avoid your drop in pay scale impacting your pension is to elect to have the two periods of service treated separately - your pension pre-redundancy becomes a deferred pension and you start afresh with a new LGPS pension.
The downside is you'd have to be sure you aren't going to suddenly rise through the ranks and finish your career with a much higher salary then ever as in that case splitting the pension would miss out on getting the final salary bit inflated for your huge salary when you become head teacher just before retirement:).

Kynthia

I'm in a different DB scheme so there may be differences between what I know and the LGPS. So I think you should talk to your pension administrators or see if your union has a pension expert.

In my scheme reducing your hours won't change the pension you've accrued so far. It would reduce what you are building while working the reduced hours.

Being moved to a lower full-time equivalent salary could reduce your whole final salary portion of your pension. This is because that whole part of your pension is calculated on your final salary when you leave the LGPS (some schemes use your best salary in tge last 3 years and others use more or less). So if there's a risk you won't be promoted to the grade you were before leaving then you might want to investigate whether you can unlink this period of service from your last.

Silvertabby

Reducing your hours won't affect the pension you have accrued already, just that the pension you accrue in the future won't be as much as you would have earned had you been full time.

However, as has been said by others, if you have also been downgraded, then that would affect your pre 2014 final salary benefits.

In view of your age, it may be that your pension provider has split your records at the point you were downgraded in order to preserved your higher salary benefits - you will need to ask them, as only they can tell you exactly what has happened to your pension records - we can only speculate.

hyubh

mozzy10 wrote: »

I've had a look at my documents and I have about 10 years in the final salary pension then it was changed to a career average pension.

Is it worth continuing to pay in or should I opt out for the time being? What are my options?

I'm 45 and this is the only works pension I've ever paid into.

My work colleagues have given me all sorts of advice

What Silvertabby and johndough say, in short:

• The claim that your final salary benefits, by default, are against a salary already calculated is incorrect. In fact, all public sector schemes when they went CARE maintained a final salary link for pre-CARE service.
• If it's a redundancy and new employment, then strictly speaking the employer should be providing leaver and new starter details to the pensions administrator. However, you need to (a) check this has been/will be the case (b) if not, request that it is (c) make clear your election to the administrator to have separate benefits.
• Going forward, you are just accruing 1/49th of a lower amount of actual pay as pension than you would have been. The terms of the pension in itself aren't less generous (in fact, if you aren't already in the lowest contribution band, you may actually end up paying less for proportionally the same benefit). The idea that this gives reason to opt out of the scheme is very silly - your work colleagues sound rather clueless on the matter. If the employer is an academy trust, it would make the directors' day to have you all opt out.