Standard Life transfer into LGPS career av scheme

Drp8713

Oasis1 wrote: »

Thanks for your advice, Drp8713 - there was me thinking it was an easy choice... I'm glad I asked. Just to make sure my understanding is correct -



You're saying that to get the equivalent £655/year annuity out of my £3750 Standard Life pot, it would need an average rate of 4-5% each year until I'm 68? What confuses me is that the details on the app seem to imply higher rates are likely?



Am I completely misinterpreting this?




Sorry - how is this worked out? My understanding is along the lines of:

Say my salary first year is £40k and rises by £1k each year, and I leave after 5 years at £44k. My average salary would be £42k. 5/49 of £42k is an annuity of £4286/year? And I would have paid in £14,280 in contributions - because (42*0.068)*5. Is that correct?



Again, am I wrong in thinking the rate with standard life could be a lot higher than 5%?

Sorry for being such an amateur - this stuff should be taught in school!

Your returns may have been 15% last year, but have a look at 2000 or 2008 when it was -40% or -50%, the average is 5% historically, when you smooth out the big ups and downs, future returns could be more or less. You are looking at the return but ignoring the warnimg they have written below it.

You pay £220 and pay 6.8% so that makes your salary £38800, /49 = £790 pension per annum.

You have paid £220 x 12 for it £2640.

So excluding payrises and inflation from both calculations, in 43 years time you would have a pension of £790 x 43 = just under £34k per annum and for it you have paid £2640 x 43 = £113520. If that £2640 had got 5% returns a year, it would now be worth £400k after 43 years, but it would need to be £1,113,333 to get you £34k per annum. A £733k shortfall

Drp8713

bigadaj wrote: »

reasonable assumptions, but assumptions we can't forget.

What were annuity rates in 1974?

I dont recall as it was 13 years before I was born

But Siri says it was 9.5%, but didnt that correspond with a stock market crash of 50%?

bigadaj

Drp8713 wrote: »

I dont recall as it was 13 years before I was born

But Siri says it was 9.5%, but didnt that correspond with a stock market crash of 50%?

Yes, that's my point, we are at 300 year lows for interest rates and multi decade lows for annuities and bond yields, in 4 decades or so when the OP is likely to retire then comparators will be different.

AlanP_2

Oasis1 wrote: »

Sorry - how is this worked out? My understanding is along the lines of:

Say my salary first year is £40k and rises by £1k each year, and I leave after 5 years at £44k. My average salary would be £42k. 5/49 of £42k is an annuity of £4286/year? And I would have paid in £14,280 in contributions - because (42*0.068)*5. Is that correct?

I think the average would be £42.5k :beer: but your figures are close enough to illustrate what a good deal it is

Approx 3.5 years of pension payments and you have your £14k back ignoring inflation, if you make an allowance for that you'll probably be getting your money back inside the first 2 years.

If I said to you - I'll pay you £220 a month for the next 5 years and in exchange I want the equivalent of £4286 a year starting in 43 years, for the rest of my life, fully inflation protected + when I die I want 50% of that to go to my spouse for the rest of their life - would you take the deal?

Worth bearing in mind "the rest of my life" could easily be 35-45 years for someone age 25 now.

One other thing to bear in mind at some stage when you are planning for life after work in a bit more detail - have a look at the AVC scheme associated with the LGPS. It can only be taken at the same time as the main scheme benefits but can all be taken tax free (under current rules).

Silvertabby

“

Sorry - how is this worked out? My understanding is along the lines of:

Say my salary first year is £40k and rises by £1k each year, and I leave after 5 years at £44k. My average salary would be £42k. 5/49 of £42k is an annuity of £4286/year? And I would have paid in £14,280 in contributions - because (42*0.068)*5. Is that correct?

Originally posted by Oasis1

That's not how the LGPS CARE scheme works. Instead of calculating your 'average' career salary, you 'bank' your accrued pension (including the revaluation) at the end of each financial year.

Oasis1

Apologies for the delay in response but just wanted confirm I did in the end transfer in after seeing the benefit of this. Thanks everyone for helping me to get a better understanding.