Don't understand my pension!

donna1979

I have had a work pension for the last 10 years. I work for a local authority so they have contributed all that time too. It is just something that goes out that I stupidly haven't thought much about to be honest. My annual thing came today and I've tried to get my head round it and I think I understand most of the stuff - especially after reading Martin's guide. However the bit I'm confused at is the bit that says Pension Built Up from April 17 - March 17. It says Main section pay/49 £235.57. I pay £52.88 a month and my employer £134.59 so £2249.64 a year. What am I missing please?

stoozie1

I read it that your pensionable pay that year was £11543?

Silvertabby

Forget your employer's contributions - they don't affect the calculation of your pension.

Your pension is based on your own pensionable earnings plus annual revaluation (CPI) so, after 1 year, you have accrued £235.57 pension in return for £634.56 contributions.

Are you making the classic mistake of comparing 1 years pension contributions against 1 year of accrued pension? Reality is that you have paid £634.56 in return for £235.57 per year for life - so, assuming you live for the average of 20 years post retirement, you will get £235.57 x 20 = £4711.40 in return for your £634.56. Actually, it will be even more than that as your pension is fully index linked.

hyubh

donna1979 wrote: »

I have had a work pension for the last 10 years. I work for a local authority so they have contributed all that time too. It is just something that goes out that I stupidly haven't thought much about to be honest.

The LGPS is a 'defined benefit' pension scheme. Part of the benefit of a DB scheme like the LGPS is that you don't, in fact, need to think much about it - each year, a proportion of your pensionable pay is added to your 'pension account', with the total then uprated for inflation (for the LGPS the proportion is 1/49, and your pensionable pay is pretty much your gross actual pay, including any overtime etc.). If you leave before retirement, obviously there's no more pensionable pay, however your pension earned to date continues to increase each year by inflation. Then, on retirement, you have the option of exchanging some pension for a lump sum; the remainder of your pension account then becomes an 'annual salary', again uprated each year for inflation, until you die.

https://lgpsmember.org/arm/already-member-how.php

Things are slightly more complicated for you because you have 'final salary' periods of membership as well as 'career average' ('CARE') ones (the LGPS went CARE in 2014). In the case of the former, your whole-time equivalent salary on leaving, rather than your pensionable pay each year, is a key driver in what you get, along with how long you were in the scheme while it was a final salary one.

https://lgpsmember.org/more/2008-2014.php

It says Main section pay/49

'Main' section, i.e. not the 50/50 one where you pay 50% your normal contribution rate to earn 50% the normal rate of pension.

I pay £52.88 a month and my employer £134.59 so £2249.64 a year. What am I missing please?

Contribution rates do not determine your pension. If in twenty years time it becomes apparent that the contributions from you and your employer, combined with investment returns, were not in fact enough to fund your pension, your employer or a successor body will have to find the cash to put that right. This already happens - most LGPS employers nowadays pay two sorts of contribution, one representing pension benefits being built up now, and another forming 'deficit payments' to fund old promises that have proven more costly than originally envisaged.

donna1979

Silvertabby wrote: »

Forget your employer's contributions - they don't affect the calculation of your pension.

Your pension is based on your own pensionable earnings plus annual revaluation (CPI) so, after 1 year, you have accrued £235.57 pension in return for £634.56 contributions.

Are you making the classic mistake of comparing 1 years pension contributions against 1 year of accrued pension? Reality is that you have paid £634.56 in return for £235.57 per year for life - so, assuming you live for the average of 20 years post retirement, you will get £235.57 x 20 = £4711.40 in return for your £634.56. Actually, it will be even more than that as your pension is fully index linked.

That is exactly what I have done! Thanks for explaining it to me. I am determined to get a better understanding of it all before I turn 40!! I have been saying it for a while now :rotfl: 2 years left!!

atush

Once you get yru head round it, then look at your retirement expectations.

Incl the amount you want to live on, and the age you want to retire. If you want to retire before scheme age (now SP age) then you may want to look at saving outside your DB pension- into AVCs, or a PP/Sipp. These can be taken earlier, so you could retire early w/o having your DB pension reduced for doing so.

Wentthedaywell?

donna1979 wrote: »

That is exactly what I have done! Thanks for explaining it to me. I am determined to get a better understanding of it all before I turn 40!! I have been saying it for a while now :rotfl: 2 years left!!

There's some great advice to be had on this forum, Donna. There are experts who really know their stuff and are very patient in explaining it to us pension virgins.

I've learned more from the people here than I ever have from my employer or pension provider and I am very grateful to them.

BobQ

Wentthedaywell? wrote: »

There's some great advice to be had on this forum, Donna. There are experts who really know their stuff and are very patient in explaining it to us pension virgins.

I've learned more from the people here than I ever have from my employer or pension provider and I am very grateful to them.

"Advice" is being used loosely. Nobody but a trained Independent Financial Advisor can provide financial advice. People here are giving you their opinion and you must decide if it makes sense (which in most cases it does!).