LGPS and private pension

00kitkat00

Hi
Just after some advice please, I have a private pension with Aviva with a current fund value of £14k, I no longer pay into this as changed employers (it was I pay 5% of salary employer matched) - Aviva estimates that at age 62 it could be worth a whopping £17.5k which might give me the princely sum of £32 per month! All funds are held in their mixed 40-85% shares option - which I think I can change if I wish into riskier or safer options. It had a 0.75% charge during the last year

I have now started a position with Local Government Pension Scheme (LGPS) the intro letter says each year an amount equal to a 49th of your pay is added to your pension account (this doesn’t sound great as works out to about £500 per year) also says at end of each year the total pension in your account is adjusted to take into account the cost of living - I guess this means they uplift it?
I also pay % of wages into it each month I think 6%

LGPS have given me the option to move my private Aviva pension to them, what I’d like advice on is the pros and cons of doing this. I have 5 months left to decide.
I’m 36 if that has any baring and ideally would like to retire by 65 but am well aware this is probably more realistically going to be 75 😫

Whole pension thing confuses me- lots of colleagues have opted out of paying into the LGPS or any pension at all saying you lose other benefits if you have a private pension I.e pension credit/free glasses/dental care/housing benefit (majority of those that have said this live in housing assc properties so are secure where they are)

Any guidance/thoughts/direction/advice most appreciated.

Thank you 😊

greenglide

- lots of colleagues have opted out of paying into the LGPS or any pension at all saying you lose other benefits if you have a private pension

Just because they are fools and idiots is no reason to take any notice of them.

Whether it is good value to transfer another pension into the LGPS is very dependant on personal circumstances . Remember that the LGPS has a normal pension date equal to you State Pension Age which will be at least 67. It may be worth building up pension savings additional to the LGPS.

The Aviva scheme have used very pessimistic investment returns to produce the estimated return of £17.5k. In reality it should be larger. Having said that £14k is never going to make you rich!

AlanP_2

I agree with greenglide and am glad you have come on here for thoughts and suggestions rather than listening to those who (unfortunately) do not understand pensions and have said "Employer, please do not give me a fantastic benefit. I prefer to close my eyes and cross my fingers that I will have enough money when I retire rater than accept any help you will willingly give me".

I'm a member of the LGPS and it is a fanstastic benefit, not as good for me as it used to be now that it is Career Average but there you go.

You say:

this doesn’t sound great as works out to about £500 per year

well when you compare what your ~6% contribution gets you compared to the (pessimistic probably) £384 that Aviva estimate it starts to look better.

Each year you add another 1/49th of salary to your annual pension and what is already "banked" increases by CPI.

Pretty Good, especially as your salary will increase over time.

Silvertabby

Ask for a quote. The LGPS will tell you how much extra (index linked) pension the transfer value will buy for you, then you can decide what you want to do.

As greenglide says, your LGPS retirement age is the same as your State pension age. You can access your LGPS earlier than that (currently 55) but subject to a reduction for early payment.

00kitkat00

Am I completely missing something here though;

Old Aviva pension - I paid in £80 a month (5%) employer paid in 5% so £160 per month. Over course of employment and e/er paid in £11k it is now worth £14.7k

New pension - I pay in 6.5% per month - £130 (thereabouts) e/er pays in £480 a year (thereabouts). So I currently have less disposable income each month than previously and personally pay in £1560 p.a as oppose to my old contributions of £960 per year. Then LGPS add CPI at end of each yr - Which at present I think is 2.6% - so after 12 months if cpi still 2.6% they will add £40.56 - I do understand how in 20 years time this works well as you get the cpi on the whole fund

With LGPS can you take 25% out tax free at 55 like you can with a private pension?

Realise the 14k nor my current salary and contributions afford me a luxury retirement! But want to try and make the best choices to maximise possibilities as would like to think I'll end up with a bit more than the £32 a month estimate - Another 0 on the end at least!

I will make the step of asking for the quote Silvertabby mentioned

Thank you

00kitkat00

Just read this about CPI for last financial year - Which led to no contribution other than the 1/49th of salary;

In April 2016, there will be no increase to your local government pension.

Each year, the Fund increases local government pensions according to the government’s method for increasing public sector pensions - in line with the previous September’s inflation figure, as measured by the Consumer Prices Index (CPI). The Consumer Prices Index (CPI) fell by 0.1% in the year to September 2015 - the first time since 2010, that a negative percentage had been recorded. Despite this, your local government pension will not be reduced in April 2016. Your pension will remain at the same level that is currently in payment.

The Fund has no discretion in applying or not applying a pension increase as the Local Government Pension Scheme is subject to annual increases contained within the Pension Increase Act 1974.

Is this worrying - As can't see the economy changing presently to the benefit


And this for previous years;
April 2016: 0.0%
April 2015: 1.2%
April 2014: 2.7%
April 2013: 2.2%
April 2012: 5.2%
April 2011: 3.1%

Silvertabby

Just read this about CPI for last financial year - Which led to no contribution other than the 1/49th of salary;

In April 2016, there will be no increase to your local government pension.

Each year, the Fund increases local government pensions according to the government’s method for increasing public sector pensions - in line with the previous September’s inflation figure, as measured by the Consumer Prices Index (CPI). The Consumer Prices Index (CPI) fell by 0.1% in the year to September 2015 - the first time since 2010, that a negative percentage had been recorded. Despite this, your local government pension will not be reduced in April 2016. Your pension will remain at the same level that is currently in payment.

The Fund has no discretion in applying or not applying a pension increase as the Local Government Pension Scheme is subject to annual increases contained within the Pension Increase Act 1974.

Is this worrying - As can't see the economy changing presently to the benefit


And this for previous years;
April 2016: 0.0%
April 2015: 1.2%
April 2014: 2.7%
April 2013: 2.2%
April 2012: 5.2%
April 2011: 3.1%

This is nothing to worry about:

in April 2016, there will be no increase to your local government pension.

This comment is really aimed at those who are currently drawing their LGPS pensions. In the case of those who are still contributing, it just means that there was no cost of living revaluation for 2016 - their pensions still increased by 1/49th of their salaries.

Don't get tangled up with contributions - they don't determine your eventual pension, they are just the cost of supplying that pension.

The pension increase (for pensioners) and the revaluation (for current contributing members) will be 3% next April.

With LGPS can you take 25% out tax free at 55 like you can with a private pension?

Yes, subject to:

A. You would have to retire fully or flexibly (ie, you can't just say that you want to draw your pension but carry on working).

B. Pension would be subject to an early retirement reduction if taken before Normal Retirement Age (same as your State pension age).

C. You would have to give up some of your annual pension in order to take a tax free lump sum. The commutation rate (1:12) isn't particularly generous, though.

hyubh

00kitkat00 wrote: »

Am I completely missing something here though

Single pot vs. annual pension possibly...?

Old Aviva pension - I paid in £80 a month (5%) employer paid in 5% so £160 per month. Over course of employment and e/er paid in £11k it is now worth £14.7k

This is a single pot of £14.7k. Your LGPS pension is an income that is received every year from NPA to death, with a reduced amount then being paid to a surviving partner until their death, if applicable. (LGPS membership also involves additional benefits - life cover etc. - that would be forgone if you opted out.)

New pension - I pay in 6.5% per month - £130 (thereabouts) e/er pays in £480 a year (thereabouts). So I currently have less disposable income each month than previously and personally pay in £1560 p.a as oppose to my old contributions of £960 per year.

You could in principle opt for the 50/50 section (pay 50% your regular contribution, earn 50% the regular pension), which would push your take-home pay above what you had before. But why would you? The lost pension at the end would be well out of proportion to the contributions not paid.

Then LGPS add CPI at end of each yr - Which at present I think is 2.6% - so after 12 months if cpi still 2.6% they will add £40.56 - I do understand how in 20 years time this works well as you get the cpi on the whole fund

You shouldn't think of the inflation proofing as an investment return, because it isn't. Rather, it's guaranteeing that the the real value of pension already accrued will be maintained over time.

With LGPS can you take 25% out tax free at 55 like you can with a private pension?

As Silvertaby says, there is an option to 'commute' pension for lump sum, though the terms aren't great. Up until one year before NPA, you could also in principle transfer out to a money purchase arrangement... but this would rarely be sensible, unless the government were to change the way LGPS actuaries must calculate transfer values in the future.

00kitkat00

hyubh - Thanks for response I think things are becoming clearer

With limits of LGPS in terms of drawing anything early and not having the added risk of stockmarket which Aviva has - Which could boost that 14k pot if it steadily rose over next 30 years, it seems that it is a good idea not to put all eggs in to one basket?


Or transfer all into LGPS, and restart a separate private pension but paying in a very small amount perhaps between £20-£50 per month - Presumably I could still claim on a self assessment form for tax back on these contributions and would also benefit from any risk funds that did well

I have filled in the form to enquire about the quote/transfer value for Aviva to LGPS - Presumably LGPS will offer less than the 14k to get it paid in with them-

What if you don't have a partner at time of death - Would it go to next of kin? Presumably if I die before taking any benefit they would get the whole value of the fund?

Sorry for all the questions I am so blind in this area it baffles me. Had always previously thought not to worry about a pension and to try and get a buy to let but with new stamp duty on second homes etc/risk of nightmare tenants/ welfare changes makes it less attractive but of course does give you the freedom to cash it in whenever you wish (obviously with CGT if applicable) but gives you the freedom to cash in at 40 if your circs changed etc.

xylophone

https://www.pru.co.uk/pdf/LAVK0846.pdf

Had you considered transferring the Aviva Pension into the Pru AVC and making AVC contributions?

GunJack

00kitkat00 wrote: »

I have filled in the form to enquire about the quote/transfer value for Aviva to LGPS - Presumably LGPS will offer less than the 14k to get it paid in with them-

What if you don't have a partner at time of death - Would it go to next of kin? Presumably if I die before taking any benefit they would get the whole value of the fund?
.

1. it won't be £14k, t'll be £x p.a. of extra pension that's bought from your transfer in. Which will be index-linked along with the rest of what you build up.

2. Death in service is normally a lump sum of 2/3/4 times (see scheme rules for details) your salary, and you fill in a form as to who you want this to go to. If you have no partner, you can nominate someone else.