Transfer defined benefit pension pot to LGPS?

Kate36

Hi

I would appreciate any thoughts or advice on what additional information I should be seeking before making a decision as to whether to transfer my DB pension to LGPS.

I have received a DB transfer value of £71,369.03. The offer I have received from LGPS is yearly pension of £7044. I am currently 45, so have a good few years of active service remaining. I have already decided to transfer my other money purchase pension schemes but I am stuck as to whether it would be sensible to move the DB one? My deferred pension at date of leaving was £3120 a year so seems a good deal, but will the DB one increase over the next 20 years? I'm aware that I can take my DB pension at 65 whereas the LGPS will be at my pensionable age of 67 - which I know will probably move before I get there! However, I understand I can take my LGPS pension earlier but it would have an impact on how much I received. Can you tell I am confused! Any help gratefully received.

Thanks

kidmugsy

Suggestions
(i) Compare the inflation-protection aka index-linking.
(ii) If relevant compare the widow's pension.
(iii) Compare the "actuarial reduction" for taking early.

Otherwise: £7k p.a. in twenty years time in exchange for £3k p.a. - the difference is so large that I wonder what other questions to ask. For example, does the smaller number ignore inflation while the larger number includes a guess at the effect of inflation?

Kate36

Thank you.

You have voiced my concern regarding the difference in value; I have realised I am not comparing like with like. I have just called the DB provider to ask if they can send me a forecast for what my pension could be worth at 65.

If they won't do that, is there a rough calculation I could do for best/worst case scenario to compare with the LGPS?

Regarding index linking. The DB pension is 'revalued annually in line with general level of prices, capped at 5% per annum', whatever that means! The LGPS will 'increase annually in line with CPI'.

xylophone

Regarding index linking. The DB pension is 'revalued annually in line with general level of prices, capped at 5% per annum', whatever that means! The LGPS will 'increase annually in line with CPI'.

https://www.barnett-waddingham.co.uk/comment-insight/blog/2012/07/24/revaluation-for-early-leavers/

Do you have a GMP?

It is likely that your Scheme is now using CPI for the index linking but it could be RPI - check with your Scheme Administrator.

The point is that your Scheme is capped to a maximum of 5% regardless of the level of inflation whereas the LGPS is uncapped.

Have you obtained a state pension statement?

https://www.gov.uk/check-state-pension

Silvertabby

The £7044 quoted is how much extra LGPS pension the transfer would buy today (well, ok - as at the date of the calculation).

It will then increase each year in line with uncapped CPI inflation (the scheme annual revaluation).

At the moment, the minimum retirement age for the LGPS is 55 - but if OP retired then she would take a substantial early payment hit of over 50%.

Silvertabby

Kate36 wrote: »

Thank you.

You have voiced my concern regarding the difference in value; I have realised I am not comparing like with like. I have just called the DB provider to ask if they can send me a forecast for what my pension could be worth at 65.

If they won't do that, is there a rough calculation I could do for best/worst case scenario to compare with the LGPS?

Regarding index linking. The DB pension is 'revalued annually in line with general level of prices, capped at 5% per annum', whatever that means! The LGPS will 'increase annually in line with CPI'.

It will be worth £3120 plus (capped ) CPI between your date of leaving and age 65. I'm not aware of any DB pension provider who will add on future CPI to an estimate.

One way of looking at it is to think that whereas both options will increase by the same CPI rate (less for the old pension if CPI busts 5%) the CPI on £7044 will be more than the CPI on £3120. Compounded.

Kate36

Thank you for all your thoughts thus far. It is helping me, I think . . .I have just come across another figure on my DB update which says the current value of my pension is £4310; so if I apply a 2.5% compounded interest to that over the next 20 years, I arrive at a figure of £7062.44 - which is basically the amount the LGPS benefit.

It's sounding like the LGPS will be the better option if it too increases in line with CPI between now and retirement and it isn't capped? I'm guessing if I did take the LGPS pension at 65 it wouldn't be a massive difference and could potentially still be more than what my DB pension would be worth.

I will double check with DB provider whether it is CPI or RPI.

Kate36

One other thought; does the salary I earn on the DB pension plus the salary I earn on LGPS have any bearing. I was earning £33000 a year when I left the DB scheme and I am earning £24000 on the LGPS scheme.

Silvertabby

Kate36 wrote: »

One other thought; does the salary I earn on the DB pension plus the salary I earn on LGPS have any bearing. I was earning £33000 a year when I left the DB scheme and I am earning £24000 on the LGPS scheme.

Possibly, but only if your first pension was also public sector and you joined before a certain date (date varies according to which scheme you were in).

If your first pension was private sector then no, your salaries have no bearing - just the transfer value.

Kate36

Ok; that's good to know. I also have a very small LGPS pension from a previous job, earning less money than I do now (I left that job in 2011). I hadn't thought about it until now, maybe it would be worth transferring into my new LGPS pot too as I am now earning more?

Silvertabby

Kate36 wrote: »

Ok; that's good to know. I also have a very small LGPS pension from a previous job, earning less money than I do now (I left that job in 2011). I hadn't thought about it until now, maybe it would be worth transferring into my new LGPS pot too as I am now earning more?

You would have had to re-joined within 5 years in order to keep the final salary link I'm afraid. You can still transfer it in though - it's worth asking for a quote.