Trying to understand LGPS Annual Benefit Illustration

maryroberts

I’ve just received my LGPS Annual Benefit Illustration and am trying to understand it (like many others I would imagine) in order to plan towards the future. I know there are some LGPS experts on here and I’d appreciate a bit of help to see if I have got the gist of it.

In an ideal world I’d like to retire at 60 which means working for another 10 years (I've been in LGPS since 2013). My current salary is roughly £20k. My CARE Pension built up in the last year is just over £400, which I understand is 1/49th of my salary for last year.

Projection of Pension Benefits at Normal Pension Age (2036): Total Annual Pension (including CARE & Final Salary benefits) = £8800 (roughly)

Have I understood this correctly, that for each year I work I will be adding approx. £400 in CARE Pension, meaning that in 10 year’s time my Total Annual Pension would be roughly £12,800 (not taking into account our 1% annual pay rise!)?

If I were to retire 7 years early then the amount would be reduced by about 29.8% according to the Pension Fund website. So I could anticipate a Pension of roughly £8985 – I’d appreciate advice as to whether my reasoning is correct, or have I misunderstood something, as I know from colleagues that this is not straightforward at all. I understand that I would need to contact the Pension Dept much closer to the time to obtain an accurate figure, but at the moment I’m just trying to plan ahead to see if it’s feasible for me to retire early.

TcpnT

Are you saying that this pension has been accrued only over the last five years?

If so it is not possible that you have already amassed a pension of £8800 at NRD. The key is in the word "projection". I believe what this means is that if you continue in your present job and contributing to the scheme until 2036 this is the estimated pension you will receive (expressed in today's values).

If you have been in the job for 5 years and your pension entitlement is increasing by roughly £400 per year then your entitlement so far is likely to be around £2000 per year. If you contribute until 2036 and started in around 2013 that would be a total of 23 years. 23 x 400 = £9200 which is close to the £8800 estimated.

I believe that if you look at the statement closely you will see another figure of around £2000 which is your entitlement accrued so far without a forward projection.

All this assumes that you do not have any earlier LGPS entitlement in addition to the 5 years.

GunJack

maryroberts wrote: »

Projection of Pension Benefits at Normal Pension Age (2036): Total Annual Pension (including CARE & Final Salary benefits) = £8800 (roughly).

Ths is a projection of what your pension will be worth in 2036 if you remain in the scheme and employed at your current salary, not what you've earned to date. So not, as you are thinking, £8800 plus another £4k. Or in other words, to date in your 5 yrs, you've probably earned pension of around £1500-2000 p.a. In another 10 yrs it would be £5.5 to 6k p.a. Taking that at 60 it would be reduced to £3.5-4k

(all figures approximate and not index-linked, nor any future payrises considered)

GunJack

TcpnT wrote: »

.

Ninja'd

maryroberts

Thank you both for your replies. I understand that the projected income is what I could expect in 2036. I probably didn't explain it how I meant it - in 10 years time would my projection for 2036 be roughly £12,800 (if the CARE increases by about £400 each year) which I would then need to reduce if I retired earlier than 2036?

The figure for my current Annual Pension is around £1600, so in 10 years time that would grow to around £5,600 (not including pay rises & index linked) which is a bit different to the £8,800 I worked out initially.

Silvertabby

maryroberts wrote: »

Thank you both for your replies. I understand that the projected income is what I could expect in 2036. I probably didn't explain it how I meant it - in 10 years time would my projection for 2036 be roughly £12,800 (if the CARE increases by about £400 each year) which I would then need to reduce if I retired earlier than 2036?

The figure for my current Annual Pension is around £1600, so in 10 years time that would grow to around £5,600 (not including pay rises & index linked) which is a bit different to the £8,800 I worked out initially.

No, the £8800 is simply a projection of what your pension could be if you continue to work/contribute to the pension scheme until your NRA (67?).

However, it doesn't take into account any unknowns such as future pay rises or the annual revaluation rates.

If £1600 is your pension accrued to 31 March 2018 then, again ignoring payrises and revaluations, another 10 years would indeed take you up to £5600 - but don't forget to take off the early retirement reductions, which would take you down to about £4k. (Or £17142.84 lump sum, £2571.43 annual pension if you go for the maximum tax free cash option).

AlanP_2

My statement also gives 2 figures.

The first is "accrued to date as at 31/03/18" (end of pension year).

The second is "If you carry on working and being an active member of LGPS until you are 66 and get NO PAY RISES your pension projection is £x"

The second figure is rolling forward the CARE increases per year until Normal Retirement Age so you can't add £400 a year to their estimate they have done that for you already.

Crossed with Silvertabby.

maryroberts

Thank you for all your replies - I now understand this a lot better and can plan ahead a bit more.