LGPS- private industry equivalent rate

Holmesy999

Sorry, my Google powers have let me down.

If I was thinking leave local government for private, what would be an estimate on an "equivalent" pension contributions in terms of % me and % employer?

My current position requires a contribution of 8.5%, but I'm not sure what the employer contribution is

Brynsam

You are in a defined benefit scheme. The employer's contribution is 'whatever it takes to pay the promised benefits', so what an employer is actually paying at any given time is a bit of a red herring.

As you know, defined benefit schemes in the private sector (at least ones which are open to new members) are extremely rare. The best you can hope for is a hefty employer contribution (15%++), but don't forget you need to consider it in the context of the overall remuneration package.

Holmesy999

Thanks for that. Its the renumeration package I'm negotiating, trying to balance the pay rise in take home pay against their initial offer of 5% matched pension contribution (I want it higher!)

Silvertabby

Your actual employer's contribution rate should be listed on your LGPS website - but you are looking at at least 15%.

However, as Brynsam says, that has no bearing on your eventual pension.

FatherAbraham

Holmesy999 wrote: »

Sorry, my Google powers have let me down.

If I was thinking leave local government for private, what would be an estimate on an "equivalent" pension contributions in terms of % me and % employer?

My current position requires a contribution of 8.5%, but I'm not sure what the employer contribution is

If you tell us your age, and expected retirement age, then it's possible to estimate how much contribution in total will need to be made to a DC scheme in order to provide similar-ish benefits (but getting the same type of benefits is impossible).

Age is important, because in a DB scheme, an older member gets just much benefit from a year's contributions as a younger one, but in a DC scheme, there's less time for the older member's investment to grow. Hence older people need contributions much higher than the young in DC schemes.

I vaguely remember once estimating that a 64-year-old DC-scheme member wanting a survivor's pension as well as index-linking, retiring at 65, and getting a 1/60th of salary pension increment during that contribution year, would need a pension contribution of about 54% of salary.

Your scheme members would need less, but I don't think it went below 30% even for the youngest members.

However, it all depends upon assumptions for rate of investment return, annuity prices, and whether one needs the survivor's pension.

I'm sorry the figures are rather rough, but I hope they at least give an idea of the same of pay differential your might need to achieve when moving from DB to DC.

Zero_Sum

LGPS employer conts vary from organisation to organisation. But typically they're around the 20% mark give or take a 2 or 3%

FatherAbraham

Zero_Sum wrote: »

LGPS employer conts vary from organisation to organisation. But typically they're around the 20% mark give or take a 2 or 3%

Unfortunately, they're pretty much irrelevant for an individual's DC scheme, which is effectively a target-date fund without risk-pooling.

One also needs consider whether the LGPS fund is in deficit or surplus.

One should try to match benefits between the two types of scheme, not contribution levels.

Holmesy999

So I'm taking from the above that a 5% me /5% match fund is going to be way under (being captain obvious!)And I am going to need to contribute to work place pension or Sipp in the order of another 20% (with no more match pension) to at least to build up a sufficient pot to get anywhere close. Thus eating up any higher pay this job might provide.

Aged 40, I'm guessing will either die at my desk or hopefully retire at 65-67ish (but I always assumed I would do phased retirement towards the end dropping days, but that's another topic for another day)

Marcon

Holmesy999 wrote: »

So I'm taking from the above that a 5% me /5% match fund is going to be way under (being captain obvious!)And I am going to need to contribute to work place pension or Sipp in the order of another 20% (with no more match pension) to at least to build up a sufficient pot to get anywhere close. Thus eating up any higher pay this job might provide.

Yes - but you need to set it in the wider commercial context - i.e. would any other private sector employer give you the pay rise you will get from this offer, PLUS a major hike in pension contributions? Only you know how valuable your skills are in your particular type of job.

snowqueen555

Your employer currently pays the balance of the cost of providing your benefits after taking into account investment returns. Every three years, an independent actuary calculates how much your employer should contribute to the scheme. The amount will vary, but generally your employer will contribute two thirds of the scheme's costs and the employee contributes one third.

https://www.lgpsmember.org/more/employerconts.php

Quite good

FatherAbraham

Holmesy999 wrote: »

So I'm taking from the above that a 5% me /5% match fund is going to be way under (being captain obvious!)And I am going to need to contribute to work place pension or Sipp in the order of another 20% (with no more match pension) to at least to build up a sufficient pot to get anywhere close. Thus eating up any higher pay this job might provide.

Aged 40, I'm guessing will either die at my desk or hopefully retire at 65-67ish (but I always assumed I would do phased retirement towards the end dropping days, but that's another topic for another day)

Here's a rough calculation. Note that these things are very sensitive to the annuity rate chosen. Still, by following what we do below, you can recompute for your own values.

Current age 40, presumed retirement at 67.

Let's guess you want a survivor's pension.

Thus 27 years to retirement, let's say you want a pension of one sixtieth of salary for each year (LGPS CARE accumulated a bit faster than that actually), so pension income from this DC arrangement should be 27/60 of salary.

Assume an annuity rate of 2.8%, you'd need about 35 times annual salary in a pot to get 100% replacement, or 16 times annual salary to get the desired 27/60.

Now we know the required pot size, we can go to a savings calculator to work out how much to put away each month.

There's one at the Money Advice Service: https://www.moneyadviceservice.org.uk/en/tools/savings-calculator/how_much

The FCA currently says to use a mid-range return of 5% for investments, but to discount by 2.5% to allow for inflation, leaving a net, real return of 2.5%.

Typing in "1600" as the goal (for 1600% of annual salary), and 2.5% as the annual "interest", and setting a target date 27 years hence, it says that you need to put away about 4% of ANNUAL salary per month.

In other words, you need an annual total pension contribution of 48% of your salary.

It falls by a lot of you don't need a survivor's pension, since the annuity rate alters.