LGPS- private industry equivalent rate

FatherAbraham

FatherAbraham wrote: »

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.

Ugh, there's a lot of bad rounding in that savings calculator, sorry. Setting the savings goal to 160000 to improve the granularity gives a figure of 331 ten-thouandths per month, so a savings rate of about 40% is needed, not 48%, sorry!

Holmesy999

Wow, thanks for the detailed response!

GunJack

But what sort of pension does the prospective employer offer? Is it a DC, DB or DB CARE scheme?? It makes a big difference...

e.g. my current DB has just moved to a CARE -type scheme, it costs me 7.3%, but as it's DB I know what the benefits are irrespective of the cost to the employer.

atush

25% at least, up to 30%

Holmesy999

nah, it 's the simple one where you get the big pot of cash at the end and a "good luck" with it

GunJack

Holmesy999 wrote: »

nah, it 's the simple one where you get the big pot of cash at the end and a "good luck" with it

In that case, I'd be going for min 15% from the employer