LGPS v TPS

Mr__D

Hello there,

I hope that someone might be able to guide me as to whether it is advisable to transfer my Local Government Pension Scheme to a Teachers Pension Scheme.

I have 15 years membership of the LGPS (I started in 2003) some of which is final salary, and some of which is average salary. My starting salary was £15,000 and when I left last year it was £32,500. I have 24 years to go until retirement, if I am correct that Teachers Pension retirement age is now 65 and no longer 60.

To complicate things, I have taken a £6,500 pay cut moving roles, but equally expect my final salary as a teacher to be significantly higher than my final salary in my previous role.

I have read that the amount I earn on entry to TPS will have a bearing on what my pension pot is worth, but equally the amount I earn over the next 20+ years will have an impact too. I also think the number of years membership should be unaffected?

I did ask for a comparison and the LGPS on paper was quite a lot better, but I think this is due to the initial pay cut I have taken when taking on the new role? There seems to be too many variables to accurately assess the benefits of both, so hoped someone out there might have some salient advice?


Thanks in advance to anyone who can help,
Regards Mr__D

hyubh

Mr__D wrote: »

I have 15 years membership of the LGPS (I started in 2003) some of which is final salary, and some of which is average salary. My starting salary was £15,000 and when I left last year it was £32,500. I have 24 years to go until retirement, if I am correct that Teachers Pension retirement age is now 65 and no longer 60.

For the CARE TPS, it's the member's state pension age (65 if higher), just like the CARE LGPS. For the last iteration of the final salary TPS it was 65, again like the last iteration of the final salary LGPS.

To complicate things, I have taken a £6,500 pay cut moving roles, but equally expect my final salary as a teacher to be significantly higher than my final salary in my previous role.

I have read that the amount I earn on entry to TPS will have a bearing on what my pension pot is worth, but equally the amount I earn over the next 20+ years will have an impact too. I also think the number of years membership should be unaffected?

If you transferred, it would be in two parts, a service credit in TPS 2008 (which had a very similar benefit structure to LGPS 2008), and a CARE pension credit corresponding to your existing CARE accrual in the LGPS. The value of the former will be dependant on your final salary on leaving as you suggest, not your salary on joining.

One thing you would lose are the 'rule of 85' protections you currently have for your pre-April 2008 membership - while you have to take all your LGPS pension at the same time, assuming you met the 85 year rule at 60, there would be no actuarial reduction on the pension pertaining to 2003-2008 if you drew it at 60. In principle the final salary service credit in the TPS should make up for that though, i.e. it would have an NPA of 65, but also count for more days than you were actually in the LGPS for.

As for the CARE part, that isn't interesting, because the TPS would revalue it using the LGPS revaluation rate, rather than the higher TPS rate for active members. (Compared to the CARE LGPS, the TPS has a lower accrual rate but a higher revaluation rate.)

I did ask for a comparison and the LGPS on paper was quite a lot better, but I think this is due to the initial pay cut I have taken when taking on the new role?

Yes, so not particularly important if your future job history were to meet current expectations.

Silvertabby

As hyubh says, plus this: If you leave your LGPS benefits where they are they will increase each year in line with CPI inflation (no cap) and so may not trail behind your TPS salary as much as you think.

Mr__D

Thanks for the replies, I appreciate the information ...although it would seem there is more to this decision than I released, and even more that I don't fully understand!

Could I summerise your information as both schemes are similar, so the outcomes shouldn't be that different, however, TPS will have a slight edge assuming I am happy to retire at 65 (and forfeit the option to do so earlier) and that I leave teaching on a higher salary than my old role (I would anticipate an additional £10,000 more pa)?

If this is the case I think I will transfer my pension, working on the assumption that my pay increases will be better than inflation over my woriing life.

Thanks again for taking the time to reply.

Mr__D

hyubh

Mr__D wrote: »

Could I summarise your information as both schemes are similar, so the outcomes shouldn't be that different

Your deferred LGPS pension is made up of three parts:
- Final salary benefits for 2003-2008 - 1/80 pension, 3/80 lump sum, NPA (given the 'rule of 85') effectively 60
- Final salary benefits for 2008-2014 - 1/60 pension, no standard lump sum, NPA 65
- CARE benefits for 2014-2017 - 1/49 pension, no standard lump sum, NPA your SPA

If you transferred, this would become two parts:
- Final salary benefits for 2003-2014 - 1/60 pension, no standard lump sum, NPA 65
- CARE benefits for 2014-2017 - 1/49 pension, no standard lump sum, NPA your SPA

As such, comparing your final pensionable pay last year with your expected final pensionable pay in the TPS (in today's money), while the most important consideration, it not necessarily the only one. However...

TPS will have a slight edge assuming I am happy to retire at 65 (and forfeit the option to do so earlier)

You can still go earlier, its just that with your LGPS pension, the part of it that relates to membership before April 2008 wouldn't be subject to an actuarial reduction. On the other hand, if you did keep it separate and drew it at 60, then given you would have to take all three parts together, the CARE part in particular would suffer a fairly hefty actuarial reduction given 60 is well short of your CARE scheme NPA.

Mr__D

I appreciate the continued support hyubh,


So retiring at 60 would be counterproductive as it would affect the remaining years' service negatively, as they all start consecutively. I would lose the lump sum amount at 3/80 over the 5 years, but would gain 5 years at 1/60 as opposed to 1/80. I anticipate my final salary as a teacher will be at least £10,000 more than I earned previously so that will also be offset against the loss of the lump sum.


It seems without a Crystal Ball this is best guess, but from the detailed explanation you have provided I think I am going to complete the transfer and be thankful I will never understand this enough to know how much I have gained / lost!


Thanks again for taking the time to explain the intricacies of the system,


Mr__D

hyubh

Mr__D wrote: »

So retiring at 60 would be counterproductive as it would affect the remaining years' service negatively, as they all start consecutively. I would lose the lump sum amount at 3/80 over the 5 years, but would gain 5 years at 1/60 as opposed to 1/80. I anticipate my final salary as a teacher will be at least £10,000 more than I earned previously so that will also be offset against the loss of the lump sum.

You can convert pension into lump sum at a rate of £12 of cash for every £1 of pension forgone, up to the statutory maximum for tax free cash. Basically, 3/80 pension + 1/80 pension was broadly equivalent to 1/60 pension + no standard lump sum, but a 'commutation rate' of 12/1, in contrast, is not in your favour.

Thanks again for taking the time to explain the intricacies of the system

No problem