LGPS vs ISA

Corally

Hello,
I was wondering if I could have some advice please on my LGPS. I find pensions very confusing and am struggling to get the information I need from the LGPS websites.

I have been a LGPS member for nearly 4 years. I am currently on 50/50 contributions but plan to increase this to full contributions next month.

I was very confused by my last pension statement, as I am contributing significantly more each month than I am getting put into my pension account. I emailed the LGPS customer services and they advised that it is a defined benefit scheme so your pension fund doesn't go up in line with your contributions.

I was wondering if anyone knows where the extra money that I contribute goes, and if I would be better off paying the money into an ISA? I assume the difference is used to administer my pension fund? It doesn't seem great that you pay in 6.5% of your pay but only receive 1/49th back. I know that you don't pay tax on the money that does into your pension, but from what I can see I would still have more going onto the pot each month if I put the percentage into the ISA as opposed to the 1/49th going into my pension?

If someone could help enlighten me on how it all works I would be very grateful!

Thank you!

NoMore

You don't understand your pension.

For that one of payment of 6.5% you get 1/49 of your salary EVERY YEAR for the rest of your life once you start drawing it. After a couple of years you have recoverd the original payment, with an ongoing payments to come.

DB Pensions are different from DC schemes, the amount you pay does not go into a fund that is then returned to you at retirement, best not to try and conflate the amount you pay with the amount you will get back in DB pension

Drp8713

Lets say you earn £25k..

You pay £1625 a year contributions.

You earn £510 pension.

So you break even just over three years into your probable 20+ year retirement, plus it will increase by CPI, plus you get death and ill health cover

Corally

No, I don't understand it but glad I have somewhere I can come and ask for help!

Thank you for the information. The statements that I get aren't explained well for someone who doesn't have any knowledge of pensions. I hadn't realised that the statement amount that I have is a yearly figure for once I retire; it had looked to me like it would be the total amount I would get at the end which didn't seem a lot!

Thanks for the clarification!

Apodemus

:wall: :wall: :wall:

Given the frequency of this exact question, why oh why can we not teach this in school! Or at least get the Council pension departments to realise just how low the average understanding of pensions is and word the statement accordingly!

dunstonh

The statements that I get aren't explained well for someone who doesn't have any knowledge of pensions.

They are designed to be short and simple. The assumption is that you would have read the scheme booklet or have access to it should you have any questions. The scheme booklet is very good and you should read it.

kidmugsy

Drp8713 wrote: »

You pay £1625 a year contributions.

You earn £510 pension.

With the greatest respect, etc, that sort of thing would be far better if you wrote something like '£510 pension per annum' or '£510 pension a year' or my preferred wording 'annual pension £510'.

crv1963

Apodemus wrote: »

:wall: :wall: :wall:

Given the frequency of this exact question, why oh why can we not teach this in school! Or at least get the Council pension departments to realise just how low the average understanding of pensions is and word the statement accordingly!

This level of understanding is the norm in the NHS too. I think financial education should be taught at school as well. I don't think it likely that many would pay attention to it though. I found for me being told the benefits by older staff when I started was the most useful. Now I'm one of the oldies telling younger colleagues not to leave the pension.

drumtochty

Sorry to inform people but people lie and are proud to say they do not understand pensions as it appears to be the "thing to say".


I have sat down with people and explained about what they pay into a final salary pension and I have given the people the numbers and have got them to do a worked example of what they get out at their retirement age.


I have left them with the worked example and they are happy that they understand the advantage of the pension.


A month later in front of others they will say they do not understad their pension. When I advise them that they have had it explained to them, they agree that they do understand their pension workings but advise they will keep saying that they do not understand pensions when in discussion with others as that is "what everybody says".


After many people said this I gave up.