How do you work out the real value of a DB pension?

dunstonh

Durban wrote: »

Yes, that is what I thought but was interested to find out what I would have to save in order to get those same benefits

Typically around 25-30% of your annual salary.

Happier_Me

I tried the AVIVA annuity calculator after reading your post yesterday. I entered a pot value of £300k and my age as 60. That's the point at which my current LGPS benefits will be paid with some 85 rule protection - I will receive £12k plus a £20k lump sum at this age in today's money. This is what I've accrued so far... I've been in the scheme most of my working life (I'm clinging to 43 years old).

The calculator let me add in a spouse (50%), take a lump sum equivalent to my LGPS and I was bumbling along nicely at around the £10k annuity/year mark until I had to select whether I wanted my annuity to be a fixed amount or increase annually. I was only given the option for it to increase with the RPI (so more generous than the LGPS) and this immediately slashed my annuity to the £5k a year.

So that indicates you would need closer to a £300k pot to replace your existing accrued benefits of £6k a year.

With an annuity you get the security of a guaranteed income, but most people would drawdown from a pot nowadays and make this go much further in reality.

GDB2222

Depending on age and health, an index linked annuity at the moment costs around 40-50 times the annual pension. That includes the spouse's pension.

Happier, can you use the £20k lump sum to buy more pension within LGPS at the rate of 12 to 1?

Silvertabby

GDB2222 wrote: »

Depending on age and health, an index linked annuity at the moment costs around 40-50 times the annual pension. That includes the spouse's pension.

Happier, can you use the £20k lump sum to buy more pension within LGPS at the rate of 12 to 1?

Almost certainly not - inverse commutation ended some time ago, apart from a tiny number of people with reserved rights (most of whom will have deferred benefits).

Novice_investor101

I'm interested in finding this out too - I have a DB pension that will pay £3.5k a year, index linked with 60% spouses benefit from age 65. I'm 37 now, with probably no use for that spouses benefit.
It's the first pension i had & I started it at 24, & paid in for 10 years.

I'm now in a DC scheme, which has a value of £12k after 3 years of contributions. I feel like I'm behind on my retirement savings because I can't put a DC type value to the DB pension.
I got a CETV at Xmas for £48k, which I felt was not even worth considering.

Happier_Me

The £20k lump sum is linked to my 2008 scheme membership so it's pretty much set in stone. I certainly wouldn't convert any annual pension to create a larger lump sum, it's not good value for money. And hopefully I won't need it.

I woke up to pension planning thanks to this forum when I turned 40. I had a rough idea to retire at 55 with £30k annual household income and it's mainly thanks to the LGPS that we have this in the bag from 60, in our early to mid 40's. We still have savings gaps but we have time to address these. My retirement wake up call would have been very different no doubt had I been in a company DC. My husband is and he's now playing an expensive game of catch up.

Happier_Me

Novice Invester - personally I wouldn't do it. Transferring out of the LGPS is expensive and the transfer value does not reflect its true worth. Its a guaranteed annual income protected from inflation. Concentrate on increasing your contributions to your current scheme if you can.

GDB2222

Novice_investor101 wrote: »

I'm interested in finding this out too - I have a DB pension that will pay £3.5k a year, index linked with 60% spouses benefit from age 65. I'm 37 now, with probably no use for that spouses benefit.
It's the first pension i had & I started it at 24, & paid in for 10 years.

I'm now in a DC scheme, which has a value of £12k after 3 years of contributions. I feel like I'm behind on my retirement savings because I can't put a DC type value to the DB pension.
I got a CETV at Xmas for £48k, which I felt was not even worth considering.

I guess the DB scheme value (to you) is roughly double the CETV you have been offered. It depends how much risk you are prepared to take investing your money.

I don't see the point in cashing the DB scheme in.

The £12k in the DC scheme would buy you around £300 pa pension if you were retiring now and bought an index linked annuity. As you have 30-odd years between now and retirement you should hopefully be able to invest to earn a real return between now and retirement that might (say) double the fund in real terms.