Paying more into employer pension scheme

AliceBanned

Hi


I am a newbie to looking at pensions. I have only been paying into employer schemes since age 40 and am now nearly 52. I plan to work until state retirement age (currently 67) but possibly part time from age 60 or a couple of years within that. It depends how I feel at the time but my health is good now and I may even prefer to continue for longer.


I currently work in the public sector for a local authority and earn £39k. I have no children so any plans are based on my own needs financially and I am currently single with a mortgage. I also bought property late in life and was renting for a long time, so mortgage won't be paid off for at least 15 years. I was chatting to a colleague who was telling me that a lot of the directors pay most of their salary into their pension for the tax relief. I am presuming it is salary sacrifice arrangement but I need to find out more from my employer on the options with their pension scheme. I am such a newbie that I don't even know how to look at my pension pot with this employer and find out more, at this stage!


My thinking at the moment (which may be naïve) is when I have paid off my debts towards the end of this year, to start saving much more rapidly than I did in the past (ie not at all) and possibly investing. I should have around £500 per month to save/invest though may choose to do less. My thoughts are, would the best option be to put this additional £500 for example into my pension pot, to use in the shorter term ie draw some out when I reach 55 up to the allowed tax free amount or less, eg to pay off more of the mortgage or invest elsewhere/spend on current property/plan towards part time working. My thoughts are in the next 3-5 years to buy a bigger property and have a lodger - I've shared flats before and am fine with this. I live in Hertfordshire so property so far has been a good investment too.


Sorry it's long-winded but what I am really asking is given the new pension freedoms, is employer pension the best 'savings account' for someone at my stage in life or would I be better off putting the £500 per month elsewhere.


I am in the early stages of future planning so forgive any stupid questions, any pointers on where to look for advice and do my research so I can make more serious investments would be welcome

Albermarle

First thing you need to learn ( apologies if you know already ) is the difference between a Defined Benefit pension ( also known as a Final Salary pension ) and A Defined Contribution pension ( also known as Money Purchase)
https://www.moneysavingexpert.com/savings/discount-pensions/

AS you work for the local authority , I think you are in the DB type ( the better type )
When you hear about people contributing by salary sacrifice and getting tax relief it is probably a DC type.

xylophone

Defined Benefit pension ( also known as a Final Salary pension

Not all DB pensions are "Final Salary" - some are Career Average.

LGPS is now a DB CARE Scheme.

https://www.lgpsmember.org/more/pre2014.php

As far as I know, the only salary sacrifice scheme offered by Local Govt centres round buying a car.

http://www.berkshirepensions.org.uk/info/2/employers/41/pensionable_pay

The OP could consider increasing her retirement provision as here

https://www.lgpsmember.org/arm/already-member-extra.php

through LGPS or through a stakeholder/personal pension.

hyubh

AliceBanned wrote: »

I have only been paying into employer schemes since age 40 and am now nearly 52. [...] I currently work in the public sector for a local authority and earn £39k.

Does this mean, you've been a member of the LGPS for nearly 12 years (DB), or a much shorter period, because when you started contributing to an occupational pension, you worked in the private sector (likely DC)...?

I was chatting to a colleague who was telling me that a lot of the directors pay most of their salary into their pension for the tax relief.

Maybe for a period a few years ago. Now the Annual Allowance sees to that. Nevertheless, this is correct to the extent pension contributions are particularly worthwhile for higher rate taxpayers with 5 figure salaries, since tax relief is at your marginal rate (Annual Allowance complications once someone has a 6 figure salary progressively neutralise this).

I am presuming it is salary sacrifice arrangement

By reducing headline salary, salary sacrifice in fact limits the scope of tax relief, though it does reduce NI. However, regular LGPS contributions can't be paid by salary sacrifice, and non-monetary items that might be offered under salary sacrifice by a local authority aren't all pensionable (in particular cars).

On the flip side, there is at least one financial company around who have a product by which, if the employer participates in the setup, involves having an LGPS AVC (technically, 'shared cost AVC') under salary sacrifice.

I am such a newbie that I don't even know how to look at my pension pot with this employer and find out more, at this stage!

Outside of an AVC, you're earning a future income (DB) rather than a pot of money and investments (DC). Start here:

https://www.lgpsmember.org/index.php

I should have around £500 per month to save/invest though may choose to do less. My thoughts are, would the best option be to put this additional £500 for example into my pension pot, to use in the shorter term ie draw some out when I reach 55 up to the allowed tax free amount or less, eg to pay off more of the mortgage or invest elsewhere/spend on current property/plan towards part time working.

Making additional pension contributions to a personal pension (DC) would probably be more appropriate for that purpose, though an LGPS AVC would be an option too.

If, instead, you were looking to earn a higher guaranteed income on retirement, an LGPS APC should likely be your best vehicle:

https://www.lgpsmember.org/arm/already-member-extra.php

Sorry it's long-winded but what I am really asking is given the new pension freedoms, is employer pension the best 'savings account' for someone at my stage in life

Being DB, an LGPS pension is not like a savings account, and the 2015 changes don't (directly) apply.

Dazed_and_confused

And to be on the safe side the op should check their State Pension forecast on gov.uk.

They will be highly likely in a position where they can end up with the full new State Pension of (currently) £168.60 but understanding their current position, years needed to get to £168.60 etc is sensible to understand.

Op, make sure you read past the headline forecast of £168.60 to see what your current entitlement, usually to 05:04:2019, is.

And remember two things,
1). No you don't have to deduct the COPE figure from your current entitlement (or forecast figure).

2). The "35 years" rule doesn't apply to you, you are under transitional rules. You may get to £168.60 with fewer years. Or more years. It could even be 35 but that would be coincidence. Checking your forecast, or more importantly your current entitlement, is a good starting point.

AliceBanned

Ok thanks everyone, that's really helpful to get me started.


It is a Defined Contribution scheme (not final salary) although I know people who worked for local authorities a longer time ago were automatically on DB.


I worked in the public sector previously for a largish charity and still have 9 years' pension in that pot.


I previously checked my state pension and I am pretty sure I qualified for full payment at state pension retirement age, though not sure what the number of years should be and how much longer I need to work - will check this.

xylophone

It is a Defined Contribution scheme (not final salary) although I know people who worked for local authorities a longer time ago were automatically on DB.

I am puzzled by this. Are you actually a member of the Local Government Pension Scheme?

The LGPS was a Defined Benefit Final Salary Scheme but is now a Defined Benefit Career Average Revalued Earnings Scheme.

Are you a member of some other scheme (not LGPS) offered by your employer?

xylophone

Check your state pension here

https://www.gov.uk/check-state-pension

And are you sure that you had no pension provision at all between age 16 and 40?

AliceBanned

Hi Xylophone


Yes it is in LGPS but which one sorry I'm not sure, I'll have a look for the paperwork.


Thinking about it I paid into an employer scheme in private sector age 37-40. Then the charity one 40-48 and since then LGPS. Before 38 no nothing, I was temping for most of the time and struggling to get by. I also worked part time for some of it due to ill health. So I'm aware I have some catching up to do and am almost in a position to do it.

AliceBanned

OK so I have now accessed the documents. It is a Career Average Scheme but people employed before March 2014 were on the final salary scheme until that point probably as per all on LGPS.


Current projection on retiring at 67 (ideally I will retire more like 62 though) is £8k per year, and £6k a year from the pension pot for previous two jobs (I combined these when I changed jobs).


It's not too bad considering being late in joining but if I overpay from now on it should help me to retire early. Still keen to add to it so will start to do more research and will then add to it from early next year, when debt free. . I will also be increasing my mortgage around that time so need to factor in everything before I decide.

AliceBanned

Dazed_and_confused wrote: »

And to be on the safe side the op should check their State Pension forecast on gov.uk.

They will be highly likely in a position where they can end up with the full new State Pension of (currently) £168.60 but understanding their current position, years needed to get to £168.60 etc is sensible to understand.

Op, make sure you read past the headline forecast of £168.60 to see what your current entitlement, usually to 05:04:2019, is.

And remember two things,
1). No you don't have to deduct the COPE figure from your current entitlement (or forecast figure).

2). The "35 years" rule doesn't apply to you, you are under transitional rules. You may get to £168.60 with fewer years. Or more years. It could even be 35 but that would be coincidence. Checking your forecast, or more importantly your current entitlement, is a good starting point.

Thanks Dazed and Confused. Just been away so now back and looking into this in more detail. According to gov.uk my forecast is £168.60 if I pay in for another 15 years.


Something confused me because it says I have paid in 30 years, and 6 years are not full. I did make some extra payments several years ago to make up for this so I thought I had made enough payments. Surely if forecast is £168.60 it is ok? I was a full time student for 6 years (FE and HE) so surely nothing is needed for this period? I had some time off sick in my 20s, for a year but was on benefits. I had short periods of unemployment in my 20s and a 6 month period out of the country where I was doing voluntary work. Does it sound like I need to get it checked, or should it be ok?


Also sorry I don't understand what you are saying in 1 above. Thanks.