How much would I contribute in a Local Government Pension Scheme per annum? Confused

OldBeanz

snowqueen555 wrote: »

Two things I have looked at.

1) I did a lump sum transfer in, and the pension I'd get from that is very similar to if I'd invest that same money on the stock market for the same amount of time, assuming a conservative 4-5% growth.

2) LGPS say their contribution averages 2/3 and your contribution 1/3. My previous scheme also has this generous rate. Again investing on the stock market returns a similar pot to if it was in the LGPS.

As I said, scheme is career average and guaranteed, but the inheritance aspect is important for a lot of people, so there are up and downsides.

The real question I have is if you were a non active member the benefits get reduced due to the insurance shrinking.

People who take comfort in being able to give an inheritance may not he able to with a LGPS, and dying right before pension would mean your family would not be able to realise the full value of any inheritance as there is no pot.

Don't get me wrong, the LGPS is good, but I am hoping to have another pension pot so I can have a bit more flexibility, I hope to start one soon.

I would be looking at LGPS AVCs before starting another pension.

GunJack

snowqueen555 wrote: »

People who take comfort in being able to give an inheritance may not he able to with a LGPS, and dying right before pension would mean your family would not be able to realise the full value of any inheritance as there is no pot..

What about the pension lump sum on taking it? This could give an inheritance along with a lifetime spouse/partner survivor's pension, likewise dying before pension payment would probably lead to death in service payment, 3 or 4 times salary (along with survivor's pension).

AlanP_2

I still can't see it sorry. My thoughts inline below.

snowqueen555 wrote: »

Two things I have looked at.

1) I did a lump sum transfer in, and the pension I'd get from that is very similar to if I'd invest that same money on the stock market for the same amount of time, assuming a conservative 4-5% growth.

Is that 4/-5% after inflation as your LGPS CARE pot increases by inflation automatically. If it is then I don't think 7.5% return is conservative.

I haven't transferred anything in since CARE came in, my transfer was into the 2008 scheme so got 1/60ths Final Salary linked accrual years. Since then PS salaries haven't increased that much but works out at about the equivalent of a 7% inflation linked + spouse pension return. Genuine comparison would be against an annuity and it beats that hands down.

2) LGPS say their contribution averages 2/3 and your contribution 1/3. My previous scheme also has this generous rate. Again investing on the stock market returns a similar pot to if it was in the LGPS.

It isn't really a generous rate though is it? If it was an employer contribution into a DC it would be, but what it is here is the rate that the actuary says they need to pay to meet their expected liabilities. If the actuary said they only needed to pay 0.1% that's what they would contribute

As I said, scheme is career average and guaranteed, but the inheritance aspect is important for a lot of people, so there are up and downsides.

I'm not convinced of this based on anecdotal evidence only to be fair. The people I talk to about pensions / investments is limited as most people don't care (unfortunately) and just go with the flow. Of those that do their plans are to have a great retirement and ideally spend the last few quid on their funeral. OK slightly exaggerated but I haven't heard any of them say that inheritance is an important factor. Ensuring the surviving spouse will be OK and helping children with house deposit etc. whilst alive if they can then yes, but that's as far as it goes.

The real question I have is if you were a non active member the benefits get reduced due to the insurance shrinking.

People who take comfort in being able to give an inheritance may not he able to with a LGPS, and dying right before pension would mean your family would not be able to realise the full value of any inheritance as there is no pot.

True, but you would still get a payout to them of 10* annual pension (I think from memory)

Don't get me wrong, the LGPS is good, but I am hoping to have another pension pot so I can have a bit more flexibility, I hope to start one soon.

As we have - LGPS AVCs and a standalone SIPP so that we have some flexibility to delay starting LGPS if we want to and to benefit from the tax breaks.

Durban

snowqueen555 wrote: »

Two things I have looked at.

1) I did a lump sum transfer in, and the pension I'd get from that is very similar to if I'd invest that same money on the stock market for the same amount of time, assuming a conservative 4-5% growth.

2) LGPS say their contribution averages 2/3 and your contribution 1/3. My previous scheme also has this generous rate. Again investing on the stock market returns a similar pot to if it was in the LGPS.

As I said, scheme is career average and guaranteed, but the inheritance aspect is important for a lot of people, so there are up and downsides.

The real question I have is if you were a non active member the benefits get reduced due to the insurance shrinking.

People who take comfort in being able to give an inheritance may not he able to with a LGPS, and dying right before pension would mean your family would not be able to realise the full value of any inheritance as there is no pot.

Don't get me wrong, the LGPS is good, but I am hoping to have another pension pot so I can have a bit more flexibility, I hope to start one soon.

If you were to die within 10 years of taking your pension, your family would indeed get a lump sum out of it , plus survivor pension. I'm not sure how much the lump sum is but I'm sure that SilverTabby does.

Silvertabby

Durban wrote: »

If you were to die within 10 years of taking your pension, your family would indeed get a lump sum out of it , plus survivor pension. I'm not sure how much the lump sum is but I'm sure that SilverTabby does.

Yes, it's called the 'pension guarantee'. In the case of those who left the LGPS before 1 April 2008 the guarantee is 5 years - but for those who left after it's 10 years. That is, a tax free lump sum of 10 (or 5) times the pension minus pension already paid.

It's calculated on a daily rate, but if OP were to die exactly 1 year after starting to draw the pension then his/her nominated beneficiary (ies) would receive a tax free lump sum of 9 x the annual pension.

This is in addition to any dependants pensions.

snowqueen555

AlanP wrote: »

I still can't see it sorry. My thoughts inline below.

Hi

I have compared my transfer in of £25k vs if I invested that on the stock market. I went for 4% growth per year after inflation, which is a somewhat common figure banded about.

35 years at 4% = about £98k in todays money, which gets an annuity at 67yrs of £4-5000 a year.

vs

LGPS transfer in - £4000 money a year at 67yrs

Silvertabby

snowqueen555 wrote: »

Hi

I have compared my transfer in of £25k vs if I invested that on the stock market. I went for 4% growth per year after inflation, which is a somewhat common figure banded about.

35 years at 4% = about £98k in todays money, which gets an annuity at 67yrs of £4-5000 a year.

vs

LGPS transfer in - £4000 money a year at 67yrs

Don't forget that, once transferred in, that £4K increases each year in line with inflation (CPI) both before and after retirement. Plus, unlike money invested in the stock market, it will never go down.

Triumph13

snowqueen555 wrote: »

Hi

I have compared my transfer in of £25k vs if I invested that on the stock market. I went for 4% growth per year after inflation, which is a somewhat common figure banded about.

35 years at 4% = about £98k in todays money, which gets an annuity at 67yrs of £4-5000 a year.

vs

LGPS transfer in - £4000 money a year at 67yrs

What type of annuity is that rate for? It looks way too high for one with inflation protection, a guarantee period and a survivor's pension.

JoeCrystal

Triumph13 wrote: »

What type of annuity is that rate for? It looks way too high for one with inflation protection, a guarantee period and a survivor's pension.

I agreed. According to the HL Best Buy Annuity, it is 2.74% for Single life, RPI, 5-year guarantee at aged 65 and 3.372% for Single life, RPI, 5-year guarantee at aged 70. So £98k will only get you £2,685 per year at 65 to £3,304 per year at 70. Not £4k to £5k. It seems unlikely that annuity rates will be any better in the future.

snowqueen555

Silvertabby wrote: »

Don't forget that, once transferred in, that £4K increases each year in line with inflation (CPI) both before and after retirement. Plus, unlike money invested in the stock market, it will never go down.

That's true, but I have taken snapshots of their worth in today's money, so I have removed inflation in both calculations to give a comparison.