CARE Pension Query

der_hammer

My wife and I are both 30 and I thought it was time to look at the state of our workplace pensions, and be a bit more pro-active in our forward planning.

I work for a local council and my wife for the NHS, so we both have CARE pensions. I understand the mechanics of the pension in that a proportion of our pensionable salaries are put into a pension pot every year and revalued at the end of every year.

What I don’t understand is, if our pensions are built up based on a proportion each year of our pensionable salary, then where do I see the impact of our employers monthly contribution (20.7%), and my monthly contribution (6.1% not including AVC). Same for my wife.

Dazed_and_C0nfused

Employers contribution has no impact on you.

Your 6.1% contribution is what is getting you your CARE pension.

So say you are on £30k you contribute £1,830 (before tax relief).

In return you get a pension of maybe £612.

der_hammer

Dazed_and_C0nfused said:

Employers contribution has no impact on you.

Your 6.1% contribution is what is getting you your CARE pension.

So say you are on £30k you contribute £1,830 (before tax relief).

In return you get a pension of maybe £612.

Thanks for the quick reply. Hearing that the 20% from both our employers is irrelevant is a bit of a !!!!!!. 

My next question then is, my scheme works out the pension saving for the year as being 1/49th of pensionable pay each year. So if they’ve already decided on the 1/49th, again does that make my 6.1% contribution each month irrelevant?

Also, how will my additional voluntary contribution tie into this?

Dazed_and_C0nfused

They aren't irrelevant as such, that is what is buying you the £612 in the example I gave.

But as CARE is a defined benefit scheme you don't see a pot of money as such.  Your employer is committed to paying you the £612.

What are you doing with the additional contributions?  You may have had the choice of buying extra guaranteed pension, building up a cash fund or buying the option of taking your £612 early with no reduction.  Other options may be available depending on your employer.  Do you know what you opted for?

Silvertabby

Nooo ! Both employee and employer contributions have no bearing on a CARE pension!  It's the accrual rate and the annual revaluation rates that count.  In the case of the LGPS, that's 1/49th of your annual pensionable pay, plus an annual revaluation of CPI.  Without looking, the NHS has a slightly lower accrual rate but a higher revaluation - so both schemes are pretty much of a much.  
Employee and employer contribution rates are set at a level to make the schemes viable.
AVCs are just the amount you pay in, plus any investments gains/minus any losses.  This will remain a separate 'pot' of money until you retire, when you will be able to chose how you take it - tax free cash (within HMRC limits) or buy extra pension.

Dazed_and_C0nfused

To be fair though, using my example, you can't get the £612 without paying the 6.1%. 

I appreciate that the £612 isn't directly linked to the 6.1% but you have to be contributing that in the first place to be entitled to the £612.

der_hammer

Dazed_and_C0nfused said:

They aren't irrelevant as such, that is what is buying you the £612 in the example I gave.

But as CARE is a defined benefit scheme you don't see a pot of money as such.  Your employer is committed to paying you the £612.

What are you doing with the additional contributions?  You may have had the choice of buying extra guaranteed pension, building up a cash fund or buying the option of taking your £612 early with no reduction.  Other options may be available depending on your employer.  Do you know what you opted for?

Ah your first point makes sense, thanks.

As for my AVC, I’m firing £200 a month into a fund that will run alongside the CARE scheme. 

I really need to get a handle on what my wife and I need to do to give us the option of retiring at a decent age, say 60.

30 years to add to our workplace pension pots that have been running for a few years so far, and my AVC is in it’s infancy as well. I’ve only just upped the AVC from £50 to £200 per month in the hope that that is a significant step forward.

Silvertabby

Dazed_and_C0nfused said:

To be fair though, using my example, you can't get the £612 without paying the 6.1%. 

I appreciate that the £612 isn't directly linked to the 6.1% but you have to be contributing that in the first place to be entitled to the £612.

True, but you can't just ignore the employer's contribution.  Without that, the scheme accrual rate would be set at a much lower level.

JoeCrystal

der_hammer said:

Thanks for the quick reply. Hearing that the 20% from both our employers is irrelevant is a bit of a !!!!!!. 

My next question then is, my scheme works out the pension saving for the year as being 1/49th of pensionable pay each year. So if they’ve already decided on the 1/49th, again does that make my 6.1% contribution each month irrelevant?

You are paying peanuts for such valuable pension benefits plus all the bells and whistles on top like a death in service benefits and so on. LGPS is one of very few public sector pension schemes that got real funds to pay out the promised pensions unlike most public sector pension schemes are unfunded.

You already have done the essential part for your retirement provision, joining these DB pension schemes while paying only a mere fraction of the actual costs and an option to increase your pension even further. You already got an excellent idea what pension income you can expect now at 60 thanks to simple calculations of what pension you can expect providing nothing changed.