What constitutes a good pension?

Gary1984

If the revaluation of accrued benefit applied under the CARE scheme is greater than the average rate of pay rises you earn over your career then CARE is better. I think LGPS CARE revalues at CPI so if your pay increases don't keep pace with inflation then you're better off with CARE. Also that assumes the same accrual rate but 1/49 is presumably better than whatever it was under the old scheme. So you'd probably still do better under the CARE scheme with unspectacular but above inflation pay increases. 

To the OP: your pension is excellent and you won't be able to find any better alternatives. However you could still improve your pension provision with AVCs or paying into a private pension in addition to the LGPS. 

Brynsam

6TD said:

Silvertabby said:

6TD said:

Silvertabby said:

LGPS ?  That £30K forecast is in today's money.  Each year, as long as you continue working/paying into the scheme, your accrued pension will increase by cost of living (CPI) and so, in theory, will have the same spending power as £30K today. 

If you want more than that, then you have the option of paying more into your pension (APC or AVC) or into a stand alone SIPP.

Yes LGPS, I'll have a look at those other things, thanks. All I hear is that it's not as good as it used to be which is why I started to think about whether I'm getting the best I can get.

The LGPS switched from final salary to CARE in 2014.  Many of your older colleagues are probably telling you that the CARE scheme isn't as good as the old scheme - but it depends on your career progress.

At extreme ends, if you joined as a tea boy/girl and then left 30 plus years later as a CEO then you would have indeed been better off on a final salary scheme.

However, if you spend your entire career on the same job on the same pay grade, then you'd almost certainly get more out of a CARE pension.

Wherever you fall, a public sector defined benefit scheme, such as the LGPS CARE, is far, far, better than the majority of private sector defined contribution pensions out there. 

Thanks, I was trying to work out whether defined contribution or defined benefits are generally better.

DB pensions are almost always better because of the huge slug of cash the employer has to pay in - they are on the hook for whatever it costs to pay the benefits promised under the scheme rules.

Very occasionally, a DB scheme where benefits build up at a very low fraction of pay (e.g. 1/120) could have lower benefits than a DC scheme where contributions are consistently paid at the maximum, but given you are in a fantastic scheme, that's not a problem which needs to concern you. Make the most of it - but do make sure you understand why you are so well off as a member of the LGPS.

dunstonh

With traditional final salary pensions, it used to be a variation of the average of the best three years in the last 10, or best three consecutive years in the last 10 or variations of that.
What used to happen in the public sector is that some would get promoted intentionally right at the end of their career just to get at least three higher years.   There is debate whether that happened on a widespread basis or not.  However, career average stops it from being as beneficial to the person and reduces the cost to the taxpayer.

Thanks, I was trying to work out whether defined contribution or defined benefits are generally better.

To match the benefits of the scheme, you would probably have to pay around 30% of your salary into a DC pension.

greatkingrat

Also, don't forget you will have a state pension on top of whatever you get from LGPS.

JoeCrystal

6TD said:

I have a pension, I have been paying into it for 10 years but I have no idea if it's any good or not.
What can you expect at the end? Do all pensions result in paying out less than your salary? If so what % of your salary being earned in retirement would be good?
I currently earn 35k and my CARE pension forecast at NPA is 30k, is that a good benefit it sounds like it might not be much in 30 years? I pay at a rate of 1/49th, is that normal?
I have 30 years left to work so I'm wondering if I'm on the right path or should change what I'm doing.

. As others already pointed out, you got one of the best pension schemes in the country, and you know exactly what you get. You really should understand your pension scheme, and I am somewhat appalled that you don't seem to know much about it (especially there is a pretty good national website explaining about it). It is incredibly valuable as a pension scheme in the context in the number of benefits built up at the level of risk to you that is almost non-existent (Plus all other bells and whistles such as Ill-health retirement). Let me point out a vast gulf between a DC pension scheme and a DB pension scheme in term of employee's contribution.

Thirty years old on £30k paying into the LGPS can expect a pension of £23,265 by 68 (after 38 years and assuming nothing changes in term of pay) and only paying gross 6.5% or £189.55 per month.

Thirty years old on £30k paying into a DC pension scheme and paying 5% (£125 per month) (with average employer's contribution of 3% on top = £75 per month) can expect... it depends on the market conditions. Still, if the returns are okay and if the market is in good shape by 68, he could get a pension pot worth £140,000. He might be able to get an index-linked annuity worth £3,800 per year. But most people on DC schemes no longer go for an annuity but let put it into a drawdown instead. Let use 3% as a safe withdrawal rate so maybe £4,200 per year? Perhaps a bit higher.

But let say he wants to get the same pension as someone in LGPS, after all, he did want to get a comfortable income in his pension scheme. Let see how much he would need to contribute to get £23,265 per year by 68 if he is lucky and only with the average contribution rate of 3% by the employer. He would need to contribute 46% of his salary or £1,150 per month, which does show how valuable that employer's contribution is in comparison to your contribution. But since annuity rates are so expensive, let go for a drawdown option instead at 3%, so a pension fund target of £775.500 to aim for. That still requires an employee's contribution of 41% or £1,025 per month, and he will have to pray that there is no severe market crash around the time of retirement.

GunJack

dunstonh said:

What used to happen in the public sector is that some would get promoted intentionally right at the end of their career just to get at least three higher years.   

Where I was (and am now back at but private sector working alongside CS) it used to be get people on shifts if possible for 12-18 months before retirement (there were very few if any promotion prospects). This gave a pensionable shift allowance of 10.5%, so instant 10.5% uplift to final salary pension.. 

LHW99

One way the OP could improve their position would be to save extra into a stand alone personal pension or SIPP. This could then be drawn down up to 10 years before SPA to allow retiring before the LGPS NRA. By doing this, he/she could retire a bit earlier without having to take a reduced LGPS pension.

jamjar92

LHW99 said:

One way the OP could improve their position would be to save extra into a stand alone personal pension or SIPP. This could then be drawn down up to 10 years before SPA to allow retiring before the LGPS NRA. By doing this, he/she could retire a bit earlier without having to take a reduced LGPS pension.

I would recommend OP pays into an AVC, many councils are starting or have started SCAVC's. OP then as the option to purchase additional LGPS pension or take the AVC as a TFLS. OP is also, able to transfer to a SIPP at any point of retirement before LGPS NRA to use for drawdown as LHW99 says. The only downside is they are limited funds choices from the in-house scheme.

6TD

Thanks for all the info everyone, I'm a lot more relaxed about it now!

Nebulous2

dunstonh said:

With traditional final salary pensions, it used to be a variation of the average of the best three years in the last 10, or best three consecutive years in the last 10 or variations of that.
What used to happen in the public sector is that some would get promoted intentionally right at the end of their career just to get at least three higher years.   There is debate whether that happened on a widespread basis or not.

I knew a long stay hospital, now closed, where almost everyone did two years of night shift, prior to retiring. This effectively gave a 30% uplift in salary and consequently pension. The staff had mental health officer status as well, which meant 40 years pension for 30 years service, subject to a minimum age of 55.