In laymens terms, what does Career average pension mean and am I paying more than I am saving?

Socialworkguy

Dear MSE Forumites 
When I checked my pensions savings for my first year of employment (Running from Sept 19 to Mar 20) from what I could tell, my saved pension was far lower than I expected, it didnt even come close to how much I have been paying in nor did this even show how much my employer had put in. What gives?

Here are the numbers:
Average monthly payment £160 (sometimes varying due to incremental payments but a ballpark figure) x 7 months worked is £1120 I paid in minimum
Employeer should be matching at 6.5% so would take each monthly payment to min £320, x 7 is £2240

Pension Annual Statement 31st March 2020
Pensionable pay (for the months worked in financial year) £16711.29 
Pay for year: £28785
Annual Pension at 31st March 2020: £341.05   
Capital Value: £6821
Projected Career Average Value: £27050.99

Payslip figures as of 31st March 2020
Pesnsionable pay: £16,711.29
Employees Pension £1086
Employers Pension £4,562.1

I emailed HR about this saying I didnt understand and they said 
The Local Government Pension Scheme is a career average pension scheme. Each year 1/49th of your pensionable pay (salary and other pensionable payments you have received during each financial year) is put into your pension account and you will build up pension benefits which are payable when you retire. The pension that you build up is revalued at the end of each year so that it keeps up with the cost of living. Further information about the pension scheme and how you build up your pension benefits can be found at https://www.wmpfonline.com/CHttpHandler.ashx?id=10105&p=0 .

What am I not getting about all of this that is making me feel like this pension scheme is a massive rip off. Its Local Government Pension Scheme (West Midlands). 

Dazed_and_C0nfused

The bit you are missing is you have paid £1086 once.

LGPS will pay you £341 from NPA until you die.  That could easily be 30+ years.

If you leave the LGPS the rest of the country will thank you 

Socialworkguy

Dazed_and_C0nfused said:

The bit you are missing is you have paid £1086 once.

LGPS will pay you £341 from NPA until you die.  That could easily be 30+ years.

If you leave the LGPS the rest of the country will thank you 

So the £1086 isnt just the total I paid in over the 7 months.. as thats what I thought it was. 

What does NPA mean sorry?

Socialworkguy

Socialworkguy said:

Dazed_and_C0nfused said:

The bit you are missing is you have paid £1086 once.

LGPS will pay you £341 from NPA until you die.  That could easily be 30+ years.

If you leave the LGPS the rest of the country will thank you 

So the £1086 isnt just the total I paid in over the 7 months.. as thats what I thought it was. 

What does NPA mean sorry?

Never mind as I understand now that you are saying I have paid very little compared to what I would get, which kind of gives me an answer. But I like to know exact figures and I can't see how much both myself and my employeer have contributed means I would get £340 a year. 

grumiofoundation

Socialworkguy said:

Socialworkguy said:

Dazed_and_C0nfused said:

The bit you are missing is you have paid £1086 once.

LGPS will pay you £341 from NPA until you die.  That could easily be 30+ years.

If you leave the LGPS the rest of the country will thank you 

So the £1086 isnt just the total I paid in over the 7 months.. as thats what I thought it was. 

What does NPA mean sorry?

Never mind as I understand now that you are saying I have paid very little compared to what I would get, which kind of gives me an answer. But I like to know exact figures and I can't see how much both myself and my employeer have contributed means I would get £340 a year. 

£16,711.29/49 = £341

You have contributed £1086 - although in reality only £868 since this £1086 is before tax.

How much the employer contributes isn't really relevant since you don't have a 'pot' as you would in a defined contribution scheme. 

Employeer should be matching at 6.5% so would take each monthly payment to min £320, x 7 is £2240

Pension Annual Statement 31st March 2020
Pensionable pay (for the months worked in financial year) £16711.29 
Pay for year: £28785
Annual Pension at 31st March 2020: £341.05   
Capital Value: £6821
Projected Career Average Value: £27050.99

Payslip figures as of 31st March 2020
Pesnsionable pay: £16,711.29
Employees Pension £1086
Employers Pension £4,562.1

Doesn't look like they are matching, looks like they are paying far more (~25%) but as above not really relevant.

What am I not getting about all of this that is making me feel like this pension scheme is a massive rip off. Its Local Government Pension Scheme (West Midlands). 

It's not. 

Albermarle

What am I not getting about all of this that is making me feel like this pension scheme is a massive rip off. Its Local Government Pension Scheme (West Midlands). 

Many people working for private companies with poor pensions would be very jealous of a scheme like this, as it promises a guaranteed income when you retire .

Compared to someone in a private company in an auto enrolment scheme this LGPS pension is like having a 20% pay increase(at least )

theoretica

Socialworkguy said:

Pension Annual Statement 31st March 2020
Pensionable pay (for the months worked in financial year) £16711.29 
Pay for year: £28785
Annual Pension at 31st March 2020: £341.05   
Capital Value: £6821
Projected Career Average Value: £27050.99

Payslip figures as of 31st March 2020
Pesnsionable pay: £16,711.29
Employees Pension £1086
Employers Pension £4,562.1

Look at the capital value - you have paid in £1086 (before tax figure) and your employer £4561 the (non-personalised) valuation says you have £6821 accumulated pension value.  I would say that's rather good for £800 or so after tax out of your pocket.

Socialworkguy

Thank you all for helping me understand. I can't debate whether I am deserving of such a pension over others in the private sector, I just couldnt understand the figures. Thanks for help.

pat1976

I hope you understand now but to put it another way you are not part of a savings scheme (where you build up a pot of money and can't be sure what it will be worth when you retire) , the money you put in is to buy membership to a scheme which guarantees you an income from pension age.

My career average scheme adds 2.3% of my gross salary that year to what I will get at pension age. So if I earned £10k in a year then I'd be guaranteed £230 a year from pension age for the rest of my life. The amount I pay in is to be a member of this scheme and has no relation to how the pension income increases.

You can decide if it is good value by figuring out what size savings pot you would need to generate that income for the rest of your life and comparing it to what you will have paid in. You are almost certainly in an excellent scheme that is the envy of millions of people. 

Thrugelmir

Socialworkguy said:

Thank you all for helping me understand. I can't debate whether I am deserving of such a pension over others in the private sector, I just couldnt understand the figures. Thanks for help.

Pension is considered as part of the overall package. You could earn a better salary but have a worse pension provision in the private sector. 

Marcon

Socialworkguy said:

Thank you all for helping me understand. I can't debate whether I am deserving of such a pension over others in the private sector, I just couldnt understand the figures. Thanks for help.

You had the good sense to ask, rather than just feeling hard done by - and possibly opting out of one of the best schemes in the country!