how good is LGPS? should I go for a private pension instead?

betterfuturejc

I recently got enrolled into LGPS with my new job and I find this scheme quite confusing. 
On the scheme it says my contribution per year x inflation percentage divided by 49 is what I actually have. It sounds very little to me, does "my contribution" here include my employer's contribution? 
I have calculated that for my first year, the money I would have received will be less than what I contributed? Is LGPS only good if you save over a long period of time? I m thinking of switching job in 2 or 3 years time.
I am also considering private pension like nutmeg or lifetime ISA. I already have savings with nutmeg which they provide around 20% return which I do find it quite good. Lifetime ISA gives you 20% annually which sounds like a good deal too.
Could I have some advice on this aspect please? Thank you

Silvertabby

Now you've done it..... Brace yourself !

ErinGoBrath

Mon Dieu! 

Albermarle

I already have savings with nutmeg which they provide around 20% return which I do find it quite good. 

If you know anything about investing you will know a 20% return one year , can just as easily be followed by a 20% fall the next year.

In the long term you would expect an average annual gain but nothing like 20%.

The main issue with building up your own separate pension pot, is that the amount you need to build up to have a decent income from it when you retire is very large .

A lot larger than most people think. For example a pension of just £500 per month  ( inflation linked ) would need a pot of up to £200K .

daveyjp

The MSE way is to have LGPS and the ISA.

Turning down LGPS IMHO is madness.

dunstonh

I am also considering private pension like nutmeg or lifetime ISA. I already have savings with nutmeg which they provide around 20% return which I do find it quite good. Lifetime ISA gives you 20% annually which sounds like a good deal too.

You would need to pay around 30% of your salary into either of those to come close to matching the benefits of LGPS.

Nutmeg do not have any investments that return 20% p.a.  (nor does anyone else).  The odd year maybe.  Especially after a crash but that is not a consistent figure.

Could I have some advice on this aspect please? 

Absolute no brainer.  Not even a close decision.   LGPS trumps LISA and individual pensions by a long long way.

Retireinten

The key is understanding how a DB scheme works. Your annual pension increases by 1/49th of your annual salary every year. It accumulates so that when you retire you receive that amount every year until you die (adjusted for inflation). 


Let's say you earn £30k. After year 1 your annual pension would be £30000/49= £612.24


Keeping it really simple let's say that you earn £30k in year 2 also and you add another £612.24 to your annual pension. That's a total annual pension of £1,224.49.  Let's do this for 10 years in total, each year earning that same £30k and adding that same £612.24.  After year 10 you will have an annual pension of £6212.40, payable at your NRA, which is your normal retirement age.


This ignores pay rises which may well happen during this time and inflation, which the LGPS adjusts for annually (CPI).
It also ignores other benefits such pension payments to your spouse and dependents.  You can take this pension earlier than NRA but it's subject to reduction. 



It is extraordinarily good value and I thank my 22 year old self regularly for joint this scheme. By all means save into another pension or ISA but not at the expense of the LGPS. 

Zanderman

betterfuturejc said:

I recently got enrolled into LGPS with my new job and I find this scheme quite confusing. 
On the scheme it says my contribution per year x inflation percentage divided by 49 is what I actually have. It sounds very little to me, does "my contribution" here include my employer's contribution? 
I have calculated that for my first year, the money I would have received will be less than what I contributed? Is LGPS only good if you save over a long period of time? I m thinking of switching job in 2 or 3 years time.
I am also considering private pension like nutmeg or lifetime ISA. I already have savings with nutmeg which they provide around 20% return which I do find it quite good. Lifetime ISA gives you 20% annually which sounds like a good deal too.
Could I have some advice on this aspect please? Thank you

Yes, you are confused!  LGPS as others have said will be far better than a private pension.  It should be a no-brainer, so if you're considering opting out you are definitely getting things wrong.

Re Nutmeg giving you 20%, no one can give you 20% continually, so either you've had some extraordinary luck one year or you're wrong about this.  You're not getting mixed up with tax relief are you?  Pension contributions to Nutmeg (if it's to a pension in Nutmeg?) will gain pension tax relief, so the gross sum contributed will always seem significantly bigger than the net sum you paid in, irrespective of investment performance.  That's if it's a pension of course.

jamjar92

Retireinten says

Keeping it really simple let's say that you earn £30k in year 2 also and you add another £612.24 to your annual pension. That's a total annual pension of £1,224.49.  Let's do this for 10 years in total, each year earning that same £30k and adding that same £612.24.  After year 10 you will have an annual pension of £6212.40, payable at your NRA, which is your normal retirement age.

This paid for life, £6212.40, and you get a spouses pension after that.

This will cost you 6.5% of 30k pa x 10.

You have also the option to build up a TFLS (tax free lump sum) by paying AVC's, if your Council does salary sacrifice you not only save tax but NI as well on the amount saved.

MX5huggy

Stick the LGPS, do you have any other pensions?  you have just this first year to decide to move them into the LGPS. The figures were quite attractive so I opted for this myself on a small pot I had built up. Turning defined contributions money into defined benefit money. 

Then I’m doing salary sacrifice AVC’s which so far have the equivalent return of over 50% compared with taking the net salary. With the potential of getting the money out tax free. 

Rich2808

Putting this into context my sister has been in the LGPS since the early 1990s - reasonbly senior job in recent years.

She has been paying NI for a state pension for the same time period.

Assuming an average 1% annual pay award her LGPS pension when she retires in 15 years estimated to be seven times her forecast state pension plus she (due to pre 2008 service) will get a lump sum equivalent to her state pension for five years.

Should you join the LGPS? Yes most definitely as no private pension will provide such a generous and guaranteed payout for the contributions made.

And don't forget the death benefits and ill health retirement benefits - if you fall ill or die young you your partner and kids will benefit from that decision too.