Benefits of Local Gov Pension Scheme vs Private Pensions

Silvertabby

hyubh said:

Secret2ndAccount said:

Silvertabby said:

sevenhills said:

An actua[ria]l reduction is not a penalty for taking the pension early. You incur this reduction when your pension is paid earlier than normal and, therefore, potentially will be in payment for longer.

True, but it depends on how long you live for.

Break even point is 12 to 14 years - so, die early and you are in pocket.  Live to 100, however, and not so much.

12 -14 yrs, really?!    Are you confusing it with lump sum commutation?  I thought the actuarial reduction rate was in the 5% area.

Reduction percentages are here - it's not a straight line: https://www.lgpsmember.org/more/reductions.php

Add in any pre 2008 protections and the age benefits are taken from, and it really is a case of one size fits none.  Just wild averages.

Secret2ndAccount

Thanks for the numbers. I like numbers, so I took them and played with them. Here's an example of a person who was offered a 20k pension at age 65, but opted to take it early.

Obviously it doesn't really matter that the amount was 20k. The break even times are the same irrespective of the amount.
So, if you consider an average lifetime to be 85, then you are paying a small fee for taking the pension early. However, if you want or need the money when you are younger, and have enough provision for your later years once SP kicks in, the option to go early could be very attractive.
This calculation doesn't account for personal circumstances of tax or inflation, but I think it remains representative for most people.

Silvertabby

Secret2ndAccount said:

Thanks for the numbers. I like numbers, so I took them and played with them. Here's an example of a person who was offered a 20k pension at age 65, but opted to take it early.

Obviously it doesn't really matter that the amount was 20k. The break even times are the same irrespective of the amount.
So, if you consider an average lifetime to be 85, then you are paying a small fee for taking the pension early. However, if you want or need the money when you are younger, and have enough provision for your later years once SP kicks in, the option to go early could be very attractive.
This calculation doesn't account for personal circumstances of tax or inflation, but I think it remains representative for most people.

You are missing the cumulative effect of cost of living increases.  ie, 3% of £20K is much more than 3% of £12,460.  And so on and so on... that's what brings your break even ages down.  

Secret2ndAccount

No. If you're taking the money early, then presumably you need it, and will spend it. There is no better protection against inflation than spending your money. If you buy an object of desire, then the price can go up by any amount, and you can still afford it. It's actually better than leaving the money in the pension. If inflation exceeds the cap on growth of your pension, you could see your object go up by 10% while your pension only expands by 5%. If you took the pension early, and bought the object, you are protected.
If you take the money early then put it in the bank at 0%, that's a terrible idea, but then why did you take it?
So, if you take the pension early, and spend it, you are effectively building in inflation protection equal to the pension.

Silvertabby

Secret2ndAccount said:

No. If you're taking the money early, then presumably you need it, and will spend it. There is no better protection against inflation than spending your money. If you buy an object of desire, then the price can go up by any amount, and you can still afford it. It's actually better than leaving the money in the pension. If inflation exceeds the cap on growth of your pension, you could see your object go up by 10% while your pension only expands by 5%. If you took the pension early, and bought the object, you are protected.
If you take the money early then put it in the bank at 0%, that's a terrible idea, but then why did you take it?
So, if you take the pension early, and spend it, you are effectively building in inflation protection equal to the pension.

Yes, but that's off on a slightly different track...  Going on from early retirement reductions on yet another track, most people seem to be aware of the fact that reductions in respect of both early retirement and commutation are disregarded in the case of survivors benefits.  So, someone with no pre 2008 protections who took their benefits from age 55 AND took the maximum tax free lump sum through commutation is likely to have a spouse's benefit of 80% of their own (double reduced) pension.  The wonderful world of the LGPS !

hyubh

Secret2ndAccount said:

Thanks for the numbers. I like numbers, so I took them and played with them. Here's an example of a person who was offered a 20k pension at age 65, but opted to take it early.

Well... an LGPS member with an NRA 65 pension of 20K is going to be pretty rare. A leaving salary of 40K is pretty good going for the membership overall, and you'd need 30 years at the 1/60 accrual rate to get a pension of 20K on that. So clearly the typical LGPS member with a total LGPS pension of 20K will have a large amount of pre-08 service, meet the 85 year rule for it, and so attract a much lower (or no) actuarial reduction for a sizeable chunk of their pension.

There is no better protection against inflation than spending your money. 

Hmm, you might want to double check the name of the website you're debating on

If inflation exceeds the cap on growth of your pension, you could see your object go up by 10% while your pension only expands by 5%

Surely that specific thought doesn't apply to a public service scheme pension, where there is no capping...?

zagubov

There's a website that can give a ballpark figure for your life expectancy. https://livingto100.com/
If you don't want them to contact you in the future you can use a mailinator email address. https://www.mailinator.com/

Secret2ndAccount

hyubh said:

 
Well... an LGPS member with an NRA 65 pension of 20K is going to be pretty rare. A leaving salary of 40K is pretty good going for the membership overall, and you'd need 30 years at the 1/60 accrual rate to get a pension of 20K on that. So clearly the typical LGPS member with a total LGPS pension of 20K will have a large amount of pre-08 service, meet the 85 year rule for it, and so attract a much lower (or no) actuarial reduction for a sizeable chunk of their pension.

As stated, the break-even periods are the same whether the pension is 2k, 10k, or 20k.
Any 85yr protection makes it more attractive to take the pension early, and could push the break even age past your average life expectancy. However, you would still want to think about your options in the whole. There is valuable lifelong income there. Best choice depends on your personal situation, but if you are offered an unreduced pension at 60, it's pretty tempting. See other recent threads.

There is no better protection against inflation than spending your money. 

Hmm, you might want to double check the name of the website you're debating on

This is, of course, moneysaving 🤔     If I have 110 pound coins in my pocket, is it better to spend 100 of them now on an item, or all 110 of them on the same item later?  Doesn't have to be frivolous spending. Could be fixing the ceiling.

If inflation exceeds the cap on growth of your pension, you could see your object go up by 10% while your pension only expands by 5%

Surely that specific thought doesn't apply to a public service scheme pension, where there is no capping...?

Yes, if you are one of those people with uncapped growth on your plan, you are truly lucky, and you have less inflation worries. However, your personal inflation rate might not match CPI. That bike, or jewellery or whatever that you plan to treat yourself to when you retire might still go up faster than your pension.

hyubh

Secret2ndAccount said:

hyubh said:

 
Well... an LGPS member with an NRA 65 pension of 20K is going to be pretty rare. A leaving salary of 40K is pretty good going for the membership overall, and you'd need 30 years at the 1/60 accrual rate to get a pension of 20K on that. So clearly the typical LGPS member with a total LGPS pension of 20K will have a large amount of pre-08 service, meet the 85 year rule for it, and so attract a much lower (or no) actuarial reduction for a sizeable chunk of their pension.

As stated, the break-even periods are the same whether the pension is 2k, 10k, or 20k.

My point was that a single table isn't generically useful in practice because few members have a straight NRA of 65. 

Any 85yr protection makes it more attractive to take the pension early,

Naturally. But a healthy chunk of CARE pension would conversely not, and also lose out on the actuarial increase obtaining to taking the 60ths pension at CARE NRA. So... it depends. I don't think we really disagree...

This is, of course, moneysaving 🤔

It's not 'money saving' to spend on an 'object of desire', as you originally put it, no...

If I have 110 pound coins in my pocket, is it better to spend 100 of them now on an item, or all 110 of them on the same item later? 

If you don't get this year's latest and greatest iPhone, there will always be another next. Your old mid-range Android phone doesn't stop working just because there's a hot new alternative from Cupertino.

Could be fixing the ceiling.

Which would make more sense a 'money saving' manoeuvre, but only because putting it off will likely lead to a higher cost later regardless of inflation.

Yes, if you are one of those people with uncapped growth on your plan, you are truly lucky, and you have less inflation worries.

Well, this whole thread is about the LGPS... so yes. That's what all public sector pensions are like.

That bike, or jewellery or whatever that you plan to treat yourself to when you retire might still go up faster than your pension.

We're back to 'objects of desire' I see. The obvious way to 'save money' here is not to 'treat yourself' in the first place. Nothing wrong on spending on 'objects of desire', it just ain't 'money saving'.

GunJack

I did post on  here earlier, but it appears to have disappeared never mind, it probably wouldn't have been a popular view anyways.....)