LGPS - worth it?

Marcon

Time2count said:

Yes there was definitely mention of AVCs but I am wondering how that helps the pension amount? If I added more, let's be daft and say I put ALL my salary into the pension, surely that won't change the amount received at retirement as I will still be getting the 1/49th per year if the scheme?
Expect I have that wrong too!

If you pay extra you build up extra benefits on top of the 1/49 per year you are already getting. Have a look at https://www.lgpsmember.org/your-pension/the-essentials/key-features/

Marcon

Time2count said:

Thank you for the replies. I've actually been in the scheme for 5 years, but only just been offered an introduction to it! And yes I know my employer pays significantly more than I do - I have sight of the budget and the pension costs are eye-watering!
I always thought it was one of the coveted pensions but the webinar last week made me doubt it. No doubt the slides when they arrive will clear it up!
Thank you for all replies 👍

....and they say pensions are a valuable benefit employees appreciate...hmm. Maybe a bit more effort to ensure employees actually understand them would be no bad idea. Meantime, maybe think on about how often you hear about unions coming out on strike because their cherished (if hopelessly misunderstood) DB pensions are under threat?

Time2count

Thank you, I will look at that link.
I am currently putting £300/month into a different pension, would it be more beneficial to pay that into the lgps via avc? I know no one can advise officially, just wondering what most people would do in my place?

Silvertabby

Yes, based your your figures and 20 years service you would have a fully index linked  annual pension for life of £20K (plus annual inflation uplifts).  Not just a 'pot" of £20K.  Glad we've got that sorted!  

The £12 tax free cash in return for £1 of annual pension is called commutation, and is very popular with LGPS members - despite it's p. poor rate.

The most popular reason for paying LGPS linked AVCs is due to the generous tax breaks - tax relief in, tax free (within HMRC limits) out.  This would give you a tax free lump sum on retirement without reducing your pension.  Or, if you don't need a lump sum, your AVCs could be used to buy an additional index linked pension.

Ebeneezer9

Time2count said:

I had a 'welcome to the pension scheme ' webinar last week with my LGPS provider. Now I might have misunderstood (waiting for the docs to be emailed over), however it has left me wondering if there is any point in being a member other than the ill health retirement/ death in service benefits etc.
I pay in 6.8% monthly. I am a post-2016 member. My understanding is each year I am paying in I add to my pot 1/49th of that year's pay. To keep it simple let's say my salary is £49k (it's actually less). Each year £1000 is therefore added to my pot (yes, plus inflation uplift). If I am a member for 20 years then my retirement pot is £20k plus inflation. Unless that is per year, then it does seem rather pointless, or have I massively misunderstood?
Even if I were to be earning double that salary for 50 years, that would only give me a £100k pot for retirement.
The main reason I am thinking I will stay in, is they said for every £1 we withdraw as a lump sum, they will pay £12 so withdraw a quarter of my £20k and I'll get £60k as a lump sum. But again I fear that I've got that wrong as well, because that actually seems a decent deal!

So have I misunderstood the whole thing? Is my 1/49th for each year worked turned into an annual payment or is that really the whole lot for life?

Please keep the answers simple I am not really clued-up on pensions. Thanks

LGPS is a superb scheme, when coupled with salary sacrifice it is probably the best value for money plan available to public employees. 

Seize this opportunity with both hands!

daveyjp

Forget about pots, its a salary paid on retirement, which increases each year with inflation, plus payment of a spouse pension and a payment should you die within 10 years of retirement.

If AVCs are offered through salary sacrifice every £100 you invest will only cost you about £70 (due to tax and NI savings).  I'm not aware of any other investment with such a great return.  When you retire the full AVC pension can be withdrawn 100% tax free (amount is subject to a limit based on a calculation, but its substantial).

If you don't want to be a member I'm sure your employer will be delighted due to the savings they are having to make!

Kernowshep

Time2count said:

Yes there was definitely mention of AVCs but I am wondering how that helps the pension amount? If I added more, let's be daft and say I put ALL my salary into the pension, surely that won't change the amount received at retirement as I will still be getting the 1/49th per year if the scheme?
Expect I have that wrong too!

With the LGPS AVC you can use that extra amount as the tax free lump sum (up to 25% of the annual payment x20) and as @MX5huggy states if it's via salary sacrifice that usually has 13.8% employer NI savings added to the tax you save (often via AVC Wise - who have videos/webinars explaining it).
https://www.lgpsmember.org/ 
https://home.avcwise.co.uk/

You can also (or instead) buy extra annual pension up to about another £7.5k p.a. - there is a formula that works out the monthly cost based on your age, the length time you want to make the contributions over, and the annual amount you want to purchase.

Following on from @LHW99 above - giving up £1 of annual pension gets you £12 in lump sum (probably not worth it) - you'd likely be better off using the AVC instead to up the lump sum.

If it helps think about your £1,000 p.a. pension being worth a £20,000 pot (e.g. x20), it would actually cost more than that to buy the scheme benefits on the open market, 20 years later (ignoring inflation) the (20x£1k) £20,000 p.a. pension would be equivalent to a £400,000 pot.

af1963

Good illustration of a few things:

a) what a poor job is being done to explain the scheme ( how hard is it to say, "for every year you contribute, your annual pension will go up by 1/49 of your current salary, and you'll receive that every single year after you retire, and average life expectancy at that age is about another 20 years" ?) 

b) the way that lots of people think the lump sum is a good deal, even though it's probably not.  If it's being phrased as "you give up £1 and we'll give you £12 lump sum", I can see why it sounds attratctive.  But it's really "you give up £1 every year for the rest of your life, which on average is about 20 years, and we'll give you £12."  ( it does save a bit of tax as well)

c) how ineffective the pension scheme is as a way of attracting and retaining staff - because hardly anyone appreciates how good a deal it is. ( The OP was considering opting out ... hopefully not considering that now ! )

Kernowshep

Time2count said:

Thank you, I will look at that link.
I am currently putting £300/month into a different pension, would it be more beneficial to pay that into the lgps via avc? I know no one can advise officially, just wondering what most people would do in my place?

If it were me I'd pay that into the LGPS AVC scheme (for the future tax free lump sum benefit, especially if there is a salary sacrifice incl. NI contribution option), unless the other pension has benefits/criteria that make that a better option (I doubt it does but check).

As I understand it you can transfer the AVC to another scheme later if you want, thus having a separate pension which you could use to bridge the gap to when you can take your LGPS pension without actuarial reduction.  If you take the LGPS pension early (up to 10 years I think), you get less per year because you get it for longer, the earlier you take it before SPA the bigger the reduction in annual payment - if you took the AVC separately you would only get 25% of the AVC tax free, the rest would be at taxed based on your annual income at the time.

german_keeper

From my experience of 40 years in the public sector I would say you are likely to come across many colleagues who tell you that pensions are just too complicated, a minefield and words to that effect. Ignore them.

The reality is that there is no doubt a lot to learn from a standing start but generally there is a logical flow to most things pension related. To start with have a google of some of the terms on this thread; Defined Benefit, Defined Contribution, Salary Sacrifice etc etc. And also have a look at the website of your LGPS, that should contain lots of useful information.

It seems highly likely that for example salary sacrifice and the LGPS AVC scheme would be good options for NI and tax reasons. But you are the only one who knows your full circumstances and attitudes. So if you can arm yourself with the appropriate knowledge than you can make the decisions that best suit you.