LGPS (working backwards from estimate?)

RULAST

At pension maturity date, Is there a way to work back from an LGPS estimated 'annual pension amount' and a 'lump sum' amount so that the pot value of a pension can be worked out?. Maybe a calculator tool online?. 
Seems you can work the annual and pension amounts if pot value known but that's not known here. Needing to work backwards if possible. Maybe a formula if no online calc tool?

daveyjp

There is no pot with LGPS.  Its a guaranteed monthly salary for life.

You can get a rough estimate by comparing what an inflation linked annuity would cost to return the same as the LGPS income.

RULAST

Ah so no pot?. So when a final figure is offered as annual pension, there's a cash amount offered too?. I think google told me there's a high or low cash (grant) but the higher grant reduces the annual pension. I'm sure I read that even highest of the above grants doesn't get taxed and there's no '25% TAX FREE' scenario and NO grant is taxed. Seems the annual pension may get yearly taxed more?. Am I dreaming this?.. 🤣

Hoenir

Read the scheme rules to which you belong. Will clarify what the benefits will be that you receive as default. Along with the available options to take more cash initially but less pension in the future. 

Lemon_dr1zzle

I think you’re getting in a bit of a muddle. 

If you have pensionable service pre 2008 you will have an automatic tax free lump sum which is 3 times the pre 2008 pension. You will also be able to commute (give up) pension to increase that lump sum at a rate of 1:12. 

If you have no pre 2008 pension you will have no automatic lump sum. The only way you can receive a lump sum is by commuting. 

The lump sum is always tax free. The  pension is classed as taxable. 

RULAST

Thanks for helping me be less muddled. I'm only asking on behalf of an old friend whose not that web or policiessavvy.

They have confirmed they have 2 options proposed to them as:-
A) larger Annual Pension WITH a smaller cash payment..
OR
Smaller Annual Pension (than A above) WITH a larger cash payment (than A above)

SO I THINK YOURE ALSO SAYING THAT "no tax is paid on either of the above cash paymentd" because its a LGPS and there is similarly NO 25% tax free (with an LGPS) and thus all cash payments ARE totally tax free?

Dazed_and_C0nfused

RULAST said:

Thanks for helping me be less muddled. I'm only asking on behalf of an old friend whose not that web or policiessavvy.

They have confirmed they have 2 options proposed to them as:-
A) larger Annual Pension WITH a smaller cash payment..
OR
Smaller Annual Pension (than A above) WITH a larger cash payment (than A above)

SO I THINK YOURE ALSO SAYING THAT "no tax is paid on either of the above cash paymentd" because its a LGPS and there is similarly NO 25% tax free (with an LGPS) and thus all cash payments ARE totally tax free?

You are along the right lines.

You get 25% TFLS from a defined contribution pension (a pot of money).

With a defined benefit pension like LGPS you get whatever the scheme rules allow.

Which is often an automatic (tax free) pension commencement lump sum of 3x pension for service in the old scheme and no automatic PCLS for service in the new scheme.

There is then usually the option to reduce your pension for extra lump sum or vice versa.

Taking extra tax free cash might seem attractive but in reality the conversion rate is likely to be 12:1, you get a one off £12 for every £1 of annual (inflation protected) pension you agree to forego.  For ever.

If you live to a ripe old age that £12 will be very costly in pension you never get.

RULAST

Thanks for reply above. Its a tough one in how the person decides as you suggest in the last 2 paragraphs. It will be hard to ask/tell them to decide one way or the other.. The 12:1 isn't the best as you suggest.
THANKYOU SO MUCH