USS v LGPS

Elf40

My 25 yr old son works in a University and has recently gone up a grade making him eligible to join the USS pension scheme. He is currently in the LGPS where the uni contribute just over 24%. The USS scheme looks like the uni will only contribute 14.6%. In my maths head thats a no brainer and he should stay in his current scheme but this is pensions we're talking about. As a slightly higher earner now why is he being offered a different scheme? Is there some benefit to USS?  Pensions are not my forte so any advice here most welcome. 

daveyjp

Employer contribution is of no significance to DB pensions as it changes on a regular basis.  It makes no difference to the pension received as that is based on employee contribution and years of service.

All that matters are the terms and benefits of the DB pensions. How much employee contribution, how much pension is earned each year, early retirement adjustments, death in service benefits, spouse pension, annual increase, AVC options etc etc

He needs the scheme rules for both pensions and decide which works best for them.

Andy_L

LGPS is better

Higher accrual rate (1/49th vs 1/85, although the USS gives a 3x lump sum as well)
Better revaluation (uncapped CPI vs CPI capped at 2.5%)
Applies to all you salary rather than capped at ~£40k

ussdave

I'm in USS and if I were offered LGPS instead I'd bite their hands off.  Definitely stick with LGPS and I'd also recommend paying extra through AVCs.

ussdave

Andy_L said:

LGPS is better

Higher accrual rate (1/49th vs 1/85, although the USS gives a 3x lump sum as well)
Better revaluation (uncapped CPI vs CPI capped at 2.5%)
Applies to all you salary rather than capped at ~£40k

Just pointing out that the USS rules are changing as of April this year to restore the most recent cuts.  It will once again be 3/75s and a salary cap of 70k (ish).  Revaluation is also back to the old 5% matched in full and beyond that half matched up to 10% total.

LGPS is still far superior though.

Dazed_and_C0nfused

Elf40 said:

My 25 yr old son works in a University and has recently gone up a grade making him eligible to join the USS pension scheme. He is currently in the LGPS where the uni contribute just over 24%. The USS scheme looks like the uni will only contribute 14.6%. In my maths head thats a no brainer and he should stay in his current scheme but this is pensions we're talking about. As a slightly higher earner now why is he being offered a different scheme? Is there some benefit to USS?  Pensions are not my forte so any advice here most welcome. 

As others have said in reality the employer contributions means very little for the scheme member.

You/he need to focus on the DB pension he will accrued under the scheme rules.  He isn't building up a pension pot, think of it more deferred salary.

The info @Andy_L has posted shows a significant difference in the pension that would be earned.

For example on earnings of £35,000,

USS would give him a pension of £411.76 revalued annually at a maximum of 2.5%.  Plus a one off PCLS of £1,235

LGPS would give him a pension of £714.28 revalued at CPI.

Even without a PCLS LGPS is going to provide much better long term income in retirement.

r6mile

Are you sure he will get a choice of pension schemes?

Universidad

About the only advantage of USS is that your son would be accruing pension with a default retirement age of 66  rather than 68 at the moment. That will go up to 67 shortly, and 68 eventually, but pension age for that accrued in those periods will be fixed at those ages.
With LGPS if your state pension age goes up, so does the retirement age for your LGPS pension, including past accruals (in the CARE scheme).
It's also the case that USS builds a 3/75 lump sum by default, in addition to the annual income.
Neither of these points come close to making up for the difference in accrual rate, I don't think.
The inflation cap on USS is another risk that I have been burned by myself. Not much fun seeing the real terms value of a pension you spent two decades building going down...  unlike with DC pensions, there's no opportunity to recover, you're just worse off for life. 

Southend_2

I would be surprised if he has the choice to stay in LGPS, so it is probably a moot point. My understanding is that there is normally an exclusivity rule for USS eligible grades that means USS is the only scheme they can be offered (unless perhaps in a clinical role where they may be eligible for the NHS pension). 

Elf40

Thank you for all the information so far. He is already in the LGPS but this email says:

You are receiving this message because you are eligible to join the USS Pension Scheme but have opted not to do so.

Following the 2023 valuation, USS benefits are changing.

As a result, if you re-join before 1 April 2024, you’ll receive a one-off uplift to the annual pension you’ll get in retirement of £215 a year and an associated £645 retirement lump sum.

Member contributions for the scheme have also reduced since 1 January 2024 and from 1 April 2024 the rate at which members build up defined benefits in the Retirement Income Builder will increase.

There is no obligation to join the scheme, but we felt it important that you were aware of these positive changes.

MX5huggy

Dazed_and_C0nfused said:

Elf40 said:

My 25 yr old son works in a University and has recently gone up a grade making him eligible to join the USS pension scheme. He is currently in the LGPS where the uni contribute just over 24%. The USS scheme looks like the uni will only contribute 14.6%. In my maths head thats a no brainer and he should stay in his current scheme but this is pensions we're talking about. As a slightly higher earner now why is he being offered a different scheme? Is there some benefit to USS?  Pensions are not my forte so any advice here most welcome. 

As others have said in reality the employer contributions means very little for the scheme member.

You/he need to focus on the DB pension he will accrued under the scheme rules.  He isn't building up a pension pot, think of it more deferred salary.

The info @Andy_L has posted shows a significant difference in the pension that would be earned.

For example on earnings of £35,000,

USS would give him a pension of £411.76 revalued annually at a maximum of 2.5%.  Plus a one off PCLS of £1,235

LGPS would give him a pension of £714.28 revalued at CPI.

Even without a PCLS LGPS is going to provide much better long term income in retirement.

To further show LGPS value you can take an optional lump sum which is £12 for every £1 of annual pension (it’s not particularly good value) but it means if you wanted a lump sum £1215 that would cost you £101.25 so the annual pension would be £613.03.