Is it worth paying into my LGPS pension after 63 years old

loveacustardcream

I have a very small LGPS pension which is linked to state retirement age of 67.  I am 63 in April  2025 and currently work full time (term time only).  I cannot afford to stop working so am reducing my hours to 4 days a week from Sep 25.  I am trying to wait as long as I can to claim my LGPS pension and will likely claim it when I am 65 in Apr 27.  My question is as it costs me over £200 per month when I reduce my hours next year and due to being 63 then is it still worth paying into my LGPS or should I stop paying in as anything I pay in won't have much time to accrue or am I totally wrong in my thinking.   My plans were always around my ex husband's pensions and savings so I never really had a pension and worked part time however 3 years ago he left.  I have not claimed any of his pension as we negotiated a deal for the house so I still had a home. My pension will be my only income so I do need to continue working part time until my state pension kicks in as my LGPS is simply not enough to live on.

My plan is to take max lump sum at 65 and smaller pension and reduce to 3 days a week working so the pension figures are showing as

£46,983.12 lump sum and £7,047.49 pension per annum plus my pay

For normal maturity date at 67 this changes to the figures below but I honestly don't think I can work another 4 years - to be honest going to work full time at age 59 after being part time for over 30 years is hard work.

£60,066.12 lump sum and £9,009.93 annual pension plus the state pension.

It's all very confusing but hopefully someone can help me make sense of it.  I have tried to contact a couple of financial advisers but I think because it is such a small pot they're not really interested.  Thanks.

swindiff

First thing I would say is there is no way I would reduce my annual pension by nearly £2k a year for just over £13k lump sum.  Keep paying in if you can, the longer you pay in the better your pension will be.  The LGPS is one of the best pensions out there.

af1963

LGPS doesn't need "time to accrue".  If it was a money-purchase scheme, then anything you paid in at 63 wouldn't have much time to grow.  But for LGPS, each extra year will add a fixed fraction of your pay whether you add it at 43, 53 or 63.

Taking the max lump sum from LGPS often isn't a good deal . If you need some of the lump sum to get you from 65 to 67, might be worth just taking as much as you really need.

What's your state pension due to be, and how much do you reckon you'd need to live on ?

Silvertabby

Keep paying into the pension scheme even as a part timer.  Your future self will thank you for it!

FIREDreamer

swindiff said:

First thing I would say is there is no way I would reduce my annual pension by nearly £2k a year for just over £13k lump sum.  Keep paying in if you can, the longer you pay in the better your pension will be.  The LGPS is one of the best pensions out there.

The quotes are for 2 different dates. By working longer he gets £13k more tax free cash plus £2k more in pension a year.

swindiff

FIREDreamer said:

swindiff said:

First thing I would say is there is no way I would reduce my annual pension by nearly £2k a year for just over £13k lump sum.  Keep paying in if you can, the longer you pay in the better your pension will be.  The LGPS is one of the best pensions out there.

The quotes are for 2 different dates. By working longer he gets £13k more tax free cash plus £2k more in pension a year.

Ah, I misread the original post.  Knowing the LGPS commutation rates are poor value though, I still would not be taking the max lump sum

loveacustardcream

af1963 said:

LGPS doesn't need "time to accrue".  If it was a money-purchase scheme, then anything you paid in at 63 wouldn't have much time to grow.  But for LGPS, each extra year will add a fixed fraction of your pay whether you add it at 43, 53 or 63.

Taking the max lump sum from LGPS often isn't a good deal . If you need some of the lump sum to get you from 65 to 67, might be worth just taking as much as you really need.

What's your state pension due to be, and how much do you reckon you'd need to live on ?

I would get the full state pension as I've worked since I was 14 even if it was part time so around £11,000 per year.  My thinking in taking the maximum lump sum was to put in savings anything I didn't have to use (being morbid here) but as I have no partner when I die my pension goes back to the state as my children are adults.  My thinking in the lump sum was that if I didn't use it or all of it and put it in savings and I passed away at least my children would get that element otherwise it goes all back to the government I think.

Reading the comments from everyone which is a massive help and giving me peace of mind I will keep paying into my pension as long as I am working.  

AlanP_2

The first thing to do is check your State Pension forecast to see what you will actually get as number of years working is not the criteria used.

Personally I wouldn't take any lump sum if it meant giving up annual pension at the 1:12 rate the LGPS uses unless I really needed it for something and had no other choice.

Hopefully your children will inherit the house in 30 odd years time and in the meantime you will have had a higher pension income.

If you were to die reasonably soon after retiring none of your "unpaid" LGPS pension goes to the government by the way, it just stays in the scheme and is used to pay the pensions of those who live to 100+.

loveacustardcream

Ive checked my state pension and its around £11k .  I was planning for at least £20,000-£25,000 income after retirement. If I don't take any lump sum at 65 this gives me a pension of around £11,000 a year so I would still need to work until 67 to when the state pension comes in and that would take me to around £20k. I don't really understand the potential loss in pension taking a lump sum as although it sounds good to have that money it doesn't sound like the best plan now.  Thank You

Dazed_and_C0nfused

loveacustardcream said:

Ive checked my state pension and its around £11k .  I was planning for at least £20,000-£25,000 income after retirement. If I don't take any lump sum at 65 this gives me a pension of around £11,000 a year so I would still need to work until 67 to when the state pension comes in and that would take me to around £20k. I don't really understand the potential loss in pension taking a lump sum as although it sounds good to have that money it doesn't sound like the best plan now.  Thank You

In simple terms you are taking say £30,000 as a tax free lump sum and in return you are giving away £2,500 of your pension.

So in year one you have £30,000 and £2,500 less pension.

In year two you have £30,000 and maybe £5,075 less pension (a little more than £5,000 as your pension is usually increased to allow for inflation).

In year three you have £30,000 and maybe £7,715 less pension.

By the time you are getting your telegram from the King your £30,000 has cost you a small fortune in those reduced pension payments.

Even allowing for the fact that your pension will probably be subject to 20% tax it's not usually the best option from a financial perspective.

Sarahspangles

Do you have a minimum lump sum as part of the pension? Or could you take a smaller lump sum to bridge between your three days a week salary and pension?

Also if you have a family size house as part of your settlement, could you downsize or take a lodger?