LGPS pension account modeller and early retirement deductions

mobro123

Hi all,

I'm a long way from retirement (32yo) but want to make sure I understand the LGPS correctly. My salary is circa £65k and I contribute 8.5% from my salary into the LGPS. I joined the LGPS at 24 and would like to retire at 60 with 36 years service. I also pay into a SS AVC to reduce 40% tax and plan to take this in full tax free at 60 as well.

The pension point payment calculator predicts a pension of just under 60k at the age of 60...but then the early leaver calculator gives a figure closer to 48k when I set my retirement date to my 60th birthday. I'm trying to work out how much I could retire with at 60 if I assume no more big salary hikes and small annual increases to matches inflation for the next 28 years. Then take the LGPS 8 years early and take a 30.3% early retirement deduction. One of the calculators gives a figure around 42k but one gives a figure closes to 32k...does anyone know the correct way to calculate this pension based on the above?

Thanks,
M

Aylesbury_Duck

mobro123 said:

Hi all,

I'm a long way from retirement (32yo) but want to make sure I understand the LGPS correctly. My salary is circa £65k and I contribute 8.5% from my salary into the LGPS. I joined the LGPS at 24 and would like to retire at 60 with 36 years service. I also pay into a SS AVC to reduce 40% tax and plan to take this in full tax free at 60 as well.

The pension point payment calculator predicts a pension of just under 60k at the age of 60...but then the early leaver calculator gives a figure closer to 48k when I set my retirement date to my 60th birthday. I'm trying to work out how much I could retire with at 60 if I assume no more big salary hikes and small annual increases to matches inflation for the next 28 years. Then take the LGPS 8 years early and take a 30.3% early retirement deduction. One of the calculators gives a figure around 42k but one gives a figure closes to 32k...does anyone know the correct way to calculate this pension based on the above?

Thanks,
M

Given it's 28 years away, I don't think you could rely on any projection simply because the inflationary effect each year will be a total guess, and over 28 years even small variances will compound to a big difference.  The good news is that at your age, on a good salary with eight years of accumulated benefit already, you're well on your way to a decent defined benefit pension (assuming you stay in the role or move to an employer also in the LGPS).

As I understand it (and I'm by no means an expert), you accrue 1/49th of your annual salary in pension benefit, adjusted each year for inflation.  A DIY spreadsheet is straightforward enough to create, listing each tax year in a row, with your projected annual salary, 1/49th of which gets added to your pension entitlement.  You could take a guess at an average annual inflationary uplift for each of the next 28 years and it'll give you an idea.  You could stress-test it with scenarios for different inflation levels but ultimately, if the uplifts are inflationary, the purchasing power of your eventual pension remains similar, anyway.

kevwallis

The early leaver calculator is for deferred pensions, just use the top one, pension calculator. 

Dazed_and_C0nfused

mobro123 said:

Hi all,

I'm a long way from retirement (32yo) but want to make sure I understand the LGPS correctly. My salary is circa £65k and I contribute 8.5% from my salary into the LGPS. I joined the LGPS at 24 and would like to retire at 60 with 36 years service. I also pay into a SS AVC to reduce 40% tax and plan to take this in full tax free at 60 as well.

The pension point payment calculator predicts a pension of just under 60k at the age of 60...but then the early leaver calculator gives a figure closer to 48k when I set my retirement date to my 60th birthday. I'm trying to work out how much I could retire with at 60 if I assume no more big salary hikes and small annual increases to matches inflation for the next 28 years. Then take the LGPS 8 years early and take a 30.3% early retirement deduction. One of the calculators gives a figure around 42k but one gives a figure closes to 32k...does anyone know the correct way to calculate this pension based on the above?

Thanks,
M

You need to remember there are effectively two reductions in the scenario you are describing.

If you work till you are 60 you have 36 years worth of pension built up.  And that value, built up over 36 years would be reduced by ~30% for taking the pension early.

You cannot build up 44 years of pension and then lose ~30% for taking it 8 years early as by retiring at 60 would mean you stop adding anything above 36 years.

mobro123

Dazed_and_C0nfused said:

mobro123 said:

Hi all,

I'm a long way from retirement (32yo) but want to make sure I understand the LGPS correctly. My salary is circa £65k and I contribute 8.5% from my salary into the LGPS. I joined the LGPS at 24 and would like to retire at 60 with 36 years service. I also pay into a SS AVC to reduce 40% tax and plan to take this in full tax free at 60 as well.

The pension point payment calculator predicts a pension of just under 60k at the age of 60...but then the early leaver calculator gives a figure closer to 48k when I set my retirement date to my 60th birthday. I'm trying to work out how much I could retire with at 60 if I assume no more big salary hikes and small annual increases to matches inflation for the next 28 years. Then take the LGPS 8 years early and take a 30.3% early retirement deduction. One of the calculators gives a figure around 42k but one gives a figure closes to 32k...does anyone know the correct way to calculate this pension based on the above?

Thanks,
M

You need to remember there are effectively two reductions in the scenario you are describing.

If you work till you are 60 you have 36 years worth of pension built up.  And that value, built up over 36 years would be reduced by ~30% for taking the pension early.

You cannot build up 44 years of pension and then lose ~30% for taking it 8 years early as by retiring at 60 would mean you stop adding anything above 36 years.

Yes aware if I go at 60 I’ve “only” got 36 years paying in. For me the idea of working until 68 to retire with £50k+ a year isn’t as appealing as retiring at 60 on a lower pension and being able to enjoy my 60s before health deteriorates. I’ll also have the AVC that I can take tax free when take pension so that should counter some of the early deductions.
thanks
M

MX5huggy

Yes it’s a solid plan, take your LGPS early. 

You don’t need to consider inflation because the pension is index linked. As long as you can keep your salary up to inflation so that each year the 1/49th is that bit bigger. On £65k recent pay rises if you’re top of your band have been below inflation because that have been flat rate for all staff (£1290 and £1925 being the last 2). Take whatever pension you have now and then add 65000/49x28 years that will give you your pension value at 60 then apply the reduction you say it’s 30% you have your pension.  Decide if you believe there will be a state pension at 68 (there probably will) and add that at 68. Make sure your AVC will fill the gap to 68. 

Kernowshep

In todays money (the amounts already built up in the CARE part go up annually by CPI anyway).

£65,000/49 x 28 yrs= £37,143
Plus 8 years already built up
Plus AVC

Taken 8 years early (at 60 vs 68)
£37,143 x 0.697 = £25,890
Add the 8 yrs worth already built up x 0.697
Plus the AVC