Final salary v CARE pension

Avatars

I have 2 small pensions with the LPFA and have been asked whether I want to combine the older final salary pension with the more recent CARE pension. I am coming up for retirement in April 2025.

I have responded to the LPFA  as follows:
Please send me the valuation of what my full pension would look like if:

1.      I keep the 2 pensions separate

2.      If I combine the 2 pensions

3.      Which option will give me more pension?

They have responded to me as follows:

I’m emailing following your recent communication regarding the aggregation of your pension records and your request for an estimate of pension benefits before and after the aggregation has been completed.

With regards to the estimate request, this isn’t a service that LPPA provide. However, we currently provide a section which outlines the differences between combining your pension records and keeping them seperate. Along with this, we also provide estimated figures which shows how your deferred benefits are added to your most recent pension record.

 Considering your pension records and the aggregation regulations, since there is over a 5-year gap between your Local Government Pension Scheme (LGPS) pension records, the benefits built up within your deferred record is used to calculate an additional amount of pension that is added to the Carrer Average Revalued Earnings (CARE) scheme within your latest pension record. Under the regulations, any Final Salary service built up in your previous record, would not continue to count as final salary service within your recent pension record.

 The calculations we use to work out the purchased amount within the CARE scheme is as follows:

PI increases of your Deferred benefits:

Pension: 643.07 * 1.2495 = 803.52

Survivor: 241.15 * 1.2495 = 301.32

 

Final Salary (FS) Transfer value = (803.52 * 19.14) + (1116.26 * 19.14) = 36744.59     (1116.26 is listed as additional pension)

Survivor Transfer Value = 301.32 * 2.29 = 690.02

 

Total FS transfer value = 36744.59 + 690.02 = 37434.61

 

Transfer In

 

Pension Bought = 37434.61 / (18.2 + (2.29 * (49/160))) = 1980.53

Add the current value of your deferred CARE benefits: 16.98

 

Total bought pension: 1980.53 + 16.98 = 1997.51

 

The amount of bought pension is estimated at £1997.51 which would be added to your most recent pension record.

 

If you’ve got any further questions, please don’t hesitate to contact us, but for legal reasons we are not able to confirm if combining your pension records is beneficial or not as we are not a registered advisor.

I’m finding it really difficult to understand this letter.
Can someone please help me to make sense of it?

Thank-you very much, in advance, for your help.

Silvertabby

OK, let's simplify things by ignoring the middle (transfer valuation) figures as they are really irrelevant.  Ignore the survivor's pension quotes as well, as the priority now is working out what is best for you.

Your deferred pension details don't mention an automatic lump sum, so you must have joined after 2008.  (So no R85 protections to factor in).

This leaves us with current quotes of:

Deferred pension of £803.52 per year payable at age 65.

Current CARE pension of £16.98 per year payable at SPA.

or, a combined pension of £1997.51 payable at SPA.

There's no right/wrong answer to the 'combine or not' question as every case is different.  Not allowed to advise on these boards, but if I were you I'd combine due to your combination of the (very small) value of the deferred record and the current, very generous, CARE conversion rates.

Brie

Will they allow you to transfer your FS pension?  

Is April 25 when you turn 65 or reach SP age?

hyubh

Brie said:

Will they allow you to transfer your FS pension? 

Per the letter quoted, transferring would purchase a CARE pension credit. So yes if you meant, is a transfer possible at all, but no if you meant, would transferring involve purchasing final salary reckonable service in the active membership.

Avatars

Thank you very much for your reply.
I’m afraid that I still don’t really understand. How is the CARE conversion rates ‘very generous’?

I thought they were offering a combining to cut their costs. The BBC website says: 
They are designed to provide generally lower pensions than traditional final-salary schemes.That is why Lord Hutton thinks they are a good idea to cut the government's rising bill for pensions in the public sector

Avatars

@hyubh
Many thanks for your reply.
I'm afraid I don't understand your reply.
Things need to be explained to me very simply!

Silvertabby

When the details of the new LGPS CARE pension were first announced, my (then) colleagues and I were amazed at how generous they were, mainly due to the much higher accrual rate (1/49 plus annual revaluation instead of 1/60 and no revaluation).

Of course, someone who joined as the admin apprentice and then left 40 odd years later as a CEO will have been better off on a final salary scheme rather than CARE.  But the vast majority of people don't do that - and the ones who join/leave on the same pay band will be much better off with a CARE calculation. Swings and roundabouts.

Other cost saving measures have been introduced over the years, primarily an NRA of SPA for most public sector CARE benefits.  The days of civil servants, LGPS, etc, voluntarily retiring on full benefits at age 50 are long gone.