Defined benefit or defined contribution pension? Confused!

MoonChild91

I am due to start a new job at the beginning of January and have been given the choice of 2 pension schemes which I need to decide on before starting; I know very little about pensions and have never been given the choice of schemes in a job before, so I am quite confused about which would be best for me. 

Tried to summarise information that might be helpful below, is anyone able to advise which would be best?

• The first option is LPPA which is a defined benefit “career average” (CARE) scheme. The pension is based on 1/49th of pensionable earnings for each year of scheme membership.
• Second option is auto-enrolment into NEST which is a defined contribution scheme. I haven't been told how much I would contribute into this. 
• My annual salary is around £29k, and I am unsure how long I will stay in the job - potentially it could be only 6 months to a year if something better comes along.
• I already have 2 pensions - one is a DB scheme worth about £400 a year, earned over 3 years at a part-time job in which I paid 50% contributions (yes, this was silly, I was young and broke), the other is an amalgamation of multiple small DC pots earned from several jobs which I have combined. This stands at about £5k currently. I have just graduated from my MA so haven't contributed to a pension in just over a year. 
• I am 34, and I have 11 years of full NI contributions. 

Thank you!

Brie

Take the CARE scheme.   Of course it's my opinion but one that others will likely agree with.

DB type pensions (which CARE is) give you a guarantee of a pension - that's why they are called Defined Benefit - you know what you will get.  NEST and other DC scheme are Defined Contribution so the only thing you know for sure is how much you are putting in, i.e. contributing.  There is no guarantee what you will get out as it's a pot of money you contribute to which is invested and will increase and decrease with the stock market.

Edited to add: as I understand it if you stay only a short time with them you will get all your contributions back, possibly with some of the employer's as well which you can move in with your current DC pot.  

Marcon

MoonChild91 said:

I am due to start a new job at the beginning of January and have been given the choice of 2 pension schemes which I need to decide on before starting; I know very little about pensions and have never been given the choice of schemes in a job before, so I am quite confused about which would be best for me. 

Tried to summarise information that might be helpful below, is anyone able to advise which would be best?

• The first option is LPPA which is a defined benefit “career average” (CARE) scheme. The pension is based on 1/49th of pensionable earnings for each year of scheme membership.
• Second option is auto-enrolment into NEST which is a defined contribution scheme. I haven't been told how much I would contribute into this. 
• My annual salary is around £29k, and I am unsure how long I will stay in the job - potentially it could be only 6 months to a year if something better comes along.
• I already have 2 pensions - one is a DB scheme worth about £400 a year, earned over 3 years at a part-time job in which I paid 50% contributions (yes, this was silly, I was young and broke), the other is an amalgamation of multiple small DC pots earned from several jobs which I have combined. This stands at about £5k currently. I have just graduated from my MA so haven't contributed to a pension in just over a year. 
• I am 34, and I have 11 years of full NI contributions. 

Thank you!

This is the LGPS (LPPA provides administration). 

You haven't said how much you or the employer would be contributing to NEST so it's a bit tricky to comment, but assuming the contributions are at statutory minimum, you'll get a much heftier slug of employer contributions by joining the LGPS, even if you then leave with under two years of membership.

See https://www.lgpsmember.org/your-pension/thinking-of-leaving/leaving-before-retirement/#:~:text=without%20deferred%20benefits-,Overview,pension%20contributions%20you%20have%20paid. and read the section headed 'Leaving without deferred benefits', which explains what happens if you leave before completing two years of LGPS membership.

If you transferred in the contents of your DC 'pot', that would ensure you qualified for deferred benefits even if you left with under two years of LGPS membership.

hyubh

MoonChild91 said:

I am due to start a new job at the beginning of January and have been given the choice of 2 pension schemes which I need to decide on before starting; I know very little about pensions and have never been given the choice of schemes in a job before, so I am quite confused about which would be best for me. 

Tried to summarise information that might be helpful below, is anyone able to advise which would be best?

• The first option is LPPA which is a defined benefit “career average” (CARE) scheme. The pension is based on 1/49th of pensionable earnings for each year of scheme membership.
• Second option is auto-enrolment into NEST which is a defined contribution scheme. I haven't been told how much I would contribute into this. 
• My annual salary is around £29k, and I am unsure how long I will stay in the job - potentially it could be only 6 months to a year if something better comes along.
• I already have 2 pensions - one is a DB scheme worth about £400 a year, earned over 3 years at a part-time job in which I paid 50% contributions (yes, this was silly, I was young and broke), the other is an amalgamation of multiple small DC pots earned from several jobs which I have combined. This stands at about £5k currently. I have just graduated from my MA so haven't contributed to a pension in just over a year. 
• I am 34, and I have 11 years of full NI contributions. 

No brainer, the first (LGPS) would be way more valuable. On joining, also look into transferring one or both of your existing pensions, which would ensure you end up with an LGPS pension even if you did leave within a couple of years. Caveat, the DC and possibly the DB one would be 'non-Club' transfers, the acceptance of which is an 'administering authority' discretion (meaning not the administrator - LPPA in your case - but the council formally responsible for the pension fund). I think all the funds LPPA do the admin for allow non-Club transfers, but this would need checking. The general process is documented here: https://www.lppapensions.co.uk/members/changing-your-pension/transferring/transferring-in/

SarahB16

MoonChild91 said:

I am due to start a new job at the beginning of January and have been given the choice of 2 pension schemes which I need to decide on before starting; I know very little about pensions and have never been given the choice of schemes in a job before, so I am quite confused about which would be best for me. 

Tried to summarise information that might be helpful below, is anyone able to advise which would be best?

• The first option is LPPA which is a defined benefit “career average” (CARE) scheme. The pension is based on 1/49th of pensionable earnings for each year of scheme membership.
• Second option is auto-enrolment into NEST which is a defined contribution scheme. I haven't been told how much I would contribute into this. 
• My annual salary is around £29k, and I am unsure how long I will stay in the job - potentially it could be only 6 months to a year if something better comes along.
• I already have 2 pensions - one is a DB scheme worth about £400 a year, earned over 3 years at a part-time job in which I paid 50% contributions (yes, this was silly, I was young and broke), the other is an amalgamation of multiple small DC pots earned from several jobs which I have combined. This stands at about £5k currently. I have just graduated from my MA so haven't contributed to a pension in just over a year. 
• I am 34, and I have 11 years of full NI contributions. 

Thank you!

When comparing other jobs please also consider the pension provided with the job, i.e. consider the whole benefits package. As others have helpfully commented the LGPS pension is a very good pension. Perhaps look to see how you might be able to progress where you currently are (as you will then have the excellent LGPS pension scheme).

LHW99

Also I think NEST still has a 1.8% fee on new payments in.

SacredStephan

https://www.nestpensions.org.uk/schemeweb/nest/my-nest-pension/contributions-and-fees.html

=====
We have the same low charges for all members. This stays the same whether a member is contributing or not, whatever fund they’re contributing to, and no matter how much is in their retirement pot.

These charges are made up of two parts:

- a contribution charge of 1.8% on each new contribution into your pot
- an annual management charge (AMC) of 0.3% on the total value of your pot each year
=====

Silvertabby

SacredStephan said:

https://www.nestpensions.org.uk/schemeweb/nest/my-nest-pension/contributions-and-fees.html

=====
We have the same low charges for all members. This stays the same whether a member is contributing or not, whatever fund they’re contributing to, and no matter how much is in their retirement pot.

These charges are made up of two parts:

- a contribution charge of 1.8% on each new contribution into your pot
- an annual management charge (AMC) of 0.3% on the total value of your pot each year
=====

....but still not as good as the zero contribution and AMC charges if OP opts for the LGPS. 

AlanP_2

As a rough rule of thumb for comparing salaries / benefits etc. then I would use 20-25% salary uplift for a DB /CARE pension as and when you consider moving on.

SimonSeys

AlanP_2 said:

As a rough rule of thumb for comparing salaries / benefits etc. then I would use 20-25% salary uplift for a DB /CARE pension as and when you consider moving on.

Possibly even a bit higher?   If the accrual is c. 2% per year, then using multiples of 16 (annual allowance) gives 32% and using 20 (LTA) gives 40%.

I guess you have to subtract contributions which would take you to the higher end of you range. 

MoonChild91

Brie said:

Take the CARE scheme.   Of course it's my opinion but one that others will likely agree with.

DB type pensions (which CARE is) give you a guarantee of a pension - that's why they are called Defined Benefit - you know what you will get.  NEST and other DC scheme are Defined Contribution so the only thing you know for sure is how much you are putting in, i.e. contributing.  There is no guarantee what you will get out as it's a pot of money you contribute to which is invested and will increase and decrease with the stock market.

Edited to add: as I understand it if you stay only a short time with them you will get all your contributions back, possibly with some of the employer's as well which you can move in with your current DC pot.  

hyubh said:

No brainer, the first (LGPS) would be way more valuable. On joining, also look into transferring one or both of your existing pensions, which would ensure you end up with an LGPS pension even if you did leave within a couple of years. Caveat, the DC and possibly the DB one would be 'non-Club' transfers, the acceptance of which is an 'administering authority' discretion (meaning not the administrator - LPPA in your case - but the council formally responsible for the pension fund). I think all the funds LPPA do the admin for allow non-Club transfers, but this would need checking. The general process is documented here: https://www.lppapensions.co.uk/members/changing-your-pension/transferring/transferring-in/

Marcon said:

This is the LGPS (LPPA provides administration). 

You haven't said how much you or the employer would be contributing to NEST so it's a bit tricky to comment, but assuming the contributions are at statutory minimum, you'll get a much heftier slug of employer contributions by joining the LGPS, even if you then leave with under two years of membership.

See https://www.lgpsmember.org/your-pension/thinking-of-leaving/leaving-before-retirement/#:~:text=without%20deferred%20benefits-,Overview,pension%20contributions%20you%20have%20paid. and read the section headed 'Leaving without deferred benefits', which explains what happens if you leave before completing two years of LGPS membership.

If you transferred in the contents of your DC 'pot', that would ensure you qualified for deferred benefits even if you left with under two years of LGPS membership.

Thank you everyone! This might be a stupid question but I find this all very confusing - does this mean I could join the DB scheme and then if I leave before the 2 year qualifying period (highly likely) I would be able to take what I'd paid into the DB scheme and transfer it into my current DC scheme, or would I lose what I'd contributed? Would this still be more valuable than the NEST scheme?