Defined benefit or defined contribution pension? Confused!

AlanP_2

MoonChild91 said:

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? 

If you want less GUARANTEED and INFLATION LINKED income in retirement you could but I certainly wouldn't.

In fact I did the opposite and transferred in an old DB and an old DC pension INTO the LGPS when I joined.

DRS1

MoonChild91 said:

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? 

It is usually very difficult (and expensive) to transfer accrued benefits from a DB scheme to a DC scheme (because usually it is a VERY BAD idea).

However if you leave the LGPS with less than 2 years service it is much easier to transfer because you haven't actually built up a right to a deferred pension.  The amount that gets transferred does not just take account of your contributions but your employer contributions as well (actually I will get corrected here because it is the value of the benefits being transferred worked out in a particular way but that value is typically more than what you have personally contributed).  So you would not be losing the value of your contributions. 

You could opt not to take a transfer and instead get a refund of your contributions less tax.  That is usually not as good as taking the transfer and you would definitely lose the value of employer contributions then.  But you would get your own contributions back (less tax)

If you leave within 2 years you can always see what those two alternatives look like and pick whatever you think is best (most people would choose the transfer but obviously it does depend on the figures you get).

Nobody has any idea how valuable the NEST scheme is since that depends on what is contributed to it and how the investments perform.  Neither of those things affect the LGPS benefits.  Comparing the two is comparing apples and pears.  But as you can see from the response so far most people on here would go for the LGPS.