LGPS and TPS

typeractive · 31 August 2016 at 8:43PM

Hi all,

Are there any experts on the differences between local government pension LGPS and the Teachers Pension Scheme?

In short, I used to pay into LGPS, until I became a teacher. Then I transferred that pot into the TPS. All was fine and dandy. Now a new job opportunity means a bit more salary, but I'll be contributing into the LGPS.

Into LGPS I'd pay 8.5% of my salary.
If it were into TPS I'd pay 10.2% of the salary.

The new place of work is still in education and I'd rather pay into TPS (like other managers) as I'd imagine the employer would pay in more and I think at retirement age I'd be in a better position. I can't find a good calculator to work out the payments on LGPS.

Also, would I be better transferring the TPS scheme now into the LGPS. I really need a pension expert to help me out - I've read as much as I can online but it's so complex.

Any help or advice?

Silvertabby · 31 August 2016 at 9:09PM

Can't actually advise, but in the case of LGPS and TPS it isn't how much you and your employer pay in, it's the accrual rate of the scheme that determines your pension. Both are now Career Average schemes, with the accrual rate for the LGPS being 1/49. ie, if your pensionable pay is £40K, then for 1 year's service you'd accrue £816.32 per annum pension. How does that compare with the accrual rate for TPS?

You also need to look at retirement ages for both schemes - if you have a lot of service with TPS, then you may have a protected early retirement age, whereas if you transferred everything to the LGPS your retirement age could be your State pension age (minimum 65).

Silvertabby · 31 August 2016 at 9:21PM

Members who remain under the final salary arrangement cannot change their accrual rate; it will continue to be at either 1/80th or 1/60th depending on when they entered the Teachers' Pension Scheme. Members who come under the career average arrangement will accrue pension based on 1/57th of their pensionable earnings.27 Mar 2015

From TPS. So, it looks like your accrual rate depends on your TPS service. If your new post has to be in the LGPS, you have 12 months to decide if you want to transfer your TPS benefits or not, so you could join the LGPS and then ask for a transfer quote. You could then look at all your options, including any TPS protections, before deciding what you want to do.

typeractive · 31 August 2016 at 9:51PM

Silvertabby, thank you so much for replying and trying to help me!! I'm usually quite good with basic finance, but pensions are the area that throw me. From reading that alone, it looks as though the TPS is a lot better.

TPS age is 68 as far as I can see. I'm unsure on LGPS. TPS have a nice glossy calculator which lets you put all the info in and it gives different scenarios. I can't find the same for the LGPS

jem16 · 31 August 2016 at 9:58PM

typeractive wrote: »

TPS age is 68 as far as I can see.

For service from April 2015 it will be state pension age and the LGPS is the same. However for service before that in the TPS it will be 65 assuming you joined after 2007. If you joined before 2007 it would be 60.

You may lose that earlier retiral date if you transfer to LGPS but you'd need to check.

hyubh · 31 August 2016 at 11:21PM

typeractive wrote: »

Into LGPS I'd pay 8.5% of my salary.
If it were into TPS I'd pay 10.2% of the salary.

I wouldn't base any decision on the gap staying like that in the medium to long term - the different benefit structures are more material (while both are now CARE, the LGPS has a higher accrual rate, the TPS a higher revaluation rate for active members).

The new place of work is still in education and I'd rather pay into TPS (like other managers) as I'd imagine the employer would pay in more

Irrelevant given you are talking about DB schemes. As it happens, if an employer participates in both the TPS and LGPS, its LGPS rate is likely to be higher than the TPS one. That says nothing about the respective benefits of the two schemes though, only that LGPS employer rates are determined on pseudo-private sector lines. (Were a TPS-style 'discount rate' for assessing liabilities be used, deficits in the LGPS as a whole would disappear.)

I think at retirement age I'd be in a better position. I can't find a good calculator to work out the payments on LGPS.

Don't get fixated on payments.

LGPS: 1/49 of your (assumed) pensionable pay for the year (for someone in your position, this will typically be your annual salary) is added to your pension account, and increased by CPI every year you remain an active member.

TPS: 1/57 of your pensionable pay for the year is added to your pension account, and increased by CPI+1.6% every year you remain an active member.

Once you leave, revaluation in deferment and pension increases in payment are the same (currently CPI with an implicit underpin of 0% - not meaningless given active LGPS members for the April just gone got a negative revaluation!). Likewise, the normal retirement ages are identical for pension currently being accrued, and similar in the past (the LGPS was historically slightly less generous, but that would have been factored into your earlier transfer).

Beyond that, the options for buying additional pension in the LGPS are sanely simple where they are insanely complicated in the TPS, relatively speaking. On the other hand, for the top earners the LGPS' '50/50' option is a neat way for avoiding tax charges while still accruing valuable DB pension... but your salary bracket isn't (quite) at that level (although, depending on your age, it might be in the future).

Also... I don't find it entirely clear as to whether you are resting a decision on going for this other job partly on the pension differences, or whether you expect to be able to chose between the LGPS and the TPS on successfully applying. If the latter, a choice this is expressly disallowed by the LGPS Regulations - i.e., if someone is eligible for another public service scheme, they are not eligible for the LGPS. HR thinking otherwise won't help you a few years down the line when the LGPS administrators (in-house or otherwise) realise what's happened.

Also, would I be better transferring the TPS scheme now into the LGPS.

How much final salary service do you have? Since you transferred your previous LGPS membership into the TPS, this will be the service credit from that + TPS membership up to April 2015. If the amount is substantial, then if the chances are your rate of pay will beat inflation, you should probably transfer as the final salary service will go against your new rate of pay. Conversely, transferring CARE benefits between public sector schemes is much of a muchness because the government decreed that the receiving scheme must honour the old scheme's revaluation rate.

typeractive · 31 August 2016 at 11:26PM

Thanks Jem!
I joined LGPS the first time round in 2002.
Then TPS in either December 2007, or January 2008 (wasn't before 2007).

From what I've managed to find an employer would pay:
13% into LGPS,
16.48% into TPS.

Naturally that's appealing, and I would also be paying more out of my contribution so the pot would be larger.

If I can't continue with the TPS, it will work out that I earn approx £300 p/m net pay, so I possibly need to consider that as a benefit also?

typeractive · 31 August 2016 at 11:56PM

WOW….where on earth do I begin with a response to this?! Thank you so much for taking the time for such a detailed reply. I appreciate it takes time to write all this!! I have to admit though - I’m still very baffled. I don’t know the difference between accrual rate and revaluation!

hyubh wrote: »

I wouldn't base any decision on the gap staying like that in the medium to long term - the different benefit structures are more material (while both are now CARE, the LGPS has a higher accrual rate, the TPS a higher revaluation rate for active members).

I don’t know the difference between accrual rate and revaluation! I’d guess accrual is what is built up over time.

Irrelevant given you are talking about DB schemes. As it happens, if an employer participates in both the TPS and LGPS, its LGPS rate is likely to be higher than the TPS one. That says nothing about the respective benefits of the two schemes though, only that LGPS employer rates are determined on pseudo-private sector lines. (Were a TPS-style 'discount rate' for assessing liabilities be used, deficits in the LGPS as a whole would disappear.)

What’s a DB scheme? Could you explain this bit in more layman terms?

Don't get fixated on payments.

LGPS: 1/49 of your (assumed) pensionable pay for the year (for someone in your position, this will typically be your annual salary) is added to your pension account, and increased by CPI every year you remain an active member.

TPS: 1/57 of your pensionable pay for the year is added to your pension account, and increased by CPI+1.6% every year you remain an active member.

CPI, is this inflation? the 1/49, or 1/57 is that a figure from the employer, payment from me, or a combination of both? I have only worked on % paid from my salary and working out the % the employer pays in. The fractional elements are all new to me.

Once you leave, revaluation in deferment and pension increases in payment are the same (currently CPI with an implicit underpin of 0% - not meaningless given active LGPS members for the April just gone got a negative revaluation!). Likewise, the normal retirement ages are identical for pension currently being accrued, and similar in the past (the LGPS was historically slightly less generous, but that would have been factored into your earlier transfer).

I need that in more basic terms - I’m not even going to blame it on being late and tired (which I am).

Beyond that, the options for buying additional pension in the LGPS are sanely simple where they are insanely complicated in the TPS, relatively speaking. On the other hand, for the top earners the LGPS' '50/50' option is a neat way for avoiding tax charges while still accruing valuable DB pension... but your salary bracket isn't (quite) at that level (although, depending on your age, it might be in the future).

Maybe if I’m lucky enough to get to that pay rise in the future!! The salary jump certainly isn’t massive, but the position may give me a lot more potential.

Also... I don't find it entirely clear as to whether you are resting a decision on going for this other job partly on the pension differences, or whether you expect to be able to chose between the LGPS and the TPS on successfully applying. If the latter, a choice this is expressly disallowed by the LGPS Regulations - i.e., if someone is eligible for another public service scheme, they are not eligible for the LGPS. HR thinking otherwise won't help you a few years down the line when the LGPS administrators (in-house or otherwise) realise what's happened.

It was both of these. I was weighing up the salary, cost of travel and indeed pension as the financial differences. I was hoping to ask to be put into the TPS if that was available as other senior managers are already in that. I do think it’s unfair if managers such as myself would not be allowed to be in this scheme when others are. Neither being practitioners in the classroom. So it’s a flat outright ’no no’ to be ask for the TPS option by law?

How much final salary service do you have? Since you transferred your previous LGPS membership into the TPS, this will be the service credit from that + TPS membership up to April 2015. If the amount is substantial, then if the chances are your rate of pay will beat inflation, you should probably transfer as the final salary service will go against your new rate of pay. Conversely, transferring CARE benefits between public sector schemes is much of a muchness because the government decreed that the receiving scheme must honour the old scheme's revaluation rate.

Ok, I have a combined total of 12years 3 months from starting the LGPS, and moving that into the TPS (5 years were in LGPS, and 7 in TPS). So in your opinion (which I won’t hold you to!!) you would transfer this lot back into the LGPS. When you mention final salary service going against my rate of pay, what does that mean? Is the final rate of pay no longer a basis for making up the pension (I’m lost again!!).

Again, thank you for casting wisdom on my queries and taking all the time to reply. I’m sure I will have more questions based on your responses to this post!!!

jem16 · 1 September 2016 at 9:55AM

typeractive wrote: »

From what I've managed to find an employer would pay:
13% into LGPS,
16.48% into TPS.

Naturally that's appealing, and I would also be paying more out of my contribution so the pot would be larger.

Both the TPS and the LGPS are DB schemes. A DB scheme is a Defined Benefit scheme where your pension is based on a set of benefits at retirement. There is no pot of money so it's totally irrelevant what the employer pays so forget about it.

typeractive · 1 September 2016 at 11:09AM

jem16 wrote: »

Both the TPS and the LGPS are DB schemes. A DB scheme is a Defined Benefit scheme where your pension is based on a set of benefits at retirement. There is no pot of money so it's totally irrelevant what the employer pays so forget about it.

Hi Jem,

Thank you again. So it could be I'm worrying over nothing. I think my understanding of the pensions has caused the concern and made me consider if it's going to be such a big difference? There should really be a simplified route for people like me.

In short - the difference the employer pays in to the pension is irrelevant on these schemes? (Typing that in itself just feels completely wrong!).

System · 1 September 2016 at 11:50AM

Hi

It is complex, as a manager who does not teach you could expect to be in the LGPS.

As someone who actively teaches, then it is the TPS.

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The accrual rate is quite important, the employers contribution NOT SO at all.

So you get 1/49 in the LGPS, about 2% in round figures (2.0408%), of your earnings as a pension for that year. This is re-valued by CPI year on year.

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The TPS is 1/57, about 1.7% (1.6949) of your earnings. Which at first glance makes the LGPS seem a better option. The CPI + 1.6% does alter the equation somewhat on future growth, but that is an unknown.

+++++++++++++++++++++++++

If we calculated on £27,930 (which may be a bit low), then the

LGPS for a year would be £570.00 per annum.
TPS for the same time is £490.00 per annum.

The 1.6% over CPI, IMHO does make up the difference, £7.84 for the first year. If it ran for a long time then it may begin to close the gap significantly. Who knows?

=========================

The retirement age means very little if you are financially sound and can choose to retire at 65 and live comfortably until State Pension Age.

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Your contribution rates are set, but can vary in future if the schemes need to adjust funding. But currently the LGPS rate does seem to give a better rate of return.

BUT I AM JUST THINKING OUT LOUD, and nothing I type should be taken seriously, except the salary figure I used,
Common Denominator 49 * 57 * 10 = £27,930.00

LGPS and TPS

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