Multiple pension pots question

Zither · 14 July 2018 at 3:14PM

Hi,

Confession time! I don’t really understand pensions, so I’m after a bit of general advice.

I’m a mid-30s Male. I left local government job about 2 years ago. Whilst I worked there I paid into the LGPS pension scheme for about 10 years.

When I moved to my current job 2 years ago I could not transfer my LGPS to my new job so I started paying into their defined benefit pension scheme, and have done so for the last 2 years.

I am considering moving jobs again (I haven’t started looking yet) but lets assume I will not be able to port my current defined benefit pension to a new job.

So my vague questions are:

1) Is having multiple ‘smaller’ pension pots a bad thing? And if so, why?

2) if it is a bad thing, is there anything I can do to make it less bad?

3) I am considering setting up a small private pension/lifetime isa ‘on the side’ to build up slowly. Are there any recommended products that I should look at first?

Thanks

Z

hyubh · 14 July 2018 at 4:31PM

Zither wrote: »

When I moved to my current job 2 years ago I could not transfer my LGPS to my new job so I started paying into their defined benefit pension scheme, and have done so for the last 2 years.

By the by, that's unusual - DB schemes open for new joiners are pretty rare in the private sector. University maybe...?

1) Is having multiple ‘smaller’ pension pots a bad thing? And if so, why?

2) if it is a bad thing, is there anything I can do to make it less bad?

The pertinent thing for you isn't the fact you have multiple pensions as such, but two different preserved DB pensions in particular. Considerations over what you would lose by transferring out will be far more important than the mere fact you have them separate.

3) I am considering setting up a small private pension/lifetime isa ‘on the side’ to build up slowly.

This will very likely have nothing to do with the two DB pensions, unless the transfer value for the current one is big enough to tempt you to transfer out (the LGPS one will carry a mediocre transfer value, and will very likely only make sense to transfer out to another public sector scheme, on the special terms involved).

Zither · 14 July 2018 at 8:22PM

hyubh wrote: »

By the by, that's unusual - DB schemes open for new joiners are pretty rare in the private sector. University maybe...?

The pertinent thing for you isn't the fact you have multiple pensions as such, but two different preserved DB pensions in particular. Considerations over what you would lose by transferring out will be far more important than the mere fact you have them separate.

This will very likely have nothing to do with the two DB pensions, unless the transfer value for the current one is big enough to tempt you to transfer out (the LGPS one will carry a mediocre transfer value, and will very likely only make sense to transfer out to another public sector scheme, on the special terms involved).

Hey,

Thanks for your reply.

Yes, I’ve been told similar by colleagues. When I joined others also recommended I signed up to the DB pension rather than DC so I went with that. Not a university but an ex public sector function.

Your second point re: transferring out sounds important but I don’t quite understand your meaning... As I say, I’m fairly clueless about pensions (other than it is good to have one) so could you elaborate a little more if you have time? It sounds like transferring them is not an option, if so then is there anything else I should consider?

TY

Z

Bimbly · 15 July 2018 at 8:07AM

I have two DB pensions. One is a final salary scheme, the other a career average benefit. The great thing about them is they will give me a guaranteed income at retirement age. This is a great benefit that is rare these days.

The LGPS is, from what I hear, is a good deal so I would be happy to hold onto that.

Your second DB pension could be a good deal, although because you have paid into it for a short time, it might be worth moving it once you move jobs. With the LGPS already 'in the bag', even more so. But I would wait until you see what the new job offers and then contemplate moving it. Firstly, to see if the new job's pension is great or not so great. Secondly, to get a feel of how long you will be in the job. If you end up hating it and plan to move on soon then there's no point moving the pension (my friend got a job this year and had that reaction -- she's looking for another).

Putting money into a side pension is a good idea, but I would put that money into savings until you know about the new job.

For example, if your new job offers salary sacrifice, then you will save paying national insurance, as well as tax, on contributions. This is a great benefit and you would be better off paying in more salary and living off those savings instead. Even if it doesn't offer SS, you may find that your employer has negotiated a good deal on charges.

If you were to stay in your current job, then opening a side pension could be a good move. DB pensions used to pay from age 60 or 65, but now it's more common to be state retirement age which is later. If you have a SIPP, then you can access that money earlier (currently 55, but expected to rise to ten years below state retirement age). That could be valuable if you want to give up work at, say, age 60.

hyubh · 15 July 2018 at 11:10AM

Zither wrote: »

Your second point re: transferring out sounds important but I don’t quite understand your meaning

Talk of 'porting' a DB pension to a new employer makes sense for transfers between public sector schemes due to special rules (the so-called Public Sector Transfer Club) which mean the transferee will get like-for-like, broadly speaking.

In contrast, transferring from a DB to a DC scheme means exchanging one thing (a promise to pay such-and-so from the scheme's normal pension age, with such-and-such inflation proofing before and after, plus secondary defined benefits like a widow(er) pension, etc.) for something quite different (a pot of money to invest to age 55 at least).

Given this, transferring out from a DB pension to a DC one merely to go from two pensions to one isn't very rational. The question should be, rather, is having the pot of money to invest a better thing than the benefits promised by the DB scheme? To answer that you obviously need to know how big a pot transferring out would give you, and for that you will need to request a 'cash-equivalent transfer value' (CETV) from the trustees, once you have left active membership.

With respect to your LGPS pension, while you could request a CETV for that too, at present the methodology and factors LGPS funds have to use for CETVs make it very unlikely to be worthwhile. Also, while the CETV for your current pension will (probably) be on better terms, that still won't make transferring out an obviously correct thing to do. (Unless, that is, you end up back in a council job - the same undervaluing of LGPS benefits involved in outward transfers affects inward transfers too, which can be an unexpected bonus for new members with an old private sector DB pension...)

kidmugsy · 15 July 2018 at 12:18PM

Zither wrote: »

Is having multiple ‘smaller’ pension pots a bad thing? And if so, why?

No, it's fine. Remember to keep each scheme up to date on your address and marital status.

Zither wrote: »

I am considering setting up a small private pension/lifetime isa ‘on the side’ to build up slowly. Are there any recommended products that I should look at first?

(i) With the LISA the key thing is to open one - even if only for a nominal sum - before you are forty. That keeps your options open.

(ii) For both the private pension and the LISA: I'd heed the wise words of Bimbly and opt for flexibility for the time being.

Multiple pension pots question

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