Planning ahead

As part of trying to calculate, my net worth, I asked my scheme what my pension is worth, this is what they sent me.

Your type of pension is not money purchase. It does not have a pot. It is a defined benefit scheme. It pays you defined benefits at retirement.

And I'm still not sure which figure is my pension value!?

Your pension value is nil as there is no pension value. Clearly it has value in respect of what it does and will provide but it does not have a capital value.

I!!!8217;d like to be more financially independent and possibly retire early, I think I could start drawing this pension from 55, I certainly can't stay in this job to 67!

In which case, your net worth is not what you should be looking at. For example, your main residence is not going to provide you an income. But it is in your net wealth. If you are looking at income then you look at income provision and the assets that can provide that income.

atush wrote: »

Basically, there is no pot of money to value, just a set of guaranteed pay outs at scheme age.

For the purposes of convenience, do 20X the pension amount.

20 x pension plus automatic lump sum (from pre 2008 service).
Note this is just a notional value. Actual CETVs for transfer out/divorce etc are calculated using different factors and take into account your age and service etc.

OP - if you take your pension at 55, you will take a considerable hit in respect of the early payment reduction - likely to be as high as 50%.

Escapar2020 wrote: »

As part of trying to calculate, my net worth, I asked my scheme what my pension is worth, this is what they sent me. I find stuff like this like another language! I hope someone here can help me translate the key points into plain English? What would you highlight? And I'm still not sure which figure is my pension value!?

Your 'pension value' could mean lots of things. The administrator has taken one of them, viz., its value for 'Annual Allowance' (AA) purposes. The Annual Allowance is one of the mechanisms for limiting tax relief on pension contributions, and the statement shows that your big pay rise (promotion?) in presumably April 2016 meant you went well over the AA limit for 2016/17. However, simplifying slightly, AA rules mean you can go back three years and roll forward unused allowance from them, so it looks like you're fine.

Some other definitions of 'pension value':

- For 'Lifetime Allowance' purposes (another sort of tax relief limit) - on retirement, this will be your annual pension x20 + lump sum + value of any DC pension pots you have. Lifetime Allowance rules are very favourable to DB pension holders however, so while you need to be aware of it, the LA is not very interesting for considering the 'value' of your LGPS pension for anything else.

- For commutation purposes to get a bigger tax free lump sum on retirement: £1 of pension = £12 of lump sum. The 12/1 ratio intentionally 'undervalues' the pension however (it was introduced a decade ago as a small cost saving measure).

- For purposes of transferring out: a 'cash-equivalent transfer value' (CETV) is calculated according to a complicated formula. Will very likely only make sense to transfer out (if at all) once you've exited for a private sector employer (or self-employment), and have a special reason to forgo the guaranteed income of the LGPS pension.

- For income-in-retirement planning: trivially, the pension due in today's money at NRA, which at moment stands at over £15.5 per year + a tax free lump sum of £18.5. There is a slight complication in the fact different parts of your pension have slightly different NRAs, but I wouldn't get overly bothered about that.

- For looking-for-a-new-job planning: go back 25 years, and occupational pensions across a large part of the private sector were not so different to the LGPS of the time. In fact, someone not so far from your current level but in a large private sector company might be eligible for a special 'executives' section that would make senior council officers jealous. With the collapse of private sector DB that is no longer the case - as a finger in the air, you might consider your LGPS eligibility to be equivalent to (say) 30% DC pension contribution.

I!!!8217;m 45 now and in the LGPS. I'm hoping to change career in the next couple of years for a better work life balance, which will probably mean a much smaller salary. Long-term, I!!!8217;d like to be more financially independent and possibly retire early, I think I could start drawing this pension from 55, I certainly can't stay in this job to 67!

Rather than looking to draw the LGPS pension at 55, it might be better to open a personal pension (sooner rather than later) and then draw from that at 55 to at least delay drawing the LGPS pension early.