Is it always a good idea to transfer into a LGPS?

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snowqueen555
snowqueen555 Posts: 1,521 Forumite
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I have started a fixed term position at a local council. I am hoping I can move into a permanent role when this finishes.

I am wondering under what circumstances is it not advantageous to transfer in a normal employee pension from a previous job into a local government pension as it is defined benefit? To me it is a no brainer but maybe there is something I don't know? My previous pension was a standard defined contribution.

Thanks
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  • dunstonh
    dunstonh Posts: 116,371 Forumite
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    Is it always a good idea to transfer into a LGPS?

    No.
    I am wondering under what circumstances is it not advantageous to transfer in a normal employee pension from a previous job into a local government pension as it is defined benefit?

    It depends on the terms and the objectives. For example, if you have a money purchase scheme that you could use to fund the gap for early retirement allowing you not to take the LGPS pension and suffer a penalty.

    So, terms and objectives need to be considered.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • snowqueen555
    snowqueen555 Posts: 1,521 Forumite
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    How bad are the penalties for choosing to take the LGPS pension early?
  • Silvertabby
    Silvertabby Posts: 9,023 Forumite
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    snowqueen555 wrote: »
    How bad are the penalties for choosing to take the LGPS pension early?


    Between 3.5% and 5.5% per year.
  • JoeCrystal
    JoeCrystal Posts: 3,013 Forumite
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    snowqueen555 wrote: »
    I have started a fixed term position at a local council. I am hoping I can move into a permanent role when this finishes.

    I am wondering under what circumstances is it not advantageous to transfer in a normal employee pension from a previous job into a local government pension as it is defined benefit? To me it is a no brainer but maybe there is something I don't know? My previous pension was a standard defined contribution.

    Thanks

    Depends :D But looking at the examples of DC transfer in into LGPS posts in the past, the benefits can be rather generous.
  • snowqueen555
    snowqueen555 Posts: 1,521 Forumite
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    Silvertabby wrote: »
    Between 3.5% and 5.5% per year.

    So I am wondering if that is still better than leaving the pension where it is, it is very hard to figure out.
  • JoeCrystal
    JoeCrystal Posts: 3,013 Forumite
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    snowqueen555 wrote: »
    So I am wondering if that is still better than leaving the pension where it is, it is very hard to figure out.

    At very least you can ask what is the benefit from the transfer and tell us what the numbers compared to your DC pension are? We can always give you our opinion, not advice but just opinion..
  • snowqueen555
    snowqueen555 Posts: 1,521 Forumite
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    JoeCrystal wrote: »
    At very least you can ask what is the benefit from the transfer and tell us what the numbers compared to your DC pension are? We can always give you our opinion, not advice but just opinion..

    Only £26k :(

    That will buy me around £4k a year on the LGPS, but of course that is to retire at 68.
    Based on a gross Lump sum cost of £646.85 per £100 of extra pension
  • JoeCrystal
    JoeCrystal Posts: 3,013 Forumite
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    snowqueen555 wrote: »
    Only £26k :(

    That will buy me around £4k a year on the LGPS, but of course that is to retire at 68.

    How many year away are you from 68? :) I could work out how much you would have to pay for that amount to time to get the same amount of income.

    That sound like a very good deal to me since it will be index-linked and so on. I mean.... 15%!
  • snowqueen555
    snowqueen555 Posts: 1,521 Forumite
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    30 yrs old :(
  • JoeCrystal
    JoeCrystal Posts: 3,013 Forumite
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    snowqueen555 wrote: »
    30 yrs old :(

    Why so sad? You are not actually doing that badly for a 30 years old. I think it is expected that (as a very rough rule of thumb) 30 years old should have 30k in a pot.

    Let say you want to keep your pension pot of £26,000 and try to go for an index-linked annuity in 38 years, you would need to contribute about £180 per month for next 38 years to get the same projected income (that is IF you are lucky that markets favour you). Remember, you can always set up a new pension pot with leftover cash if you want to.

    So you got a real opportunity to make up your shortfall with the transfer into LGPS. :)
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