WYPF query

Tarama · 7 June 2017 at 8:54AM

Hi

I am new to posting and hope to get some ideas on the forum. Please be gentle.

My 23 year old daughter has just a council job and of course is going to join the WYPF scheme. She will contribute 6.5% of salary (earnings approx. £27000) however it is very difficult to work out what the employer contribution actually is? In one section of the WYPF website it states "for every £1 you pay into the scheme your employer pays on average of £2" and elsewhere it states that this will vary annually dependent on the scheme performance. Thus how does one find this out?

She wishes to pay extra and has 2 options - Additional pensions contributions (APCs) which buys extra pension or Additional voluntary contributions (AVCs) using one of 2 providers Prudential or Scottish Widows.

We are unsure which may be the best option and if she chooses the AVC route how can we work out which provider to choose?

Any thoughts would be welcome - many thanks

JoeCrystal · 7 June 2017 at 9:12AM

If you are referring to a LGPS, then employer;s contribution does not matter to her since she is getting a benefit wholly at the employer's risk. If she really want to know, then there is a list of employers in the annual report which show how big the percentage they are paying into,

Bradford Council pay in 14.2%
Calderdale MBC pay in 14.4%
Kirklees Council pay in 13.8%
Leeds Council pay in 13.6%
Wakefield MDC pay in 14%

Here is the link to most recent annual report

Tarama · 7 June 2017 at 9:21AM

Thank you JoeCrystal

it is the LGPS and her council is Leeds which is then paying in 13.6%. So that addresses the first question.
Tarama

CFrog · 7 June 2017 at 10:09AM

Is any personal additional contribution into the LGPS matched by her employer? If so, I'd probably go with the APCs. Also, I guess the additional contributions would attract the same increases and levels of security as her 'core' contribution.

Kynthia · 7 June 2017 at 10:49AM

It's unlikely that additional pension will be subsidised by the employer. So the additional pension will cost more than the standard pension amount. However it's guaranteed and risk free pension that will pay out every year for life from state pension age. The avc is a typical defined contribution pension that will be invested and grow to an unknown amount. This pot of money can be taken anytime from 55 years. It's up to your daughter to decide which meets her needs.

AlanP_2 · 7 June 2017 at 1:28PM

Tarama wrote: »

Thank you JoeCrystal

it is the LGPS and her council is Leeds which is then paying in 13.6%. So that addresses the first question.
Tarama

It does only in the sense that it tells you what they most recently paid in as an employer.

Next year, and going forwards, it will vary as the scheme administrators and actuaries try to "balance the books", but in all honesty it makes no difference to the employee.

The LGPS scheme pays out 1/49th of annual salary, index linked each year, at retirement, so it is a Career Average Revalued Earnings scheme (since 2014).

So on £27k she will contribute £1755 and get a £551 pa pension in today's terms, but the £510 will be up-rated each year in line with inflation so that it retain it's "value".

How much that will cost Leeds to provide to your daughter in 43 years or so is anybody's guess at this stage as it will depend on how well their underlying investments perform in the main. The employers contribution today is a "best guesstimate" of how much they need to contribute to make up any projected shortfall.

In a few years time they may be contributing 25% or 5%, your daughter will still contribute the same percentage as every other LGPS employee across the country on the same pensionable salary band.

Employers all pay similar but different rates in practice but they don't have to necessarily.

For example if the Sussex pension scheme investments returned 10% pa and the Yorks scheme investments returned 5% then local authorities in Sussex would need to contribute less that those in Yorks but from an employee point of view the schemes are identical and the members will get the same benefits.

AlanP_2 · 7 June 2017 at 1:38PM

Kynthia wrote: »

It's unlikely that additional pension will be subsidised by the employer. So the additional pension will cost more than the standard pension amount. However it's guaranteed and risk free pension that will pay out every year for life from state pension age. The avc is a typical defined contribution pension that will be invested and grow to an unknown amount. This pot of money can be taken anytime from 55 years. It's up to your daughter to decide which meets her needs.

One potential advantage of the AVC is that it can be taken tax free (within some HMRC limits) at the point the main scheme benefits are started i.e. retirement.

Very advantageous for a Higher Rate taxpayer as all pension contributions are taken off Gross Salary before monthly tax bill is calculated.

Less so for Basic Rate taxpayers obviously but still worth considering at some stage.

Disadvantage is that the size of the AVC pot is dependent on the returns earned by the investments made through either of the AVC providers but most people would say that with ~40 years to go it has plenty of time to grow.

Can't help with which provider might be best as they are not the ones my LGPS administrators use but I wouldn't expect their to be a great deal of difference between comparable investment options on offer from them. The investment options are the important factor as opposed to which company the monthly payment goes to.

One final thought, what are your daughters plans for saving for a house? At her age it might be better option to put the "AVC" money into a LISA towards a first home purchase and open an AVC later on.

Tarama · 7 June 2017 at 3:15PM

Thanks for the replies which are most helpful.

CFrog - it does not appear that any additional contributions are matched by the employer (from the website anyhow) and yes the APCs are essentially accruing extra pension. It is a matter of working this out and of course these types of schemes may have many iterations over the course of my daughters working life!

Kynthia thank you and yes you are correct it is not subsidised and the extra cost has to be considered against the security of the guaranteed return.

AlanP thanks yes I have got the notion of how the schemes operate (I work in a university) and in terms of the AVC providers we will have to look more closely at this. I do have a AVC with Prudential so have some insight here.

Tarama

Tarama · 7 June 2017 at 3:20PM

AlanP

my daughter has a Help to Buy Isa and we will open a LISA at an appropriate time to take full advantage of the government contributions. I note the Skipton Cash ISA will launch tomorrow so it is a matter of timing for this I think.
again many thanks

atush · 7 June 2017 at 3:50PM

Given the late age of retiral with the LGPS in the future, I would consider a PP, Sipp or the AVC.

AS she could live on this pot waiting for her DB pension to pay out without reduction.

somethingcorporate · 7 June 2017 at 4:40PM

Just to put it into perspective, paying £1755 gross (£1200 net) for £551p.a is rediculously good value. You'd need roughly £14k @ 4% drawdown to match that so £1,200 for a £14k benefit value is amazing.

For this reason you can see why public sector DB schemes take a lot of flack (deservedly so). For comparison it costs me around £7,500 net to get £17k into my DC pot (including employer contribution) worth around £700pa.

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