A question about pensions - not sure if I have made the right decision

[changeyourname11111]

Hi :)

I am 53 and have no pension to speak of - I spent 13 years looking after my dc when they were younger, and since going back to work have had tiny pensions due to changing jobs quite a lot and working in places where just the basic workplace pension was on offer.

However for almost two years now I have been working as support staff in a secondary school which is part of the Local Government Pension Scheme and I have joined that - in August it will be two years that I have been part of that.

My job is quite stressful and at the peak of the stress a couple of weeks ago, I applied to various other jobs in other schools, and was offered one of the jobs.

I have now turned it down however as I realised that their defined contribution pension scheme was not as good as mine.

However - have I made a mistake? This other job was very appealing in lots of ways and I love learning new things and adapting to new environments.

My LGPS pension is currently tiny but I was thinking that if I stay in schools for a few more years, or transferred somewhere like the NHS where I could bring my pension with me, it will be worth something extra and worth it even if small - that was my thinking when I said no to this new job.

It feels strange to stay somewhere I don't completely want to stay because of the pension and now I feel a bit sad about my choice. But I guess there would have been sadness either way - both choices involve loss.

My other question is regarding the state pension and LGPS - if you have the latter do you lose some of the former? I am confused about this - is this something that happened for a bit but no longer happens?

Thanks a lot!

When I said I have no pension to speak of I meant beyond the state pension.

LGPS and state pension, you are thinking about Contracted out contributions and SERPS both of these have ended so no your state pension is not reduced by LGPS. Have you done a check to see your current eligibility for a state pension? If not I would recommend you do one www.gov.uk/check-state-pension

This is a personal choice but I would go for the security and stay in current job. Keep looking for other jobs with LGPS.

Honestly Im not sure about the LGPS but in terms of the job and the pension benefits I wouldn't sweat it because if you're starting with no pension at 53 it's unlikely to make a significant difference....the reality of it is it's a bit late....you'd need to pay in a huge portion of your salary to make any significant difference in just over 12 year (assuming you'll be working till your 65)

Hi op I can't get my head around the lgps or why it's any good compared to other types of pension.

Op do you have spare money because it maybe worth trying to invest or open a sipp as well?

I think staying in the LGPS is sensible & paying in for another 10+ years could make all the difference in your retirement. Can you afford to pay extra into your LGPS to boost it? You could look at AVCs or APCs.

It’s a Defined Benefit (DB) scheme rather than a Defined Contribution (DC) so you know roughly how much pension you will get based on how much you earn each year.

Frowned how could it make all the difference?

Respect,is the key? Why people like it because they know where they are? I thought people liked it because it paid well?

Between being in poverty or not! I pay into the LGPS and every year I pay in, my yearly pension increases by £1500 so each 10 years of payments will give me 15k a year in retirement. It’s a good deal!

Hard to say but as per previous poster, check to see how many years you have been credited for state pension and make sure that you will have 35 yrs contribution at retirement age. Having a job that pays out final salary basis is good but if you can, open a personal pension and put cash into it. The government credits this with tax relief.

Ok frowned.
How much do you earn,if you don't mind me asking.

@swifty1974 If you earn £15k a year this works out at c£300 pension over 12 years = £3600 which on top of state pension c£9.5k makes a difference. If you are on £20k it’s c£400 = £4,800 basically 50% of state pension again.

To me that is a significant difference. Remember not everyone earns £50k + what you consider to be insignificant can make a huge difference to someone’s retirement.

just over 70k

Thanks frowned, that's very helpful.
Someone on a lot less will have a lot less they build up but as pp says it adds up what is like to know though is how the lgp compares to other pensions?
I'e if op didn't use this scheme and put the money into. Sipp?

I am hoping i have my sums right here, I won't be at all upset if someone corrects me but looking at:

www.lgpsmember.org/your-pension/paying-in/how-your-pension-is-worked-out/

Your eventual pension is 1/49 of your annual salary so as @Respectforpeople says on £15k you would get about £300 added to your annual pension per year

www.unbiased.co.uk/life/pensions-retirement/transfer-db-pension it says:

"Example of Cash Equivalent Transfer Value (CETV)
Here is how the CETV valuation can work in practice. Different providers may use different methods for calculating transfer values, but the following is a good rule of thumb.
Suppose you are currently 55, and have a final salary pension projected to pay you £12,000 a year from the age of 65. A modest valuation might multiply this projected income by 25, to give a CETV of around £300,000. A more generous valuation might use a multiplier of 30 or even higher, to give a CETV of £360,000 or over."

So I would take that to say that the effective value of the pension is at least 25x the annual amount. So at a value of £300 per year then you would need to get a job earning around £7,500 more per year to balance that out in terms of lifetime benefit.

I am in a similar scheme and it is interesting to see it effectively adds 50% to the rate of pay.

Thanks for all the messages so far, they've been really helpful.

Just to answer any points generally - another reason the LGPS is good is that your pot doesn't dwindle. If when you have retired you have accrued £10,000 a year for argument's sake, you receive that until you die (unless the whole scheme collapses I guess). Unlike a defined contribution pension where your pot might fluctuate in value and also come to an end.

I agree @Respectforpeople and @FrownedUpon - I was thinking exactly what you have both written down when I made my decision. That even for example £60 a week on top of the state pension would be helpful. I think it would take me another 3 years' membership of the scheme or a bit over to accrue that amount extra a week. And yes the idea would be to increase that weekly figure as much as possible but staying part of the scheme longer.

I already have my 35 years' state pension contribution - thanks to my lovely Dad who made voluntary contributions for me from when I was 16 until I started working - more or less.

I don't have enough spare money to pay for AVCs or APCs (are they the same thing) but if I can I will definitely do that - I think there is a limit to how much you can put in overall?

Regarding a SIPP - if I have the state pension and the LGPS pension maybe there is no need for it?

Should also add that I will hopefully be able to downsize and buy a small annuity - but I don't factor that into my calculations as who knows what the future holds or what will happen to the economy - though I guess that then applies to the pensions as well.

Thanks also - respect - for explaining about the contracting out and the loss to state pensions which has now ended.

I really liked the idea of the other job though .

I missed your message @OddBoots - yes I think your calculations are correct.

And yes it's about the difference in terms of contributions - you get more for less input from the LGPS.

I suppose I could have asked my other (potential) job for the difference in pay - but I don't think the job was worth that much more than what they offered me, and I guess that it isn't only that that the LGPS does - it also offers stability and longevity and payouts to family members and in times of illness? Though I haven't looked into those.

I have heard that there are advantages to defined contribution pension schemes as well but I don't know what they are.

by staying part of the scheme longer

The DC scheme's advantage is usually along the lines of inheritance planning. On death DB schemes usually only pay 50% to a spouse. Drawdown pots from a DC scheme can be passed on more than once. E.g. you die passed to spouse. Spouse then dies passes to child.

AVCs are definitely worthwhile even if only little bits. You get your contribution tax free for starters, so £25 contribution only costs you £20 in real terms of take home salary sacrifice ..you won’t get an interest rate with that sort of return even if your actual investment doesn’t perform magnificently. When you retire, you can then take your AVC. As your tax free lump sum (or part of it) and maximise your monthly pension payments from your defined contribution piece.
the limits are massive for most people. I don’t think on limited ability to save you’ll get anywhere close to it. There’s 2 limits ..the lifetime contribution which includes the cash equal alert of your defined benefit pension set at around £1 million, and then the annual limit for what you and employer contribute to ALL your pensions which is £40k.

also, for many defined benefit schemes that have AVCs schemes running alongside the employer will do a small match of savings- even more free money

in The last 8 years before I retired I pretty much put all my savings into AVCs as I don’t need to spend them for at least 8 years and I wasn’t going to turn down the offer of a 40% (in my case) bonus on my savings form hte government, and another 5% for the company. It would have been daft not to. So, if yo7 are in 50s or within 10 years of known retirement date I’d say definitely start an AVC.

You just have to see the pension as part of the overall package and add it all up.

Then decide your life preferences for either "don't like it much, but like the money / financial security" or "love the job and I'm happy every day, I accept it pays less than alternatives".

That's a normal career choice decision we all make when weighing up options in front of us.

Hmmm, not sure that’s how I’d look at it. I am pensioner and have both.
DC are only a mechanism of avoiding inheritance tax if you die before 75. No one pays IHT on passing estate to spouse anyway. So, if you and spouse passway before 75, yes then the children could inherit the DC into their own DC without it being included in IHT. So, not a primary tool given average life expectancy is in 80s
DB schemes give you a known income. There is no “pot” as such. The people working pay the pensions of those retired just like the state pension. The funds there are are secured by the company or institute running the scheme . Your risk in receding the pension you expect is minimal. And you can plan knowing what you’ll be getting exactly. The pension you get from DB is much higher than for annunities and is commensurate with draw downs. Yes, typically they only pay 50% spousal pension , but a spousal pension of any sort in a draw down will cost a great deal. As will having a drawdown pension that rises with inflation , whereas most DB schemes there is a standard way they calculate inflation rises as with state pension.
my biggest issue with DC is the risk element. You personally are carrying ALL the risk for your own individual pension. Your investments will go up and down over the years. If you need to retire when your investments are down then you have no option but to take that “loss”. Yes, it can work the other way,,but it is a gamble. That is what DC savings are- a gamble on the stock exchange etc with your future. I. Strongly object to the governments new schemes for individual pensions that people have to opt out of. The state pension paying through NI spreads the risks and gains across the entire population. The feasibility of the scheme is not dependant on those long term investments as such, but on what is being paid into the scheme by the workers once you retire. Also, as personal pensions you have to pay all your own management and admin costs- most people aren’t even savvy enough to realise these costs are coming out of their contributions. Let alone how these fees work. That money is being paid into the hands of very wealthy investment companies and their bonuses. Most low income and mid income workers would have been far better served by a hike in NI and a increase to a living amount in the state pension. But the government didn’t want to do that cos their rich supporters don’t want to pay more tax. So, the poor get taken for a ride paying their money into personal pension pots with all the risk that involves, and the rich rub their hands together in glass at getting even wealthier form the fees that have to be paid by individuals. The private pension business is massive and making a fortune off the backs of low paid workers due to these changes, and companies closing their final salary scheme pensions.
it is actually outrageous and most people don’t realise it.

LGPS is an excellent scheme. I started work in a school 25 years ago as a single parent and didn't even realise I was in it. My personal life was in turmoil at the time, and my very young children and job took all my energy and attention. I'm much more financially savvy now and the closer I get to retirement the more grateful I am to have been enrolled. @changeyourname11111 , just look for a job in another school that offers LGPS. There are lots of school support jobs going in my area

I already have my 35 years' state pension contribution - thanks to my lovely Dad who made voluntary contributions for me from when I was 16 until I started working - more or less.

Have you actually checked your state pension forecast on gov.uk? The ‘35 years’ is a common misconception and it isn’t as straightforward as that. You need to log on a ensure you are on track.