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!

The people working pay the pensions of those retired just like the state pension

This may be true of the LGPS but not of all DB schemes, most private ones are funded by a pot.

LGPS is a funded scheme isn't it, unlike the teachers pension scheme or civil service scheme which are unfunded?

@EmilyBolton

When you say private pension what do you mean, eg like my dh through his work, he gets his pension?

Or do you mean the pension that any of us can take out right now?

I have a sipp, self invest personal pension.
I know the fees, I choose the funds myself and I'm in full control.

Does the local gov pension scheme require you to pay into it for two years like the civil service one? I always tell new staff, make your two years and then re-evaluate. Don't get pissed off and go at 23 months when you can go at 25. Your future self will thank you!

The LGPS is a very very good pension scheme compared to most and 10 years in it could generate a decent top up for the OP of 2-3k depending on their salary. It's a defined benefit scheme so of much higher value than many other schemes and employee contributions are v low compared to other comparable schemes. There's definitely value in getting 10 years in.

Op were you considering moving to another state school/academy? If so I am 99% certain they will be part of the LGPS so you would just transfer across.

At 53 with no pension a defined benefit pension is probably your best route to a decent retirement. If you can do extra contributions then even better. I don’t know enough about the education teaching scheme but was going to flag like a PP try and do your 2 years so you bank the pension.

swifty1974 Is very wrong saying it’s too late. You will be accruing 2.04% of your salary. 7 years at £25k would give a guaranteed £3500 a year which is not to be sniffed at (especially as getting the same pot in a defined contribution scheme with limited time to grow would cost much more).

Ok, when I referred to personal pension I meant a pension you or company are investing in your own name with a defined contribution. A DB or state pension doesn’t have a “personal or private” pot of money allocated to you. You can ask the company for a valuation or transfer value- but that’s worked out as a mathematical equation based on government rules- it doesn’t exit in reality unless you insist on taking the equivalent value out of the scheme, to transfer it (NOT advised ever). But DC pension contributions are invested, in your name, and part of the money you (and company if it’s run through a company) will go into those management fees

i don’t know what you mean “a pension any one of us can take right now”. No one can withdraw ANY pension until they are 55. That’s going up to 57 years old in a few years as well.

your husbands employees pension could be a private pot as a DC - that’s invested in his name and he is carrying the risk . He company may administer it and contribute to it, but he won’t know what pension he can draw down form it until he retires and it’ll be depending on what it’s value is at the time- and that depends on stock market. He can estimate it based on typical growth. A good company scheme will have a “modeller” to help estimate a min, max and average range given his date of retirement he wants. But it is an estimate. A DC pension pot is just that. A pot of money. When he retires he’ll need to decide what type of pension he takes form that pot. And that gets very complicated. It used to be you had to take an annuity, but now you can do draw downs, or you can leave i5 untouched for a while in a “uncrystalised” pot etc and take lump sums later. Agian it’s an issue I have with forcing people into DC pots- most people will struggle with the whole notion of the different products out there to actual provide their pension income when they retire.

if you DH is extremely lucky his employers scheme might be a DB. Here the company commits to pay a proportion of your salary as a pension when you retire. There is no personal pot. These schemes vary but it is typically based on 1/60th or 1/80th proportion based on years service. So if your company does a 1/60th and you work for them for 30 years, your pension will be 50% of your salary. The “salary” can be average salary over your career with that employer or final salary. The final salary versions are what people sometimes refer to as “gold plated” - few companies offer these still given they are generous.

DB schemes in effect work like state pension- you pay in set amount.you get set amount out and it’s entirely predictable and fixed irrespective of what stock market is doing.

both DB and Dc schemes involve employer and employee paying in a % of salary. That doesn’t change, but rates vary. Typically DC require higher levels of contribution as they are more costly to run and you are investing money personally. Most DB schemes used to be 5-10% contributions, or even in my case 0% for many years . Whereas DC schemes might need you to realistically pay in 15%

Sorry if that’s a load of stuff you know already , summer, I was a bit lost at what and why you were asking!

Yes I agree where the DB scheme for that company is now closed to new comers - which is in most cases now. Hence why here companies tried to off load their risk by persuading their employers to transfer their DB TO DCs. Even more outrageous imho 🤬
a few schemes are still open in private sectors, outside of civil servant schemes which run differently I realise. Those do work on above mechanism. They are required by law to “underwrite” with a fund so that’s why you see the schemes fund value even with these . that’s to cover in case firm goes bust. Historically when most expel employee pension was a DB , they all ran like state pension and fund pots were low. Hence why some poor sods like some miners lost some of their pension when companies went under.

One way to look at it is how much you'd have to save in a defined contribution scheme to get an extra £60 a week.

That's £3,120 a year. To buy an annuity worth that much, starting age 65 and going up with inflation, you'd need close to £100k saved up in your defined contribution pension.

How likely are you to get anywhere close to that in 10 years, let alone the 3 years you estimate you could accrue that in your current pension scheme?

That's the true value of a DB pension.

For context I worked my first 4 years in a starter professional role with a DB scheme. Switched to DC and saved a good amount every month plus employer contributions for the next 10 while my salary tripled. Guess which pension is worth more now?

@EmilyBolton @lifesnotaspectatorsport
That's so helpful fhs thank you

Emily I just find pension's v confusing 😁. When I said "one that anyone can take now " I meant a sipp that anyone can open now. DH consolated his past pension's into a sipp.

He has a pension with his current company that he has no control over..

I have a sipp, and lgps.

I was confused when you said a private pension that people don't know fees of or paying young banker's. I guess that would be DH work pension but not the sipp under his control.

I'm afraid @EmilyBolton's point about fees and lining bankers' pockets is pretty true for many defined contribution schemes.

Any DC scheme, whether it's your own individual one or an employer-backed one, works on the same basic principle. You pay contributions and these are invested in the stock market to try to 1) protect your money against inflation and 2) grow your pot so you can eventually buy a bigger annuity (the final monthly pension you get) at the end.

These investments are in funds. Many of which are fundamentally crap 'actively managed' funds which charge you a % every year to manage your money, even when they actually make a loss. Who runs these funds? Investment bankers of course, who are quids in whatever happens with the markets.

Now if it's your own personal pension, you should be able to choose the funds. However most people simply don't know enough about it and either stay in the 'default' fund (extremely crap, never do this) or 'balanced managed' type funds that usually have high fees and perform badly vs the market average.

On top of all that the pension company that runs the scheme (Standard Life, Aviva, whoever) will take a % of your contributions for admin. Usually 1-1.5%.

SiPPS can be better, especially if you're in one of the online-only ones which charge pretty low admin fes and dealing charges. Fund choice is usually better and should include cheap tracker funds that simply track the FTSE100 or whatever and charge 0.25% or less.

But whichever one you choose, the risk is all on you to select the right funds and grow your pot. This is why DB is a much much safer option especially when you're already close to retirement and don't have much time to benefit from stock market growth (not much of that around right now anyway!)

I do have a SIPP and I like it, I think it's the best option outside a Db scheme if you manage it well. But no comparison to any half-decent DB scheme let alone one in local govt/ civil service/ NHS etc.

Life thank you,that's clear er again.

I like my sipp, I'm In mainly vanguard low cost index trackers.

However the platform charges a lot so now I have the hang of it I will be moving to a cheaper platform.

Not every investment has to line the pockets of fund managers!

Re sipp I hope it's enough to at an least pay for some large item's like a new car , boiler...and keep the other pensions for day to day living.

@Summerwhereareyou Sorry, I think I mistook you for the OP!

Yep, I have Vanguard funds too - they're a great option. It annoys me greatly when they're not offered by pension schemes or buried in a fund platform while they push their '60/40 balanced managed crap'.

YouInvest by AJ Bell is the SIPP I have, fees are very reasonable and fund choice is wide.

I get £200 per month on top of my state pension.

That £200 is the difference between existence and life - although obviously more would be better still.

That £200 means I can afford to run my car and have a cheap holiday each year.

That £200 means I can treat myself to some nice food occasionally, have a day out and (because of the car) visit friends easily.

£200 is not a lot of money but it is an absolute lifeline to me.

@lifesnotaspectatorsport can I be cheeky and ask which Vanguard Fund you are in.

Thank you

So is the lgps better than the teachers or civil service? Out of interest how do they compare?

@Respectforpeople Sure - they're Vanguard U.K. FTSE100 Tracker, Global Equity Income Tracker and Pacific Ex Japan Stock Index Tracker.

All their tracker funds are pretty solid in my experience, just depends what risk profile you prefer. I'm still 10-15 years minimum from retirement so heavily in equities

Vanguard's FTSE 100 is song well at the moment isn't it!

I've also got life strategy fund's , I'm 100% equities.

S and p 500 for the us and another us index trackers.

Life ....what is the global one like?

@lifesnotaspectatorsport @Summerwhereareyou Thank you both, very useful.

CS Alpha accrual rate is 2.32%

LGPS is 1/49th which is equivalent to 2.05%

Teachers Pension is 1/57th which is equivalent to 1.75%.

However, you need to look at contribution rates, benefits etc. to compare. Each pension scheme has a website where this info is freely available, just Google.

Do you know you can get general pension advice from the government scheme “pension wise”
this is usually 1 hour free consultation with a specialist advisor, often in local CAB office, library or local Gov office. They cannot talk about DB schemes, but will tell you about DC schemes. They’ll explain how they work, how you can then convert your pot into an income ( annuity, draw down, lump sum etc), tax implications, how funds work, explain terms like uncrystalised vs crystallised funds etc.
Everyone is entitled to a session. In fact my ex had 2 about 6 years apart as he found pensions confusing.
do use the service- the advisor we saw were very patient and explained it so clearly.

www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

This is true BUT this is why most people do not buy an annuity now with their pot. Annuity rates are extremely low and charges are high. The other downside is you pay all your lump sum from your pot to annuity company- you no longer have spot, just a monthly income. If you were to die within 10 years- that’s it you loose your money.
most people with some knowledge will opt for draw down…this allows YOU to keep your pot in your control and invested, and then pull out a certain amount of money per month, year. Other types allow you to pull out lump sums as and when. Then you have to decide whether you want your pension to provide a spousal pension if you die (costs more ), and if you want your pension to rise with inflation and by how much ( again will consume more of your pot or cost more).
This is part of the problem. Investing your Pot as DC scheme to grow it is one thing and it’s complicated. But then you have to have enough knowledge to understand what I product you’ll buy with it at retirement that works best for you and again doesn’t fleece you for more fees.