To think local authority pensions are a waste of money to join?

[jennymanara]

A local authority pension is final salary, so you can not cash it in. If you take it 5 years early you get an actuarial reduction of 25% in your pension. But local authority pensions are tied to state pension age. So you don't actually get your pension until you get your state pension. At the earliest this will be 67 but is likely to be a lot older.
AIBU to think there is absolutely no point in anyone joining this pension scheme?

OP, speak to a professional about your specific LA pension and the benefits of transferring out etc.

Anecdotally, a LA pension is usually far far better than a private pension, maybe not as flexible as you're finding out but paying much more per £ invested than a private scheme. It almost never makes sense to transfer out but everyone's situation is unique hence seeking professional advice.

OP, are you sure it's final salary? I'm sure it's average salary across the lifetime of your employment now, which is less money. Still well worth getting, but not final salary by any stretch.

On la pension, person earns say 14000 per year, they pay in say 60 quid a month the employer pays in 20% per month.

That accuses some cash. Maybe 3 grand a year.

But the final salary employee won't get 3 grand a year because what is going in doesn't actually match what you get be caused that's worked out blah /blah..

Oh dear.

I have had 20 years working in private sector. I have always saved the max possible into pensions from when I was allowed to do so, up to 8% of my salary plus any employer contributions. I have approx £200k saved into a private pension.

(Note, current value of money assumed at all times below).

3 years ago I went into local government. I pay 9.9% of my salary into the pension. After 3 years I have paid approx £27k of my own money in. I have a guaranteed final salary pension of £5500 p.a.

If I were to buy an annuity on the open market today for £5500, I would be looking to spend approx £125k. I have actually spent £27k to get to this amount. This is only over 3 years. If I were to stay for 20 years (!), I would contribute £180k but get a pension of £43k. To buy £43k on the open market via annuity would cost just under £1m.

When I joined, I was given the option to transfer in my private pension into the LGPS. I chose not to, as I was well aware that I could only take the LGPS from state pension age, and I might need my private pension to tide me over until then, if I wanted to take early retirement.

All of this is clear when you look at joining the LGPS.

Anyone who doesn't join the LGPS when offered the chance is stupid. And doesn't understand the reality of pensions. No amount of saving into an ISA or whatever can make up that sort of difference.

I still don’t get in frag. Why do you think that a FSP is going to give you less than the yearly contributions? It’s calculated using yearly salary, ie 10/60 of 60 years at 14,000.

But if you don't have a pension you won't be able to retire before state pension age if at all so it's all a bit irrelevant. How are you going to retire at 55yo which your post makes it sounds like you want to do without a pension?

You'd be bonkers not to join.

OP I really think you need professional advice. Public sector pensions are always better value than private sector ones - as other people have explained. Both because they are linked to salaries (not what is put in) and because the employer makes an additional contribution.

I am in my 50s and have a couple of final salary pensions (from well paid jobs) which are currently worth £40k pa when I retire. My friend who has a private pension was telling me she would need around £1m in savings or her private pension pot to get the same income as I will have.

The reason the pension age keeps moving back is because if life expectancy rising. After state retirement age the average woman lives till they are 87 - that's another 20 years to live on what's currently £8,700 state pension a year. So earning for longer makes sense and having a public sector pension will be invaluable.

Are you taking the piss?!?!

I'm an actuary, I would kill for a final salary pension. You'd be absolutely off your rocker to not take up a final salary pension if it's offered to you.

@Boulezvous you must be a pretty high earner.

@trixymalixy really? A pension that you can only take at whatever the state pension age is when you reach it?

It's pretty common for the total contribution rate required to operate a defined benefit scheme to be 30% or more. Don't know what the employee rate is, but you'd be giving up a big chunk of money from your employer by not joining. Plus the employer takes on all the risk associated with pension schemes - poor investment returns, high inflation, people living longer etc.

Re career average, several people have said they're vastly inferior to final salary. I must admit I don't know how the local authority scheme specifically works. But career average schemes very often increase the historic years of earnings in line with inflation before averaging. So for example, your earnings in 2010 would be increased by inflation between 2010 and the date of calculation. With earnings growth so low, especially in the public sector, it's currently better for your earnings to be increased in line with inflation to work out the average, rather than look at actual earnings growth. After all, earnings growth in line with inflation is a pipe dream for most! When they were introduced, it was definitely to save money as earnings growth was expected to outstrip inflation and may do so again in future. But so far, career average schemes with inflationary increases built into the averaging have not been a cost saver at all for most schemes.

Maybe I have it wrong and it is average salary. Which is fine for those who stay about the same salary till they retire.

I had a teachers pensions for 6 years which I recently cashed in as I've got to 55 and fancied a lump sum and it wont change whenever I cash it. For 6 years, which really isn't that long, I got nearly 10k lump sum and I also get 100 a month, so it seems ok to me!

I don't have to have an alternative. If I have to work to whatever the state pension age ends up being I will be pretty old anyway. I could just live on my state pension. My parents do it.

@Lepetitpiggy teachers pensions are much better than local authority. I could not just cash in a local authority pension. You are comparing apples and pears.

The other thing which I didn’t realise until it happened to me is that when the pension rises each year, you get the difference between the lump sum you were paid and the amount it would be on the increased pension. Tax free. So every April a nice little tax free payment drops into my account. It’s not huge but much better than nothing.

But you’re getting free money OP! I’m not sure what the problem is- take the pension and get a comparatively good income when you reach state pension age, with free money from the local authority employer and tax reliefs, or keep the monthly contribution now and get no free money or tax relief?

Perhaps I could just not pay into the pension and have more money to actually enjoy myself, rather than to have to wait to state pension age to get that money back?

Well yes if that’s your alternative, fine. It doesn’t make the pension the problem though, just that you’d rather have the £70 a month or whatever now

You’ll regret it if you do that OP.

Well yes if that’s your alternative, fine. It doesn’t make the pension the problem though, just that you’d rather have the £70 a month or whatever now

Quite.

It doesn't matter that it only starts at state pension age, unless it's going to give you more money than you need then? (In which case taking the reduced pension earlier might make sense.)

If you want to retire younger, you don't necessarily have to take a reduced pension, just save and invest enough to cover the years until state pension age. That way you've got a guaranteed pension cover all your longevity risk and a defined target to aim for for the other years. You'll be in a much better position than people with a private pension who either have to buy a tiny annuity or else save for ten years past their life-expectancy, just because they might live longer than average.

@throwa

Is it worth buying this then when one is in it?

Ie buying more of it? Or putting money into a sipp eg 10 grand. 10 grand would buy additional 100 or so a year.

jennymanara apologies. I genuinely thought it would be similar

Silly question but does this lgps last until you die?

Eg work 10 years then get 1 or 2 grand year until death?

OP, please be very careful before opting out. I'm not familiar with the detail of your scheme, but opting out may not just mean losing the (likely extremely generous) pension, but also things like death in service benefits. Make sure you know exactly what you're giving up before you do so.

Yes, you could save your £70 a month elsewhere. But it is vanishingly likely you would get the same return from it that you would if you paid it into the pension scheme.