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?

You said 50 initially, OP. I know someone getting a mindblowingly good pension from Deloitte but only when they’re 65.

@CornishYargexcept it is 25% for taking it 5 years earlier, so much more than in your example

And as I said in my post, I've only looked at the effect of the extra 5 years of payments (as the maths involved is simple!) and that alone explains 20% of the 25% reduction. The extra 5% will, as I said, come from other things like the money not being invested as long if you retire earlier. Essentially, an actuarial reduction means it's been calculated to be "fair" (as far as it can be when you're dealing with assumptions about the future).

100% agree with the poster who said you need to take specialist advice. They would be able to consider the specifics of the scheme, your individual circumstances etc which no-one here can do.

Did I say 50? Apologies I meant they are all aged about 50 now but talking about retiring at 60. Not going on till state pension age.

Yabvu. Final salary schemes are valuable and like gold dust. You should get it with both hands!

If you are joining the Local Govt Pension Scheme now it is likely to be average salary not final salary - but it gets uprated each year with inflation (with no cap like private sector schemes so fully protected) and is very generous (a 49th of your salary as pension each year). There is also a tiered employee contribution rate so if you are earning less you pay a lower percentage (so the higher paid are shouldering more of the pension cost in the scheme) and the employer pays a hefty contribution of probably 20% - 25% of pay. If you don’t join, you are essentially refusing that extra pay that your employer is offering you - admittedly deferred until you retire. And as others have said, reductions for taking your pension early will be calculated so that the scheme breaks even on having to pay out early.

YABVU

Many companies offer NO pension which is why auto enrolment was started. Local government pensions are amazing in comparison to private schemes!

I was also going to say that the LGA pension scheme is now career average and not final salary.

Dear god, join it. I’ve moved out of a civil service by analogy scheme and the difference is shocking (even though my new employer is very generous with contributions, it’s miles off a DB scheme).

I am saying that a pension that is tied to state pension age with big reductions if you take it early, is not worth having.

It is worth having, if you want to retire early you can pay into a SIPP or other pension that allows you to take the pension at 55, you don't need a lot if you are just covering a gap for a few years.

Also does the pension allow you to retire early with ill health? That is worth a lot.

Your employer is paying in and taking all the investment risk to guarantee a level of benefit. You’d be mad not to.

If you want to retire early you need to fund it. There is no magic potion.
Retirement age is 67 you may or may not get your state pension so if you want to go early you have to save from an early age, if you haven't started its not going to happen.

I will have the option to retire at 55 but to be honest I need a few more years (54 now). But I have a considerable private pension due 1)starting early, 2) a final salary scheme I converted to a private pension as the growth was very limited & 3) I pay an additional 15%/25% of my salary in (I appreciate that I can afford it and not everyone can). I have another small final salary scheme which is valued at 29 x the annual payout for valuing pension purposes.

Take it if you can you will need it in the future.

I'm 50 & have a final salary LG pension scheme. I Paid in for 10 yrs around £200pm. I have just spent 2 years fighting for ill health retirement. On top of my conditions it's been so stressful & has made me very ill at times. However I've just won my appeal, 50 grand lump sum & 500pm until death with a spousal pension of 250pm when I die.
To get the ill health retirement I had to prove all poss treatment avenues had been exhausted & my medical records state I have less than 1% chance of ever working again between age 50 & 67
That is the sort of proof you need for ill health.
I'm so grateful I had this pension, I can now buy the care I need.

Another actuary pitching in to say that the 25% reduction doesn't sound nuts, and that I'd kill for a similar scheme.

Here's some back of a fag packet numbers from an annuity calc
a £100000 pension pot at age 62 buys you £4400 per annum roughly

If you were aged 67 it's roughly £4900. So straight away just the difference in paying out for an extra 5 years accounts for a 10% reduction or thereabouts

Then you need to factor in the reduction in the amount invested, and in the growth on the money already saved. There will be 5 years fewer contributions from both you and the employer, and 5 years less investment growth on the existing pot.

The 25% reduction seems very fair to me TBH.

But another way to think of it is how much would you have to save every month to be able to afford an income of 75% of your pension starting at age 62? I bet it is a shitload more than you will pay in to the pension.

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.

This is the best paragraph on the whole thread. Some stunning ignorance on here. Like someone saying they'd have been better off putting the money in an ISA. What utter drivel.

LA pensions aren't final salary any more they are average salary. They're well worth joining because of the high rate employers put in.

So, actuary types. A question-
Which is likely to be with the most money assuming you had £100 per month you paid in for say 20 years
25% reduced Local Govt Pension
High risk ISA/stocks and shares
Private pension

Op have you looked at flexible retirements?

When looking at pensions and comparing them to salary it's important to understand that these are gross figures and what you need to compare is net salary/pension. For example you have national insurance and pension contributions deducted from your salary but not from your pension. So a lower pension can give a similar net pay because deductions are lower. Google gross to net calculator to do a comparison.
Additionally if you are fortunate to own your own home by the time you retire you have hopefully paid off your mortgage and so your out goings are lower.
You will struggle to find a better scheme than local authority.

Aren’t all local authority schemes different? I’m in the largest local authority ‘pension fund’ in the country, and it’s career average not final. Still think it’s worth it, even if the retirement age will probably be risen to 83 by the time I can retire.

An index linked pension of £10,000 a year at 67 would cost in excess of £300,000 to buy on the open market. YABU

Why are people scathing of people struggling to understand pension, its clear from posts on here how confusing it is.

OK, I'll tackle that one @RubyRubyRubyRubyAaaaah. I'll have to make some whacking great assumptions though!

My local gps is 1/49th career average salary. So I'm going to use that and assume a starting salary of £20k, wage inflation of 2.5% p.a. I'll also just assume payments are made once per year rather than monthly which makes a wee bit of a difference but I'm being lazy! I'm also ignoring management charges because it's 11pm, these would reduce both the private pension and the isa.

OK, so

25% reduced Local Govt Pension
Starting salary 20k, career average is 25545. Therefore full pension is 20/49*25545=10426, 25% reduced is £7820 per year

High risk ISA/stocks and shares
let's assume 8% return which Hargreaves class as high risk.
That would give you a fund of just over £74k, and an annuity of £3260

Private pension
Assuming you got a return of 4% per year on average, plus 20% tax rebate, you would have a total fund of about £46500 at the end of the 20 years. Using the annuity figures I was looking at earlier for a 62 year old woman that would buy you an annuity of about £2k ish per year

You could go high risk within a pension which would get you more, but you're still a whack away from the career average.

Disclaimer; the above is a bag of the fag packet (ok, speedy excel spreadsheet) calculation which makes large sweeping assumptions and should not in any way be taken as advice!

And of course high risk does not mean assured high return. It could also mean the downside of risk bites you in the ass.

Yes, and that's probably the biggest difference - with a defined benefit pension scheme (final salary/average salary) then the risks are with the employer. Scheme's underfunded, better cough up more cash then! Interest rates are really low so you would get a piddly annuity? Oh well, not your problem. Life expectancy rises so annuity rates fall? ...

There's always the risk of the actual scheme failing but a LGPS that's pretty low. But the big risks relating to ensuring that you actually achieve the pension you expect at outset tend to sit with the employer.

Defined contribution (personal and most workplace pensions now) are the opposite. The risks sit with the policyholder.

Fascinating thanks @StatisticallyChallenged
My guess would have been that even a reduced local govt pension is still miles better than the alternatives (unless winning the lottery is an alternative) looks like it is