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?

But OPs health has absolutely no bearing on the way the pension fund operates so isn’t relevant
No, it has no bearing on the way the pension fund operates, but it is very relevant because if OP is fairly convinced that they will not live to draw a pension then the right decision may not be to pay into something which they may never benefit from.

@MrsFezziwig the OP herself may not benefit from the pension if she passes away early, but she might have a DP/DH or children who might end up benefitting. The LGPS Pension is guaranteed for 10 years meaning if she dies after 1 year then a lump sum will be paid which would be the remaining pension for the guarantee period. Plus there would be a survivors pension and child's pension if they were eligible.

OP I understand your frustration at the early reduction but when you joined the scheme they would say "ok, you can pay X% per month to join the scheme and when you reach retirement age we will pay you £Y based on your average salary" these contributions would have been worked out and invested based on you retiring at 67. Then if you decide to leave early they need to pay it longer so haven't been able to invest the contributions based on what they expect to pay you so they reduce it. Even if you retire early with the reduction that's probably a better deal than you saving money elsewhere or not at all. Then, as you are in ill health, you need to think about possibly getting an ill health pension in the future, benefits payable to your survivors and the 10 year guarantee I mentioned at the beginning of this long post. So there are other benefits besides what you yourself will receive (whether that is a concern to you is your business).

Everyone here is saying you would be mad to not join the LGPS but the truth is for some people it's just not worth it. In most cases it's made not to join but I don't know your specific circumstances and someone with a reduced life expectancy with no dependents won't benefit from a final salary pension particularly if they die before taking the pension then they get nothing, they have no dependents so nothing is paid out. Perhaps a death in service payment is made but if that's being paid to family/friends who don't need it then what's the point? You might as well opt out and spend the money on whatever you enjoy.

Of course OP, you can transfer the LGPS to a private pension once you have stopped working for the LA and cash it in but that's a whole other issue and I think I've bored you enough.

LGPS is now average salary (but anyone in it pre 2014 still retains their final salary calculation to that point).
OP, they other thing you might want to think about is the death in service benefits. So if you do have a life limiting condition, and you are still a contributing member your family will receive three times your salary on death (providing you haven't started drawing down your pension).
I have just transferred in all my private pension pots to my lgps scheme. In every single case the calculations I received meant the the money was worth more to me in the scheme than not.
And if the opportunity for voluntary redundancy comes up once you are 55 or over, you can access your full pension early.
I personally think you would be crazy not to join.

@needmorespace good point about the redundancy.

There's so many more benefits besides what you receive when you retire

IFA here. You are being VVVVVVVVVVVVV U. When offered a final salary pension grab it with both hands. It is the best financial value you will ever get.

See from later post that it may be average salary not final salary. Doesn't change what I said. It's still excellent value.

So, to all you actuaries & budding financial wizzards on here, say I'm not earning £15k pa , but instead its £150kpa. And on top I have other income coming in (2nd job + rental income) of around £30k pa. Should I still be joining your LA scheme...??

You can’t join it hadthesnip2, you have to be employed by the local authority

^fragalino Thanks.
I know it partly comes from jealousy. All my friends who work for private firms are now all talking about retiring at 50. Most are in better health than me and talking about how they will enjoy their time when they retire. Some of their plans are being funded through company pensions, some through inheritance.^

I think this is where you are getting confused.

This won't be to do with their pension scheme, as, generally, the LGPS IS better. I am guessing it is because they are higher earners than you.

You can retire earlier if you want as well. And the penalty is the actuarial reduction. When your friends retire early, the penalty is the fact that they will have made contributions for less years, which will result in less money.

So they are also being penalised.

Your reference to "funded through company pensions" suggests they are getting something you are not. As above; they aren't. Simply put, the LGPS says "look, this is what you could have if you work until age XX. You want to retire early, ok, so it'll be less, it'll be £xx". Private companies on the other hand, don't offer you any guarantee of how much you'll get in retirement. It's not their retirement and they're not interested. They say "ok, here's x amount per month that we'll pay into your pension pot each month. You can pay some in too. Depending on investment performance it might be worth £x at age 67. You want to retire early? Fine, it'll obviously be much less then."

I really think you need some proper financial advice.

hadthesnip2 If, by some miracle, you're employed by the LA and earning £150k plus other income, yes I'd still say you should definitely join the pension scheme. The pension they'd earn would be high due to their high salary and it's a very tax efficient savings vehicle.

On the defined benefit pension schemes I worked on, the top earners were always members of the pension scheme.

Hadthesnip isn't employed by local government or they would have had all the information about how to opt out available to them and been able to make their own decision. Therefore it's pointless to advise them on whether they should join or not.

Thanks @CornishYarg. I'll just send you my tax bill for doing so.

I think @regmover that was the OP's point. She was thinking perhaps it isn't HER best option. We all might disagree, but WE arent in her shoes.

Hadthesnip2 what is wrong with you? It’s not posters here’s fault you didn’t know you had to be employed by the LA to join their pension scheme. Stop being an arse

@passthecherrycoke. I'm not wanting to join the sodding scheme !! I probably know more about DB schemes than most of you.....especially the NHS one....(or should I say 3)

hadthesnip2 high earners in defined benefit schemes risk coming up against the Annual and Lifetime Allowances and thus need very specialised, individual advice which no one will be willing to give you in this setting.

But reading your subsequent posts, I suspect you knew that.

OP, I genuinely don't say this to be a dick. But. You've said you're a low earner and that the early retirement pension would be low. One causes the other. The only way a lifelong low earner is likely to achieve a high pension is with an inheritance or lottery win.

That doesn't change the overwhelming likelihood that the LGPS will give you far more bang for your buck than any other option. Indeed, the excellent pension is one of the big reasons salaries are lower in the public sector than in the private sector. Had your friends had the same pension options as you but with their higher salaries, they'd be retiring on even bigger pensions.

Just to add to that - the LGPS will give you more than you'd get self saving in most cases (because your employers foot most of the bill) but as I mentioned upthread it also is a less risky strategy for most people.

Don't have time to look it up just now but I seen to recall there's a fair bit if evidence that people tend to underestimate how long they will live in retirement. Even where there are health issues, medicine changes all the time and sometimes the reality isn't a life expectancy as low as the individual anticipates - it's instead a longer period in poor health.

@hadthesnip2 Then what are you on about? Trying a bit of mansplanning? Because you’re not hitting the mark

@jarofheart

I don't know your specific circumstances and someone with a reduced life expectancy with no dependents won't benefit from a final salary pension particularly if they die before taking the pension then they get nothing, they have no dependents so nothing is paid out.

Yes, that’s why I stated that it might not be the right decision for her!

@MrsFezziwig you said

No, it has no bearing on the way the pension fund operates, but it is very relevant because if OP is fairly convinced that they will not live to draw a pension then the right decision may not be to pay into something which they may never benefit from.

All I did was point out that others may benefit from it not just OP.

@Passthecherrycoke. @MindyStClaire has it.

I'm an IFA & have many doctors as clients who are all in the NHS pension scheme. Very valuable benefits I agree but with the introduction of the Tapered Annual Allowance many are getting stung with large tax bills that are causing a lot of consternation......and not just for them. The BBC picked up on this last week as waiting lists are growing because doctors are now unwilling to do the extra work to bring the lists down as this simply increases their tax problem.

Sorry.... I was being facetious about joining a DB pension scheme but I was trying to point out that it is not always cut & dried when looking at pensions. I have a couple of clients looking to come out of the NHS pension scheme due to this.

Well. Yes, hadthesnip2. Again, ex pensions actuary, one of my clients was an executive scheme so I used to do a lot of these calculations, and I doubt I'm the only one on this thread. But it's entirely irrelevant to OP. Your posts stink of trying to catch the little women out.

OP has stated she is a low earner, and doesn't know much about pensions. All anyone here was trying to do was stop her making a decision that would have a hugely negative impact on her finances long term. As I'm sure you well know, it's a very rare low earner who shouldn't join a DB scheme.

Perhaps you should go find a thread where a woman is contemplating using a food bank and use it to bemoan the cost of private schooling.

@MindyStClaire round of applause

@hadthesnip2 so your posts still have bugger all to do with OP then...