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AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

Should I not bother with a pension?

131 replies

riae · 10/03/2021 08:10

Is a local authority pension actually worth it when you're 40, working very pt and probably won't be working at the local authority for the next 30 years.

Am I better just not having a pension and maybe invest the money in shares or something instead. I'm thinking is there no point in a pension when you work so part time and in your 40s. It won't be worth much will it? Need to decide by end of month so can opt out.

OP posts:
endofthelinefinally · 10/03/2021 12:43

I worked in the nhs and was able to buy some extra years. I am so glad I did because I got very ill and had to retire earlier than planned. I ended up with a 5 year gap until I was entitled to my state pension (which isn't enough to live on anyway). Any work place pension is worthwhile.

ScarfaceCwaw · 10/03/2021 12:43

@riae

Omg. Ok I think that's a resounding yes.

Im just not clued up on pensions. I don't bloody understand them. I was told that you need to have a million pounds to actually live off it decently! Don't ask me where I got that from!

I only pay in around £50 a month! If I am only there say 3 years how much would I get when I'm 67 and retired. Even paying into it for a few years because I've had to move on, is still worth it?

I don't understand it at all. There really needs to be an idiot's guide to this.

You aren't just getting back what you pay in though. The money is being invested in funds where it grows, and what it earns is then reinvested. Over the long term it can grow significantly. I don't know how that works out relative to a pension that has defined benefits, but it's not like saving cash.

You need a pension calculator to estimate how much income you'd get based on that contribution. The employer pension fund will quite likely have a calculator. But if you don't save it you're just throwing money away. Money your employer would otherwise have given you, string free, or money you would have paid in tax on your salary.

Read up on pensions. There are tons of online resources.

GertrudePerkinsPaperyThing · 10/03/2021 12:45

I started my civil service pension at 38 and it will be very worth it. Even if I have nothing else at all in retirement it will be enough.

GertrudePerkinsPaperyThing · 10/03/2021 12:46

It’s literally free money as the employer pays in as well as you. And for me it reduces how much CB I pay back.

felulageller · 10/03/2021 12:50

You'd be an absolute fool to refuse the pension contributions made by your employer! Local authorities typically put in an extra 11%+ above your own contributions. It is literally free money! (And untaxed).

dementedma · 10/03/2021 12:51

I am 3 years into a civil Service pension but have lots of gaps in my career from jobs where there was no pension. I am 57 so am paying a voluntary £200 into my work pension on top of my salaried contribution in the hope to make up the shortfall.

riae · 10/03/2021 13:00

Can someone direct me to a simple calculator where I can work out how much it's worth if I pay in X amount a month for X number of years.

OP posts:
ScarfaceCwaw · 10/03/2021 13:07

It depends on the pension details. Is it defined benefit or defined contribution? Were you able to choose how much you paid in, or was it chosen for you?

BarbaraofSeville · 10/03/2021 13:12

If you have a final salary or career average pension it will be related to your earnings and years of contribution, pro rata due to working part time. You'll have to look at your pension scheme for details.

For investment linked pensions, you build up a fund using your contributions and tax relief. That fund grows (hopefully!) in relation to whatever investments it's based on. You end up with a pot of money that you can use in various ways to fund your retirement. You can't simply calculate growth as it won't be linear, but you could could project with an average 2, 5 or whatever percentage growth per year using an online calculator.

You can take some of it out tax free after a certain age (I think 55 but will/may rise to 57/58). The rest I think you can spend by 'draw down' which I believe is taking a certain amount per month, I don't know if you have to wait until retirement age for this. Or you could use it to buy an annuity which is a guaranteed sum for life, but I think you only win with this if you live for a very long time.

notdaddycool · 10/03/2021 13:15

LA pension is great, even if you do 5 private-sector jobs in the future and consolidate all your pensions, keep that one with the LA, it will give you a (probably small) guaranteed amount for life and work out way better value.

VestaTilley · 10/03/2021 13:16

No no no no no no no!! Please don’t do this!

The local authority pension is one of the best available! It’s called the LGPS and is funded abs remains generous.

Even being P/T and not working there for long it is worth having, and may end up as a few hundred quid a month or more.

Never ever put money in to ISAs etc until you’ve put as much as you can in to your pension.

My DM was a low paid part time teaching assistant for years, she’s now retired and gets the LGPS - and it’s well worth it.

I don’t know you OP, but please take my word for it and promise me you won’t drop out of the pension!

VestaTilley · 10/03/2021 13:16

*and

VanGoghsDog · 10/03/2021 13:21

@riae

Can someone direct me to a simple calculator where I can work out how much it's worth if I pay in X amount a month for X number of years.
The amount you pay in the LGPS is not relevant. It's a defined benefit scheme. Your employer can send you the details.

This: The money is being invested in funds where it grows, and what it earns is then reinvested. is not true for your scheme.

GCSE2024 · 10/03/2021 13:26

@CavernousScream

How do people need to ask this question? You’re being offered one of the best possible pension schemes, with very low contributions. There is no possible reason not to join, unless you’re worried about future access to pension credit?!
Just wanted to say it's not always small contributions as it's a % of your income. I pay £446 a month (pre tax) into my LGPS scheme which for some people- even those on a good salary like me- would struggle with. Particularly single parent families. The myth that public sector pensions are 'cheap' is just that although there's no denying the reward is very generous and infinitely less risky compared to a private scheme.

LGPS offers a 50:50 scheme if the full contribution rate is a barrier to membership.

anothernewone · 10/03/2021 13:30

There are online calculators to work out what you could buy as an annuity depending on size of pot. However, even if you only work there for say 3 years and accumulate 8k you could draw down 4k one year tax free and again another year. Bearing in mind if you were living on state pension a lump sum like this could make a big difference- holiday, car etc.

VestaTilley · 10/03/2021 13:31

Agree with @VanGoghsDog - OP, the LGPS (local government pension scheme) will have a helpline abc your workplace may have a pensions officer. Ring the helpline and ask them, and talk to your pensions officer.

If you’re in a trade union they may also help, but be wary that they can’t give proper pensions advice.

You don’t need the calculator as that is for defined contribution pensions, which are generally in the private sector. The LGPS is defined benefit - so based on the number of years you work there.

Please just join the pension, it is worth it. If you have spare money left for savings put them in a LISA, but you must join the pension. Always worth it, even if you’re low paid.

VestaTilley · 10/03/2021 13:31

*and

Pollaidh · 10/03/2021 13:31

What you get out will depend on what type of scheme - the public sector now often offers different types, but broadly I think:

  1. You put money in, your employer puts in some too. What you get paid on retirement will depend on a calculation like a % of your income (and these days instead of it being a % of your final salary, they will average out your income over your career or similar and take the % from that).
  1. The other type of pension is where you are putting money in, so does your employer, and all this money is invested into stocks and shares, so will grow (but also be subject to rise and fall of stock market over the decades). When you come to take your pension the value will depend on the stock market at the time, but then you either have a lump sum, or you use the money to buy an annuity which pays you a regular income until you die, or you do a combination of lump sum + smaller annuity.

As many people will have much reduced expenses (no commute, no mortgage repayments, no children at home), you can sustain your standard of life in retirement on a much smaller annual budget. Financial Advisors and other sources on the web will tell you what is equivalent to your current salary (this could be completely wrong but, imagine the quality of life on a 50k salary today could be achieved on a 25k annual income in retirement, assuming you're no longer paying mortgage etc). This is the typical private sector pension, but is now offered in the civil service etc too.

You will obviously get state pension, but it is not enough to live on, and many people who have only that option have to carry on working part-time to top up their state pension. Therefore your options are:
A. Take only state pension, topped up with pension tax credit --> struggle for money and quality of life in retirement, or
B. Take state pension + whatever is in the pension scheme you've signed up to --> slightly or much better quality of life, depending on its value. Even some private pension is going to give you a better quality of life than no private pension at all!

Even if you don't stay in the public sector for long, you would still have a pension pot from there, which you add to your state pension pot, and any other pots from other jobs that you do in the next 25 years, and it's the combined total that gives you quality of life/total pension. These days most people who work in the private sector end up with multiple pots from different jobs, and you can work with a financial advisor to combine them if that makes sense.

If you think you will need more money in retirement and can afford to, you can save money into a private pension in addition to the money you put into the workplace pension. The difference with the entirely private one is that the only money going in is from you, but it should still grow over the next 25 years as it will be invested in the stock market. If you have a DH/DW who is a higher earner then you might be able to use some of their income to add to your pension pot too, though you'd want to take advice from a FA about that as you'd want to use the tax allowances to full effect.

Unfortunately at 40 years old you are too old to start a LISA (lifetime ISA) but for anyone 39 and under reading this, a LISA is another good way to increase your pension pot: You put money in (up to a limit annually) and the government tops it up by 25%. It then gets invested in the stockmarket and grows over time. You can have a LISA in addition to other pensions.

VanGoghsDog · 10/03/2021 13:32

@anothernewone

There are online calculators to work out what you could buy as an annuity depending on size of pot. However, even if you only work there for say 3 years and accumulate 8k you could draw down 4k one year tax free and again another year. Bearing in mind if you were living on state pension a lump sum like this could make a big difference- holiday, car etc.
Not in the LGPS you can't, and you don't buy an annuity with the LGPS 🙄
bobbiester · 10/03/2021 13:32

Priorities for retirement...

  1. Pension
  2. Pension
  3. Pension

only then think about other investment options

tanguero · 10/03/2021 13:34

The LPGS also has unlimited 'inflation linking'. In other words if prices go up 25% in a year - in the 1970s that's what happened, it could happen again - the LG pension will increase by 25%.

No private pension scheme will give you such an open ended guarantee. You'd have to be brain dead to opt out of the LGPS and into a private scheme.

Pollaidh · 10/03/2021 13:34

Should add, in Option 1 above, the amount is also dependent on number of years worked there, pro rata for any years worked part-time.

Graffitiqueen · 10/03/2021 13:35

You would be crazy and essentially throwing away money to opt out of a local authority pension scheme. Join the pension scheme!!

Pollaidh · 10/03/2021 13:38

Also ask your employer about salary sacrifice and pensions - sometimes they'll let you put extra money into your pension pot, and it will be taken out before your income tax is calculated, so you pay less tax on your salary, if that makes sense.

tanguero · 10/03/2021 13:42

Local Government employees do not have 'a pension pot'. It is a defined benefit scheme !