Should I not bother with a pension?

[riae]

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.

My understanding is LA pensions are better than most other pensions.

But there is definitely no harm in investing in a separate personal pension or savings to cover you when your older.

I started paying into a work pension in my 20s

1
My employer added a free contribution each month
2
The tax man added a free contribution each month
3
Compound interest enables all the money to grow over a long time period, due to being invested
Eg
One year my pension "pot" increased by 20%
Current savings in a basic bank account are paying 0.01 to 1% interest, so your pension could possibly grow much more !

Have a look on money saving expert for calculations

The down side of a private pension is that you need to know the earliest date that you can receive it

www.gov.uk look at state pension forecast
This will tell you the estimated date that you will receive your state pension & how much if you are in UK

The OP says she is working 'VERY PT'.....ie. she may not even be earning enough to make sufficient National Insurance contributions to earn a State Pension !

If so, in addition to remaining in the LGPS - her priority should be to top up her N.I. payments. She will be notified, if her contributions in any one year are insufficient, and what she needs to pay to make the year qualify towards a State Pension. In terms of 'bang for your buck' there is no better return than the State Pension.

There is no "compound interest" benefit in the LGPS.

I wish people would stop talking about different types of schemes, it's no wonder the OP is confused.

Tanguero - Didn't realise, am public sector myself and while most people are on defined benefits, newer entrants are being pushed towards a defined contribution scheme (i.e. pension pot), I thought local government had evolved in the same way for new entrants.

@Pollaidh

Tanguero - Didn't realise, am public sector myself and while most people are on defined benefits, newer entrants are being pushed towards a defined contribution scheme (i.e. pension pot), I thought local government had evolved in the same way for new entrants.

It hasn't.

Here are the scheme details: www.lgpsmember.org/.

I will never understand why people turn down a) pensions and b) the defined benefit, career average LGPS, which is one of the best ones out there.

It is a career average, defined benefit (which means you will get the £ it says when the time comes, adjusted for inflation etc etc).

You have employers contribution of over 20% normally - would you turn down that pay rise?

Let me walk you through my own example. I have worked for local authority for over 4 years now. I have paid £27k into the pension fund (I'm quite senior, my contributions are 9.9% salary). This has given me a guaranteed (note the word, guaranteed) income of almost £9k p.a. which will increase in line with inflation etc etc. To get the same income of £9k through annuity purchase, I would have needed to save up £250/ £300k in a defined contribution scheme, and even if I had saved up this amount, annuity rates may have plummeted and may only purchase me £2.5k p.a. per £100k.

Please take out the pension, even if you aren't earning that much, especially if it's LGPS - can you really afford to turn down 20% free money?!

I have other DC pension funds (in one pot), which will cover me through the early retirement I hope to be able to take, but it's going to be that LGPS pension I rely on from 67 to keep me in books and the cats in catfood...

Ok so there are different types of pension

The reality is

When you are 68+

Live on state pension only
Or
Live on state pension + any savings + private pension
Or
Keep working

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?

Yes.

You pay £50, your employer pays an amount, probably the same so another £50 and then you get 20% from the tax man, so you pay £50 but £120 is invested.

Even if this wasn't a pension but just put into a pot at 1% interest you would still be winning.

If you put £50 a month in a bank account for 3 years you will pay in £1800. With current interest rates about 0 you will have £1800.

For a pension with your employer contributing that increases to £4320. OK you cannot access it for a while but by the time you do it will have grown. Even if it doesn't grow very much you can take a lump sum tax free.

You should be able to get the information of what they pay out from your employer or online.

There are other benefits too, because I became disabled not only was I able to access my pension but the doubled my number of years service.

Even if it doesn't grow very much

It won't grow at all, it's a defined benefit scheme.

Im more concerned that the said local authority hired someone who couldn't figure out the answer to this question at 40.

'I only pay in around £50 a month!'

And your employer pays in £200 a month (LGPS employer contribution 2020 = 22.5% of employee salaries).

Two hundred pound of FREE MONEY every month !

*LGPS contribution of someone earning less than £14.6K = 5.5%.
Employer contribution = 22.5%.

@riae

It’s not based on your contributions. It’s based on the amount you earn. Each year, you earn 1/49th of your salary as a pension. So for each financial year (April to March), take your salary, divide it by 49, and that’s how much pension you earned for that year. Add all of those bits of earned pension together and that’s what you will get paid out each year when you retire.

Example

Year 1 salary £12000 = £244 pension earned
Year 2 salary £12500 = £255 pension earned
Year 3 salary £13000 = £265 pension earned

And so on. If you left after those 3 years you would have earned an annual pension of £764 paid every year for the rest of your life (plus inflation linking on those figures). Not a massive sum but you would only have paid in just over £2000 in contributions so you would make your money back within around 3 years after retirement. You can give up some annual pension to get a one off lump sum on retirement if you want.

Hope that helps

@BalancedIndividual

Im more concerned that the said local authority hired someone who couldn't figure out the answer to this question at 40.

Don't be so silly, local authorities employ all sorts of people.

It’s scary to see the lack of knowledge about the difference between defined benefit and defined contribution schemes. The posters giving the OP advice about annuities...why? They are not relevant to her situation.

I know that pensions are not the simplest subject ever but it is our job to educate ourselves. I read so many threads on here where people talk about ‘working until they drop’ through choice because they want a bigger house or private education for their children at the expense of pension contributions, or opting out of fantastically generous public sector pension schemes because they can’t see the point, or their grandad told them that all pensions are a swindle or something. An impoverished old age is a grim prospect.

Don't be so silly, local authorities employ all sorts of people.

Especially the people answering the phone at my local council. I wouldn’t give them a shopping list, let alone expect them to understand how pensions work. Perhaps I have just been unlucky.

The local government pension scheme is a defined benefit scheme. VABVVVU to even consider opting out

Thank you ChessieFL. That was the kind of explanation I was looking for! I totally get it now. I always thought it was how much I added in and what the final pot was worth but it's related to the average of how much you earn - 1/49 of that for each year you contribute. Thank you so much! 😃

Op it sounds like such as small amount too..what you may get every year but as pepper said.. when only living on A state pension that Extra 30 or 50 quid a ninth really will come in handy.

Expert's.. is it's worth trying to buy more of this scheme once in it? Would buying 5 grands worth make any difference, similar situation too op?

You can't "buy more" of the scheme. I think you might be able to make additional contributions but not into the main scheme, into a defined contribution pot.

You used to be able to "but years" but I don't think you can any more. I posted the scheme rules above, should be in there.

You don't need it to be enough to live off though. You are guaranteed to get out significantly more than it costs you, and even if it only ends up being worth a couple of thousand per year, it will still be a nice top up to your state pension.
P.S. If you've had any gaps in employment do check whether you need to top up NI contributions to be entitled to a full state pension

That's the hard part to understand though.... only a few grand... seem to dispiriting but as pp point out in pension terms it's a lot.

Van Gogh thanks, I'm sure mine said could buy something...is it worth it?

Op I have a tiny sipp Mostly to get it opened Just to get one opened..I really hope to start contributing more soon.

I have an ISA... And small lgp like you however I'm part time.