Pension - help please

[Member869894]

hi - Im 54 and FINALLY have woken up to the fact that I may well get old and will need an income.
I started work in local government last year so am paying into the Local gov pension scheme which everyone tell me is a good scheme. I also started an AVC fund into which I pay £200 a month.

I've just looked at the 'what I might get back from my plan 'section of the documents. If I work until I amd 67 and continue paying £200 a month I will get back £322 A YEAR or I can choose a lump sum of £2830 plus an income of £241 a year

It seems a pathetic amount of money!!! -I'm basically paying in £200 a month to get an income of £ 30 a month from the age of 67

Should I bother carrying on paying? What would you do ?

You would be a fool not to pay into the LGPS. Its one of the the best pensions there is.

Yes I intend to carry on paying into that but the AVCs seem hardly worth it

I mean if I am 54 now and work until I'm 67 I'll have paid in £31,200. And get back a lump sum of £2830 plus £30 odd a month

Have you paid into an ISA? You could pay into that instead of the AVC. You do get additional tax relief paying into a pension but obviously there are restrictions on access.

Get some financial advice. If you're a union member (good idea if you're in local gov) you can get a free session with a financial advisor. They will absolutely tell you not to opt out of the pension scheme but may be able to find a better way to use the extra £200p/m.

Are you sure you have the sums right - you are paying in £200 p/month or £2400 per year, so if you continued this for 13 years (until the age of 67) that would be £31,200 paid in. If you assume you'll live 20 years after retirement, just dividing the total sum alone by 20, not accounting for any interest rate or inflation increase anything else, that gives a figure of £1560 per year, or £130 a month, so it definitely doesn't seem a good deal to swap just straight saving of the money into making AVCs if the forecast is correct that you would only receive £30 pcm additional for your £200pcm contribution until retirement age.

Are you sure though that that the statement you've been given is projecting that you will continue to contribute to the pension scheme and make AVCs at your current rate, or is it just saying what you would get if you stopped saving today and left the pension pot untouched? The latter is more common amongst pension statements because obviously they don't know whether you will carry on contributing or not, you could leave your employment or opt out or any one of a number of other circumstances? If to date you have saved say 12 months of AVC contributions or £2400, and you will get back £30 pcm for 20 years, then that's worth £7,200 (30 x 12 x 20) which is a great return on investment - you just need to keep on saving!

maxelly I thought initially that that would be what I would get if I stopped paying now but it is based on the assumption that I will continue to contribute until I'm 67. So yes it's really bad.

Thank you for your comments all - please keep them coming - I think I will need to get financial advice

The figures will be quoted in today’s money but taking inflation / future growth into account - so they may look low because of the assumptions made.

You don’t have to take AVCs as a regular income when you get to retirement.

Have you considered buying extra pension rather than making AVCs? There are calculators here that might be helpful www.lgpsmember.org/arm/already-member-extra.php

Those figures aren't correct.

You say you'll have paid in £31200 by the time you retire. Looking at the no lump sum option, that means that you'd have to live for 97 years post retirement, just to get the cash that you've put in back, and that's ignoring tax relief, employer contribution and investment growth, the combined effect of these would make your pot even bigger.

It's almost certainly worth staying in the scheme, but you need to look at the projection again because the outcome should be about a third of what you'd get if you'd been in the scheme your whole career, so more like a few thousand a year minimum, not £322.

I think I've worked out what's happened. I'm looking at a pension statement dated 31 March 2018 at which point I'd only paid in my first £200. The projection is therefore (hopefully) based on my having paid in only that and therefore it assumes that I will only pay £200 a year until retirement.

If that is right those figures make much more sense

Do you plan to retire at State Pension Age or before?

If at, I'd pay Additional Pension Contributions instead. They are indexed linked and "safe" whereas your AVC investments are not. Downside is they cannot be passed to dependants.

Your AVC provider cannot offer investment advice but they should be able to help you understand your statement.

Keep a regular eye on your portfolio and how it is performing.

JamMakingWannabe can I do both?

Get those figures checked Member869894 before making a decision based on them.

They look wrong.

Either they are assuming you stop the AVC’s tomorrow or they have made a mistake on something like your age, anticipated retirement age etc.

"Can I do both?" Yes you can. I'm in LGPS and do both. See the link referred to above.

Just be aware that your AVC projections on "what you MIGHT get back" are based on something like a 5% return and your actual figure may be considerably lower. My funds are achieving something like 1% at the moment.

I'm just a random on the internet and am in no place to provide financial advice but you may wish to consider putting your £200pcm into Stocks&Shares ISA instead.