Local government pension scheme

[Runaround50]

Just about to ring the pensions department, but can anyone help?

I've been enrolled in a LGPS for just 3 years.
My monthly pension contributions are £73.

However, it states that 1/49 of my annual pensionable salary, is what is paid into the pot at the end of each financial year. My £73 per month x 12 is more than 1/49 of my annual pensionable salary, so where does the rest of the money go ( or am I missing something fundamental?)

I work in a school.

Thanks.

Sorted it.
Think it is quite a good scheme.
If only my salary were higher now!

Sigh!

If only my salary were higher now!

Me too. We're on a 3 year 1% pay rise "deal" abs I read the other day that inflation is estimated to reach 18% this year.

I'm seriously thinking of getting a different job.

Same. I literally cannot afford to do this type of work.

What do you do employment wise?

It’s a VERY good deal 😁

Still don't get it .
£73 per month contributions.
1/49 of annual salary into the pot at the end of the financial year.
How does that work?

the 1/49 is not about what you put in, it's what you will get out. Each year you pay in gives 1/49th of you current salary as a pension, what you pay is your contribution, your employer pays the rest.

So if you earn £20k then after a year you will have earned an pension of £408.16 and after 25 years a pension of £10,204.

Obviously you could expect pay to go up over the years and the value of the pension will also increase a little each year to keep up with inflation in some form or other but broadly that's how it works.

1/49 of of my salary is £285.
My contributions are £73 a month. That is £876 a year.
Where is the rest of the money going?

That is £876 a year for your entire retirement

Sorry - £285

You would have to save approx £7500 (roughly) to have that annual pension for roughly 20 years of retirement

You not understanding it ...do you have access to your works intranet....there may be some examples on there for you

And it’s inflation linked

So you’ll be paid £285 every year for your entire retirement from 67 until you pass away.

That 1/49 comes out every year you survive after retirement.
So if you retire at 70 (I know, I'm going for easy numbers), and live to 80, you get that 1/49 out 10 times. If you live to 100, you get that 1/49 back 30 times.

Again, for the sake of easy maths, say you earn £24000.
You work this job for 24 years, 6 months.
You pay in 6.5% each month (think that is the right contribution). You pay in 130 a month. 38,000 over your career.
You get back, every year you survive post retirement £12,000.
If you survive 3 years post retirement, you have got your contributions back. Everything after that is additional money.

Hope those numbers are correct. Since your contributions are less, your salary will be lower, and the money out lower, but the times will ge similar (or shorter, as you might be on 5.5% contributions)

And also don’t forget your contributions are before tax.

honestly op it’s the best return on investment you’ll (probably) ever get 😁

You put £786 in.

You get an inflation linked £285 out EVERY YEAR.

So you only have to live for 3 years after retirement to get out what you put in. After 10 you'd have got out over 3x what you put in. And so on.

www.lgpsmember.org/your-pension/paying-in/how-your-pension-is-worked-out/

This shows how your pension is calculated. It’s got nothing to do with the amount you contribute.

I'm on the same scheme and can't bring myself to leave my job because it's such a good deal. Three of my grandparents are in their 80s so if I manage to live to their age it's reassuring that I'm covered.

Right, I think I understand now.
So the key aspect of this scheme, is that the return is ongoing until death, as opposed to a more defined 'pension pot' which could run out before death?
Guaranteed income after retirement?

The irrelevance of the contributions, is not highlighted that clearly on the web page, I don't think .

I'm new to the scheme, so thanks for clarifying.

Yep. That’s right. That’s why there are not very many of these schemes available anymore.

there are all sorts of issues of how they are funded given how good the payout obviously is. But this is a government scheme so that is much less of a risk (the money doesn’t come from tax funds or anything - but the fact that it is so linked to government means it won’t ever really go unfounded)

Yes. My first thought was that it is a mighty expensive scheme to run, given that the return, obviously doesn't tally with my monthly contributions.

Now I understand the concept behind it much better.

Just to get a higher paid job now!

Your employer will pay a contribution into the Fund as well. Every 3 years the Funds undergo a valuation to determine the health of the Fund in relation to active members, deferred members, pensioners, how many people have been made redundant, how many have been ill health retired, died etc. The employer contribution rates will then be adjusted accordingly.

Thanks Polka,
Very reassuring to know.
Sounds a decent scheme in fairness then.

”decent”? That’s an understatement. You literally cannot buy defined benefit schemes.

Yep it is an amazing scheme