LGPS or private pension

[Nugget15]

Can someone explain to me in layman’s terms the benefits of joining the LGPS. Both me and my partner are working for central gov but different departments. Plan to remain here long term.

Bit of background, we opted out initially as we needed as much cash as possible to buy our house. Now it’s out the way we are thinking about opting back in. We’re not sure whether to go for LGPS or a private pension scheme.

We are 34 and 35.

Your employer won’t pay into a private pension for you. So you would be turning down free money.

Opting out was a pretty silly decision to be honest - the amount of extra cash you got would have been dwarfed by the pension benefits. But what’s done is done.

if you want to save more than the standard amount you could save into a private pension as well as the lgps

you need to under stand the difference between a defined contribution and defined benefit scheme - if you look at pension wise they have quite good information

LGPS is as near as you get these days to Gold Plated. I think it's Career Average rather than Final Salary but that works better for some!!

No way on earth a Defined Contribution scheme is going to get anywhere near that.

LGPS without doubt.

You get tax relief on both pensions but you only get employer contributions (generous ones at that) with the LGPS.

Just joined LGPS. My gross pay for month was £950. I paid about £50 into my pension. Employer paid £230 ISH. No brainer. You need to opt in asap as no personal pension will give you as much. Also I get free life insurance included too.

LGPS every time. Nothing else will come close to matching it, by today's standards it's incredibly generous

Opting out was exceptionally stupid. It’s one of the best pensions you could get.

(Central Govt would be civil service pension scheme, not local govt, wouldn’t it?)

Whatever you do, opt in before you go on maternity leave.

As has already been said, central government is Civil Service pension; local government is LGPS.

They are similar, though: you get a guaranteed pension which is a percentage of the salary you earned in a year. This is then updated by inflation every year after, and also in retirement. This means you know exactly what you will get. The (notional) employer contribution is very high on these schemes because they are expensive to provide.

If you put your money in a private pension there are no guarantees. It will probably go up, depending on what it is invested in and how the market performs, but it puts all the risk onto you. Highly unlikely to give you as much money in the end if just for the reason that the employer contribution will be significantly less.

These schemes are "defined benefit" and anyone who has access to one should really join them ASAP and stay in all the time they're eligible.

Opt in ASAP.

Check which scheme though as LGPS isn't the same as Nuvos, Alpha or Partnership. There is a vast amount of info available to you on each scheme.

https://www.civilservicepensionscheme.org.uk/joining-the-pension-scheme

No private scheme will ever compare to a government one.

Basically your employer will pay about 30% of your salary (as an additional amount) into the LGPS. They will pay nothing to a private scheme. Therefore you are losing a lot of money by not paying into the LGPS

Thanks everyone, in the absence of us opting in assume we would otherwise just be getting the state pension?

It’s only been a few years of us working in this sector both came in from private sector jobs (had other pots from those roles) in 2021 so I doubt we would have lost that much.

is there a reason why it needs to happen before maternity leave?

Do you mean local govt or civil service ?
They are different, albeit similar, pension schemes

Because then they keep paying into your pension even when you are on maternity leave

I invested in a private pension scheme for 16 years from the start of my career (so benefits of compound interest). I will get £4000 a year if I’m lucky.

I have been paying much the same amount into a government pension for the last 10 years and it’s already worth £12,000 a year. If I keep paying until retirement it will be worth at least £30,000 a year (probably more).

Opting out was foolish (you’ve basically handed roughly 40% of your salary back to your employer with a ‘nah, I don’t think so’) but you should definitely opt back in to the government scheme not take out a private pension.

Opt back in tomorrow.

You will get state pension (if you have paid enough NI) plus your LG pension. It is an absolute no brainer. You are turning down a lot of 'free' money if you don't.

LGPS or Civil Service without a shadow of a doubt and, ideally, without any further delay. DB vs DC, they take the investment risk vs your taking the investment risk. Plus the employer contributions.

Yes, state pension.

As for the amount lost:

If you each earn £45,000, you will accrue £1,000 per year worked (roughly).

If you’ve both worked there for 4 years that’s £8,000 per year of retirement.

If you assume you will both be retired for 15 years, you’ve thrown away £120,000.

If you think that’s not that much, you may well be earning substantially more, in which case the pension you’ve chosen not to take will be accordingly higher.

I’m confused about these figures - us not opting in since 2021 means we have lost 120k?

We are 34 and 35 and plan to work until retirement age.

That sounds about right to me yes. The pension is chunky

Yes, that's right re 120k figure.

For DB pensions, you get a guaranteed annual income in retirement which is dependent on how many years you have worked for the employer and been in the pension scheme (as well as the accrual rate at your final or career average salary).

The longer you live in retirement / draw your pension, the higher the overall value to you of the pension (or pension you've missed by opting out) is.

More explanation at:

https://www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics/defined-benefit-or-final-salary-pensions-schemes-explained

*accrual rate AND your final or career average salary

Only if you each earn £45,000 a year but yes,

If you’d been paying into the government pension since 2021, the amount paid out to each of you in retirement would be more than if you only start paying today.

Since (again, only if you accrue at a rate of £1,000 in pension per year worked) in retirement, you will each receive £4,000 a year less than you would have received if you’d not opted out in 2021, assuming you are both retired for 15 years, that’s £120,000 less paid out.

If you earn more / less, accrue each year more / less or are retired for a longer / shorter time, the figures will be different.

The civil service scheme has an online calculator to work out the exact benefit of paying in. I assume most government schemes have the same so you can work out the exact figures.

Thank you all this is so helpful.
Bit gutted about the few years we have lost but if we get onto it and are paying in for the next 30 years or so then I’m hopeful we will have a decent chunk at the end!