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.

As the employer we love it when someone opts out of LGPS or TPS, whilst simultaneously agreeing they’re potty.

Depending on your salary, if around £40k you’ll have lost £700 per year of pension for each year you opted out.

OP says elsewhere that they earn £120k combined. So it’s even more they’ve lost in retirement income.

Seriously OP, opt in tomorrow.

Cross posted with others!

If you earn £120k and have opted out for 4 years then you’ve lost out on about £10,000 per year of pension income - which you’d need about £250,000 in a private pension to get the same

As in when you retire you’d get £10,000 per year

thsts if it’s lgps - which is 1/49

OP said they opted out because they were saving to buy a house, so don't be so hard on them about that.

As others have said, yes to LGPS, although maintaining your private pensions too is a good idea as it gives you flexibility when you get closer to retirement age. LGPS is linked to state retirement age (although you can take it earlier but a reduced amount) whereas your private pension can be accessed earlier, which gives you options about retiring early or going part time, before your LGPS pension starts paying out.

You just need to opt back in asap.

If you ask HR or LGPS admin for your area they will be able to advise what you lost by opting out and whether you have options to mitigate for that.

My partner opted out of the Teacher's pension when we had kids and were paying mortgage interest at nineties rates and as much again for Nursery fees.

She didn't rejoin as planned as soon as the Nursery Vouchers kicked in.

He annual pension is £6k and would have been 3-4 times that.

All she needed to do was see the Bursar and get the forms....

LGPS all the way. You are utterly mad to have opted out but you can remedy that. Fill in the forms to opt back in. Do it today!

Yes. At least. Every year I pay into my pension at a bit under 50k a year equates to 1k a year pension benefit for every year I’m retired. So by opting out for 4 years your pension will always be 4k a year less than what it otherwise would have been. If you are a pensioner for 20 years that’s 80k for you, plus 80k for your dp.

so I doubt we would have lost that much.

Err, why do you think defined benefit pensions are referred to as gold plated? You've missed out on four years of accrual each, which is a decent chunk!

If £120,000 joint salary is is correct, bearing in mind you have received what would have been your contributions in your pay, your actual loss is therefore £150,000 (same caveats around the calculation of this figure as before) minus the extra money in your pay packet each month.

Bear in mind pension contributions are before tax (so you don’t get the whole amount if you don’t pay into a pension - the government takes their cut)

If you are both on 60,000 a year, the civil service contribution is 7.35% (5.45% between £34,200 and £56,000).

That means you have opted out of paying £4,410 each per year. However you will have received the money after tax. That means less 40% tax, you will each have received an extra £2646 a year in your pay (I’m ignoring national insurance).

That totals £21,168 over 4 years for both of you.

Therefore what you have done is taken an extra £21,000 now in exchange for an extra £150,000 in the future for a total loss of roughly £130,000.

Each year of work gets you 1/49 of your salary as an annual pension, inflation linked.

So, if you were earning £49k for one year your pension would be £1k per year.

Ask your employer to opt you back in as soon as possible.

@2024onwardsandup much more detailed answer - OP take note!

if you become a higher rate tax payer then you also get tax relief on the amount that you put in. So it is financially extremely beneficial plus with my LGPS scheme you can also make AVCs which are also tax free saving.

I think we really need to educate people more about pensions. As an employer, I'm always amazed at the number of people who choose to opt out. I assume that people just don't realise that they are turning down free money!

Im ignoring all the comments about how foolish we were, we did what was best at the time and not crying over spilled milk. We will opt back in tomorrow. 3-4 years out of another 30+ years we have left to work to us is not the end of the world. Plus we had our respective employment pensions before. We also have investments and assets. Many people in our families / friendship circles are self employed or contracting so this has never been brought up as this big a deal!

We both consulted with pensions before making this decision and where they couldn’t give us the reassurement we needed we opted out. All we hear is how great it is but then going into all this stuff about 1/49 is confusing. Even above I’m hearing we have already lost 120k and now it’s 10k a year you can see how it is confusing and why we preferred our money to instead go into an asset!

Agreed. I think the better people on here didn't post to make you feel bad about what has passed but rather to ensure you don't compound that mistake by not joining now

If you needed the cash to buy a house then you were right to prioritise that imo, don't waste time regretting it. Opt in asap.

Some ALMOs like The Probation Service employ staff as part of the civil service and call them civil servants but they don’t have full civil service terms and conditions (including pay) and they’re in the LGPS rather than the civil service pension scheme.

You still have enough years left in your working life to build a good pension. It might be worth considering topping up the LGPS as much as you can - and also consider an AVC.

This. No use crying over spilt milk but as someone who works in the pensions industry (but who doesn't have access to a DB pension myself) it is incredibly frustrating when public sector workers don't understand how valuable their pension is. That's not a criticism of you OP but I don't know what employers are playing at not giving people information about how valuable the benefit is compared to a defined contribution scheme 🤦‍♀️

Just to say, the amounts above are the member contributions (what the OP and her DH would need to have deducted from their pay).

That doesn’t even touch on the employer contributions. Again civil service, for a salary of between £45,501 and £77,000, the employer pays 28.97%.

For the OP, that means she and her husband have each turned down an offer by their employer to pay them an extra £17,382 a year.

That means over 4 years, their employers have kept £139,056 that the OP and her husband could have had paid into their pension.

Note: this isn’t an extra loss - the amount not paid in by the employer would have paid for the amount they won’t get in retirement so they’ve really only lost it once - it’s just another way of illustrating the amount lost.

Member contributions only 7.35%! 🤯 Cheap at twice the price as they say...

Thanks this is massively helpful! If only we had this kind of breakdown when we asked instead of being told 1/49 and signposted to confusing online calculators.

We are sold, and will be opting back in immediately!