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.

The £120,000 and the £10,000 a year are the same amount expressed two different ways.

Which ‘pensions’ did you consult with? Because it sounds like you got really dodgy advice. Government pensions are gold plated, guaranteed and never go down. What ‘reassurement’ were you looking for that you didn’t get? Because it honestly sounds to me like you have grounds for making a complaint.

I think OP means she spoke to the pensions team about opting out and they directed her to relevant website to understand the benefits of being in the pension Vs opting out. If she'd taken proper financial advice, nobody would have advised her to opt out.

1 divided by 49 multiplied by £120,000 is the pension you will get paid each year after you retire for each year that you are in the LGPS

this goes up by inflation each year. It in fact not only as safe as houses but safer than houses

i can’t think of an easier way to describe

that amount multiplied by four years is the amount you have forgone - minus the cash that you got back for you not making any contributions for those year that you then put into the deposit - your house would have had to go up stratosopherically to compensate for the pension contributions that were not made

but what’s done is done - but if you still don’t understand well

Just to note about a house is that the government schemes also offer a lump sum on retirement and a reduced pension (again the online calculators will give the amount).

I know a number of people in their 50s who currently have large mortgages / interest only mortgages - they intend to pay off the capital with their lump sum and unlike the situation with private pensions, there is no risk of the lump sum not being enough because it’s guaranteed.

And the calculation of what a private pension equivalent is is based on multiplying the annual
amoubt by 25. This is because roughly you need 25 times the amount of the ANNUAL income you want to take that amount annually over retirement. But this is a rough figure as the capital in a private pension is not guaranteed.

That makes sense. The civil service pensions scheme administrators aren’t allowed to offer financial advice so they will never provide any reassurance because that strays into areas they are not allowed to touch.

They are only there to administer decisions the employee / their financial advisor have made (and are paid accordingly).

LGPS!!!!

Basically your employer will pay about 30% of your salary (as an additional amount) into the LGPS.

it's about 21% I think

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

I get why people do this but it's better to save for longer and stay in.

and why we preferred our money to instead go into an asset!

don't think of property like this!

ust to note about a house is that the government schemes also offer a lump sum on retirement and a reduced pension (again the online calculators will give the amount).

Is it best to take the lump sum because one doesn't know how long they will live?

Also, a government pension scheme is also an asset and one that is probably far more valuable.

As illustrated here - for an extra £2,500 a year now, the OP will get £1,000 a year for every year of her retirement. At 15 years of retirement, that’s £15,000 so 6 times the value of her original investment. Guaranteed.

It’s possible the value of her house will rise an equivalent amount (I wouldn’t bet against it looking at past house price changes) but there’s always a risk of house price drops / issues with that particular house or area etc. What happens to the housing market in general and what happens to a particular house are not always the same.

I’m not trying to get at the OP - it just infuriates me that people aren’t properly advised of the consequences of opting out of government pension schemes. Unless it’s genuinely a choice between pension or food / a roof over their heads (and I accept that for some lower paid employees it can be), it is almost always better to stay in the pension.

As you’re both under 40 you should also start a LISA each. That will give you 25%/up to £10k in free cash from Govt when you turn 60.

It depends. Some people need the lump sum (e.g. to pay off a mortgage), some people have a huge pension and want a tax free lump sum to avoid paying higher rate tax in retirement. There may be other reasons I’m not thinking of.

Otherwise, it’s what you want to risk. The argument ‘you don’t know how long you will live’ means you’d be betting on dying young (so not taking the pension for very long) while the pension scheme are betting on you living a long time (so the lump sum + reduced pension is less than the full pension). If that’s your view, go for it.

LGPS for all the reasons mentioned above. Also the death in service benefits are incredibly valuable, especially if you have kids.

thanks @CandidHedgehog

Depends on the LGPS. Mine pays in 5pc. But it’s defined benefit and worth it for that.

For such an important decision it’s amazing how the advice isn’t readily available. I guess most people don’t think about it till near retirement then it’s such a steep learning curve.

Another thing to note is that I’ve been assuming the OP and her DH live to 83 (15 years from retirement at 68).

If they live to 100 (unlikely but possible), the £1,000 a year is guaranteed for life. That £2,500 a year now could buy 30 years of £1,000 a year so be worth considerably more.

That’s awfully high. I’m in the LGPS and the employer pays 17% (which is still very good)

The Local Government Pension Scheme is the same scheme for everyone in England - are you somewhere else? I’m not sure of other parts of thebUK

The LGPS website is very easy to understand and sets it all out

Yeah, this. What a shame.

In England.
As far as I can make out our branch decided to go it alone. Still DB but much less than the usual LGPS.

We are advised to look at our specific scheme which isnt clear unfortunately

I think that means it’s not the LGPS as such - which is super annoying for you!