Top-up my local government pension?
|Retirement | Pension Rules
Asked by rodthegeezer, submitted
10 August 2010.
My date of birth was 04/09/52.
As at 31/03/09 I had a total LGPS (Local Government Pesion Scheme) membership of 6 years & 41 days.
Projected benefits payable at 65 is £9145.03 (annual pension) & a tax free lump sum of £7932.13, i.e. total membership will be 14 years & 197 days.
I was also receiving a small pension from 2002 from the LGPS, when I was made redundant at 50 (early retirement).
This pension has stopped now because me current salary exceeded my salary at the time I was made redundant & was eligible for early retirement. I was receiving about £240 per month up to 31/08/08.
I work as a support worker in a school. My current salary is £47,736 p.a. My employees pension contribution is 7.2% (Employers contribution is 15.5%).
My 3 questions are:
Is there a 'rule of thumb' calculation of my 'ees contribution (& 'ers contribution) amount required to achieve a pension (at 65) of 70% of my current salary?
Will my LGPS pension that I was receiving from 2002 to 2008 'kick in' also at 65, & will it be added to my pension at 65?
I also beleive that I can obtain my state pension forecast via the internet; is this correct?
Answered by Justin on 12 August 2010
To answer your last question first, yes you can view a state pension forecast online at https://secure.thepensionservice.gov.uk/statepensionforecast/. You’ll need to register for a Government Gateway ID (if you haven’t already) and have your National Insurance number to hand. You’ll then receive an activation code by post allowing you to use the service.
Alternatively, you can call 0845 3000 168 and request a forecast, which you’ll usually receive by post within 15 working days.
As for your local government pension, it’s a final salary scheme so your pension is based on the number of year’s service and your salary at retirement.
For service up to 31 March 2008 you’ll receive a pension of 1/80th of your final salary for each year worked plus a tax-free lump sum of three times your pension.
For service thereafter you’ll receive a pension of 1/60th of your final salary for each year worked with the option to sacrifice some of this (at a rate £1 for each £12 of lump sum) for a tax-free lump sum of no more than 25% of your pension fund value (deemed to be 20 x your pension).
There are basically two ways to add to your pension beyond the standard entitlement outlined above. You can buy extra annual pension of up to £5,000 (in £250 blocks) by increasing your contribution, or you can contribute into a money purchase type pension where your pension will depend on the amount contributed, investment performance and annuity rates.
The former is called Additional Regular Contributions (ARC) and you’ll need to contact your pension scheme administrator to get an exact quote, but based on your age and time until retirement I’d expect the cost to be around £53 per month per extra £250 of pension at retirement (£58 if spouse benefits included too).
The latter will be either an Additional Voluntary Contribution (AVC) scheme offered via your employer or a personal pension (e.g. stakeholder or sipp) that you arrange yourself. Either way, it means you (and not your employer) taking on the investment risk – you’ll need to select and monitor the underlying pension investments.
If you want to retire on 70% of your existing salary you’ll require an index-linked pension of around £33,400 from age 65. Deduct your projected entitlement and this leaves a shortfall of about £24,000 which, based on current annuity rates, would require a pension pot of just over £600,000! Assume a 6% annual investment return (after charges) and you’d need to save about £5,000 per month (before tax relief) to achieve this – clearly not practical.
Employer contributions only apply to your standard LGPS entitlement, so you’re on your own when it comes to making ARCs or additional pension contributions elsewhere.
Finally, yes, the LGPS pension that you were receiving should kick in again when you retire at 65.