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LGPS advice

kenpoken
Posts: 10
Joined: December 29th, 2018, 7:04 pm
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LGPS advice

#316516

Postby kenpoken » June 8th, 2020, 8:29 pm

Hi everyone

A family friend (40 years old) works as a dinner lady at a state school. Her normal hours (before/after COVID-19) are 4.5 hours per day, five days per week.

She has the chance to join the Local Government Pension Scheme. So far she has not done so. She has asked us if we think she should (she doesn't know much about money/pensions etc.).

My instinct tells me that the LGPS is probably a very favourable scheme and well worth paying into. But I don't trust my instinct enough to give her advice! So I'd like to get some real advice here!

Can someone explain simply how LGPS works?
Is it a defined benefits pension?
What things should she consider when deciding whether to join?
What things should she ask/check with the scheme provider?
She is Japanese and may - in the future - return to live in Japan. Will she still be entitled to LGPS pension payments in this case?

Thanks for your help!
Ken

ursaminortaur
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Joined: November 4th, 2016, 3:26 pm
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Re: LGPS advice

#317466

Postby ursaminortaur » June 11th, 2020, 10:34 am

kenpoken wrote:Hi everyone

A family friend (40 years old) works as a dinner lady at a state school. Her normal hours (before/after COVID-19) are 4.5 hours per day, five days per week.

She has the chance to join the Local Government Pension Scheme. So far she has not done so. She has asked us if we think she should (she doesn't know much about money/pensions etc.).

My instinct tells me that the LGPS is probably a very favourable scheme and well worth paying into. But I don't trust my instinct enough to give her advice! So I'd like to get some real advice here!

Can someone explain simply how LGPS works?
Is it a defined benefits pension?
What things should she consider when deciding whether to join?
What things should she ask/check with the scheme provider?
She is Japanese and may - in the future - return to live in Japan. Will she still be entitled to LGPS pension payments in this case?

Thanks for your help!
Ken


The LGPS is a defined benefits pension. The current scheme is a career average scheme which means that each year the member earns 1/49th of their current salary in pension benefits. (The amount of pension that has already been built up in previous years is also increased in line with CPI each year). Unlike most public sector schemes the LGPS is a funded scheme with the employees and government (as employer) making contributions which are really paid into a fund which the trustees invest. Since the employer backing the scheme is the government there is practically zero possibility of that employer failing and the scheme failing. The LGPS also provides a grant of 3 times your assumed pensionable pay if you were to die in service the money being paid to whoever you have nominated.

Benefits for the current scheme become payable at normal retirement age (ie the same age you will get your state pension) though it is possible to take them earlier , from age 55, doing so will in most circumstances mean that an actuarial reduction will be applied which will reduce the pension paid. From age 55 though if you are made redundent then you will be entitled to the full pension you have built up without any actuarial reduction. The pension paid each year after retirement is fully indexed (using CPI) without any capping.
The scheme also provides for a survivors pension for your spouse.

If you want to take a 25% tax free lump sum then this is possible but the current scheme does not provide that automatically instead part of your built up pension benefits will need to be converted ie you will need to give up some of your annual pension and convert it into the money for the tax free lump sum. This process is known as commutation. The commutation rate used for this with the LGPS is extremely poor value for money so unless you really needed the 25% tax free lump sum (or knew that, because of illness or something similar, you would only survive a short time after retiring) it is probably best not to plan on taking the 25% tax free lump sum.

https://www.lgpsmember.org/toj/thinking-joining-key.php

Your pension is worked out every year and added to your pension account. Each year 1/49th of your pensionable pay is put into your pension account; at the end of the year the total amount of pension in your account is adjusted to take into account the cost of living.

http://www.berkshirepensions.org.uk/bpf/info/13/retired_members/27/your_pensions_increase

The LGPS offers full index linking to pension benefits i.e. there is no upper limit or capping on the amount by which benefits will be increased in times of high inflation.

https://www.lgpsmember.org/arm/already-member-prot.php

The LGPS provides valuable life cover and financial protection for your family. This section looks at the benefits that would be payable if you were to die whilst in service. Details of the benefits that would be payable if you were to die after leaving the scheme can be found in the section for members who have already left or retired.

Lump sum death grant

If you die in service as a member of the LGPS a lump sum death grant of three times your assumed pensionable pay at your date of death is paid, no matter how long you have been a member of the LGPS, provided you are under age 75 at the date of death.

kenpoken
Posts: 10
Joined: December 29th, 2018, 7:04 pm
Been thanked: 4 times

Re: LGPS advice

#317562

Postby kenpoken » June 11th, 2020, 1:40 pm

Hi Ursaminortaur
Many thanks for your comprehensive reply! That is really helpful!
Best wishes
Ken


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