NEST or LGPS?
Posted: November 28th, 2018, 5:31 pm
I have an zero hours contract in a school. In total, I earn about £300 - £800 over the course of the year, depending on the number of hours.
I've been there long enough that I could join the pension scheme, and the options are NEST (National Employment Savings Trust) or the Local Government Pension Scheme. I think the better scheme is the LGPS, although it will be a lot longer before I can take it - but just wanted to check there wasn't anything else I hadn't considered.
The bulk of my retirement income will come elsewhere, so this is just an extra.
LGPS is a defined benefit scheme: on my salary, I'd pay in 5.5%, which is made up by employers' contributions, and at retirement age (15 years time) I would be able to get 1/49 of my income per year, index linked from when I pay it in.
So if I earned £400 this year, I'd pay in £22 and get (inflation adjusted) 400/49 = £8.16 per year from about 2033 onwards. Next year, if I earned a further £500, I'd pay in £27.50 and get back £10.20 + 8.16 = £18.36 (+inflation) per year.
NEST is a defined contribution scheme, which invests in stocks and shares etc: I'd pay in 5%, employer would pay in 3% and there's also tax relief. I could access it from 55 (ie three years), and would have the normal options of drawdown etc. But the amount would be not very much.
If I earned £400, I'd pay in £20, made up to £25 with tax relief. The employer would pay in a further £12, but there would be a fee of 1.8% on my contribution (about 45p) and an ongoing charge of 0.3% on the whole pot. So the pot would start off at £36.55 and grow with the stock market. The second year at £500, I'd pay £25, with £6.25 tax relief and £15 employer contrib = £46.25 + 36.55. If I used a 4% withdrawal rate that would be £1.46 after one year in the scheme and £3.12 after two.
My gut feeling is that the LGPS is the better option: I have to wait 15 years, but the income is guaranteed and inflation adjusted from now on. I have a lot of shares, but relatively few bonds, and this would be in the bond part of my portfolio. The NEST scheme is effectively a much shorter term investment linked to the stock market, but I have plenty of other shares. It might do better over time, but it will be a 'cautiously' invested fund. There may be other options for a £20 investment, but I'm already using ISAs and regular savers.
Anyway, is there anything I haven't considered?
Websites: https://www.nestpensions.org.uk/schemew ... nsion.html and https://www.lgpsmember.org/arm/already-member-how.php.
PS I haven't been here for a while, but if anyone knows what they are talking about, its a Fool.
I've been there long enough that I could join the pension scheme, and the options are NEST (National Employment Savings Trust) or the Local Government Pension Scheme. I think the better scheme is the LGPS, although it will be a lot longer before I can take it - but just wanted to check there wasn't anything else I hadn't considered.
The bulk of my retirement income will come elsewhere, so this is just an extra.
LGPS is a defined benefit scheme: on my salary, I'd pay in 5.5%, which is made up by employers' contributions, and at retirement age (15 years time) I would be able to get 1/49 of my income per year, index linked from when I pay it in.
So if I earned £400 this year, I'd pay in £22 and get (inflation adjusted) 400/49 = £8.16 per year from about 2033 onwards. Next year, if I earned a further £500, I'd pay in £27.50 and get back £10.20 + 8.16 = £18.36 (+inflation) per year.
NEST is a defined contribution scheme, which invests in stocks and shares etc: I'd pay in 5%, employer would pay in 3% and there's also tax relief. I could access it from 55 (ie three years), and would have the normal options of drawdown etc. But the amount would be not very much.
If I earned £400, I'd pay in £20, made up to £25 with tax relief. The employer would pay in a further £12, but there would be a fee of 1.8% on my contribution (about 45p) and an ongoing charge of 0.3% on the whole pot. So the pot would start off at £36.55 and grow with the stock market. The second year at £500, I'd pay £25, with £6.25 tax relief and £15 employer contrib = £46.25 + 36.55. If I used a 4% withdrawal rate that would be £1.46 after one year in the scheme and £3.12 after two.
My gut feeling is that the LGPS is the better option: I have to wait 15 years, but the income is guaranteed and inflation adjusted from now on. I have a lot of shares, but relatively few bonds, and this would be in the bond part of my portfolio. The NEST scheme is effectively a much shorter term investment linked to the stock market, but I have plenty of other shares. It might do better over time, but it will be a 'cautiously' invested fund. There may be other options for a £20 investment, but I'm already using ISAs and regular savers.
Anyway, is there anything I haven't considered?
Websites: https://www.nestpensions.org.uk/schemew ... nsion.html and https://www.lgpsmember.org/arm/already-member-how.php.
PS I haven't been here for a while, but if anyone knows what they are talking about, its a Fool.