Civil Service Pension - no more lump sum, what to do?

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  • erb
    erb Posts: 547 Forumite
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    Luis wrote:

    The Premium scheme does offer a lump sum facility, but at a cost of giving up part of your pension - they take £1 off for every £12 taken as lump sum. Is this still a good deal, QUOTE]

    Coming back to to one of the original points is it better to take a lump sum, which is tax free, or the higher pension which is taxable :confused: .

    Assuming a basic rate taxpayer the £1 gross pension will pay £0.78 per annum indexed linked.

    Could the tax free lump sum of £12 produce a higher pension than the £1 per year? Say if you invested in an ISA you would need a rate of 6.5% yield to get £0.78 per annum. Not index linked but you still have your initial £12 investment. What would an indexed linked annuity produce? Can any of the experts confirm.
    Regards
    erb :)
  • dunstonh
    dunstonh Posts: 116,288 Forumite
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    Under current tax rules its best to take the maximum tax free lump sum. Then invest it tax free to provide a tax free income. Plus the lump is yours.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Luis
    Luis Posts: 637 Forumite
    Aaaah - to have a lump.............

    :D
    "It was not my intention to do this in front of you. For that, I'm sorry. But you can take my word for it, your mother had it comin'."

    Overlord for the Axis of Evil (part time) :D
  • thefirs
    thefirs Posts: 699 Forumite
    First Anniversary Combo Breaker First Post
    dunstonh wrote:
    Under current tax rules its best to take the maximum tax free lump sum. Then invest it tax free to provide a tax free income. Plus the lump is yours.
    In what tax-free investment vehicle would you suggest placing a decent-sized lump sum (say 50k)? Using an ISA would take 7 years to dispose of the dosh.
  • dunstonh
    dunstonh Posts: 116,288 Forumite
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    It would depend on the circumstances. It may be a case of taking 7 years (or 3 and a bit with a partner) or it may be tax paid products like life funds which have no impact on age allowance or looking offshore if tax status suits. Or perhaps invest in low yield investments but take withdrawal of capital instead. Or reinvest each year into a stakeholder pension to either commence immediatly or delay until later.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • fraser
    fraser Posts: 277 Forumite
    I am a civil servant and on the classic scheme, been one for 3 and a half years, now I have got a new job and shall be leaving.

    assume it is better to leave the contributions and my final salary deal where it is rather than move it to something new ?

    just been working out my new contributions > from 1.5% to at least 6% tis a fair chunk of my monthly raise gone...
  • thefirs
    thefirs Posts: 699 Forumite
    First Anniversary Combo Breaker First Post
    Assuming you're moving to another public-sector scheme (6% suggests local govt/NHS?) then check (a) that you are still eligible to enter on terms similar to the PCSPS (i.e. final salary, index linked) and (b) your final salary is likely to be higher than current pay. You will be able to transfer over your 3½ years on level terms, but make sure you do so within the timescale stated by the new scheme.

    If downsizing to a job that's lower paid and is likely to remain lower paid on leaving the public sector, then leave it frozen.

    After allowing for basic rate income tax relief on the extra contributions you'd need to be earning c£10,300 in the new sector to match £10,000 in the civil service because of the higher rate of contribution. Effectively a 3% boost to your pension will be achieved because of this - the CS pension would be based on the lower final value.
  • Poppy9
    Poppy9 Posts: 18,833 Forumite
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    Do civil servants contribute to their pensions. I thought it was a non contributory scheme whereas Local Government Officers contribute 6% of their pay and Police Officers a whopping 11%.

    If they increase the retirement age to 65 - they are talking about this for Police Officers too doesn't it affect your pension. I seem to remember from a presentation we had last year that you would get a reduced pension. Your contributions upto 1st April 2005 (only Local Govt) would be protected and then the balance would be at the reduced rate.

    Could have got it all wrong but I know there was a down side as lots of people in their 50's were panicking that they were going to worst off than they thought.

    Final point on public sector pay. Here in South Wales they are among the better paid jobs. House price inflation has though made all salaries inadequate. Also working in the public sector you get better terms and conditions and better employment protection. I speak as a Local Govt. Officer. I have friends working in the private sector, especially retail, and they get such a rough deal. Poor pay, long hours, crappy conditions and if they don't like it the threat of the sack. I have also run my own business which means working 7 days a week with no sick or holiday pay.
    :) ~Laugh and the world laughs with you, weep and you weep alone.~:)
  • fraser
    fraser Posts: 277 Forumite
    Moving back to the private sector, so am sure the transfer would not be worth it to the new scheme. My new position does attract a higher salary.

    existing civil service classic scheme = 1.5% employee contribution and then gov contributes between 12% and 16%.

    new position attracts 6% employer contribution, tis a non contributory scheme where I can just take the 6%, or add to it myself upto the allowed IR contribution limits

    presently I am tempted to just take the 6% and then invest the remainder in my isa allowance.
  • isasmurf
    isasmurf Posts: 1,999 Forumite
    Name Dropper First Post First Anniversary Combo Breaker
    Poppy9 wrote:
    Do civil servants contribute to their pensions. I thought it was a non contributory scheme whereas Local Government Officers contribute 6% of their pay and Police Officers a whopping 11%.

    Civil Servants in the old Classic scheme pay 1.5% towards their widows pension. If they're not married when they retire they're supposed to get it all back.

    New Civil Servants, or those that chose to convert to the 'Premium' or was it 'Premier' scheme contribute 3.5% towards their pension, but they arguably get better benefits than the old scheme. It's certainly true for your if you don't plan to marry them.
    fraser wrote:
    existing civil service classic scheme = 1.5% employee contribution and then gov contributes between 12% and 16%.
    The Government contribute something? I don't think the government contributes anything. There is no Civil Service pension pot it comes directly from taxation collected during the year AFAIK.
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