Nuvos Civil Service Pension, am i right?

edited 30 April 2009 at 9:23PM in Pensions, Annuities & Retirement Planning
6 replies 1.7K views
JimLadJimLad Forumite
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Hello Everyone,

I am very very new to the world of pensions but am starting my first propper job since university in a few weeks. I am 23 years old and will be starting in the civil service on a salary of £18,325. I have been sent information about the pension schemes and obviously want to start early to get maximum benefit but i am confused about my options.

As far as i can tell the Nuvos scheme is the best option but could any fellow civil servants advise me if what i think below is wrong?

Every month i have to pay 3.5% of my salary into my pension fund. To start with this would be 3.5% of £1527 which is about £54 totalling £648 in the year.

If for example i stayed within the civil service until retirement at 65 which is 42 years away this would be £648 * 42 = £27216 + RPI.

I know my salary is likely to increase but this seems like a very small amount to survive on in retirement and works out at like £1.5k per year if im around till ancient, or am i not grasping this system correctly? Do i get that 27k per year, surley thats too much?

Im sorry if i sound moronic or anything :o
Mortgage Free 22/03/17
MissWillow is my OH!

Replies

  • sleepless_saversleepless_saver Forumite
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    It doesn't work quite like that. Have a look at the scheme leaflet. You will see that you will be a lot better off than your worst fears of £1.5k a year. Remember it's not like a pension fund.
  • edited 30 April 2009 at 9:56PM
    JimLadJimLad Forumite
    918 Posts
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    edited 30 April 2009 at 9:56PM
    It doesn't work quite like that. Have a look at the scheme leaflet. You will see that you will be a lot better off than your worst fears of £1.5k a year. Remember it's not like a pension fund.

    I have read this over and over again but i cant get my head around it. It just says my pension will build up at 2.8% of my salary each year.

    Can anyone explain how i would calculate what my annual pension would be after 42 years? Im sorry im terrible at this kind of thing
    Mortgage Free 22/03/17
    MissWillow is my OH!
  • taliesintaliesin Forumite
    118 Posts
    In a very simple world, without inflation and if you never got a pay increase, and if there weren't maxima on how much you can acquire, you would indeed get a pension of 42 x £648 = £27216 PER YEAR.

    Yes, that's right, and it is a damn good deal (although see below).

    However, to press on into the details:

    In the real world, there is inflation, and that pension is adjusted by RPI. (You appreciate this).

    In the real world, you are likely to get pay increases over and above inflation. Unlike the old schemes where your pension was based on your final salary (final salary x number of years / 60, say), each year of service contributes. The Nuvos "career average" mechanism allows for a lot more career flexibility - for example, by working your last few years in a lower-paid post - without losing out.

    However, there is a maximum benefit that you can acquire in this as most defined benefit schemes. In Nuvos, that's 75% of your highest salary after allowing for inflation. In practice, because few people work 40+ years with a single employer any more, and because of the effects of promotion and of part time working (increasingly common for both men and women at times during their careers), it's very hard to meet that cap.

    And, by the way, there are plenty of people whose pension follow the civil service pattern but who are not civil servants!

    Does that help?
  • edited 30 April 2009 at 11:26PM
    JimLadJimLad Forumite
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    edited 30 April 2009 at 11:26PM
    taliesin wrote: »
    In a very simple world, without inflation and if you never got a pay increase, and if there weren't maxima on how much you can acquire, you would indeed get a pension of 42 x £648 = £27216 PER YEAR.

    Yes, that's right, and it is a damn good deal (although see below).

    However, to press on into the details:

    In the real world, there is inflation, and that pension is adjusted by RPI. (You appreciate this).

    In the real world, you are likely to get pay increases over and above inflation. Unlike the old schemes where your pension was based on your final salary (final salary x number of years / 60, say), each year of service contributes. The Nuvos "career average" mechanism allows for a lot more career flexibility - for example, by working your last few years in a lower-paid post - without losing out.

    However, there is a maximum benefit that you can acquire in this as most defined benefit schemes. In Nuvos, that's 75% of your highest salary after allowing for inflation. In practice, because few people work 40+ years with a single employer any more, and because of the effects of promotion and of part time working (increasingly common for both men and women at times during their careers), it's very hard to meet that cap.

    And, by the way, there are plenty of people whose pension follow the civil service pattern but who are not civil servants!

    Does that help?

    That makes a lot of sense to me.

    So if it wasnt for the 75% cap my figure would actually be a lot higher taking into account RPI and pay increses. But in our example, i could be capped to 75% of £18,325? Would i then not be better off delaying starting my pension for a few years so the last few years arnt wasted going over the cap? or am i talking madness and am unlikely to reach my cap taking pay rises into account as i would hopefully be on more than 27k after 40 years :p
    Mortgage Free 22/03/17
    MissWillow is my OH!
  • taliesintaliesin Forumite
    118 Posts
    Hmmm. An incomplete draft of my reply got posted. Not as clear as I would have liked!

    I think you understand the deal now. It would be very hard to hit the cap in the course of the sort of career it seems likely you will experience.

    I think you will find, too, that any decision you make now is one-time only. I'm almost certain that you cannot come into either of the pension schemes when you choose to do so. What you decide now, I think you are stuck with forever. (I'm saying that three times to make sure you get the point!)

    A couple of points that got lost from my earlier response:

    The 3.5% that you contribute is "before tax", which makes it a little easier to afford.

    One point that may help you decide is that the Treasury reckon that it costs employers around 17% of salary (at your grade, a higher proportion at higher grades) to provide the Nuvos benefits (most but not all of which is the pension). But, according to the CBI, it costs private sector employers who acquire staff with Nuvos pension rights (for example, through TUPE transfers) "about double" that to maintain them.
  • JimLadJimLad Forumite
    918 Posts
    Mortgage-free Glee! Rampant Recycler Xmas Saver!
    taliesin wrote: »
    Hmmm. An incomplete draft of my reply got posted. Not as clear as I would have liked!

    I think you understand the deal now. It would be very hard to hit the cap in the course of the sort of career it seems likely you will experience.

    I think you will find, too, that any decision you make now is one-time only. I'm almost certain that you cannot come into either of the pension schemes when you choose to do so. What you decide now, I think you are stuck with forever. (I'm saying that three times to make sure you get the point!)

    A couple of points that got lost from my earlier response:

    The 3.5% that you contribute is "before tax", which makes it a little easier to afford.

    One point that may help you decide is that the Treasury reckon that it costs employers around 17% of salary (at your grade, a higher proportion at higher grades) to provide the Nuvos benefits (most but not all of which is the pension). But, according to the CBI, it costs private sector employers who acquire staff with Nuvos pension rights (for example, through TUPE transfers) "about double" that to maintain them.

    Thankyou for explaining it so well for me :)

    I think i will sign up to the Nuvos scheme when i start in a couple of weeks. Hopefully by starting now i will be able to get close to 75% of my highest salary :)
    Mortgage Free 22/03/17
    MissWillow is my OH!
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