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

JohnTen

Luis wrote: »

Hello,

I am 28 yrs old, female and have just joined the Civil Service 'Premium' pension scheme, which no longer offers a lump sum on completion, and works on 1/60 contributions. I have about 5yrs worth of my old NHS pension scheme stored. I have the following questions:

Should I transfer my NHS contributions in to my new civil service pension, which I understand I can do as part of the Public Sector Transfer Club (I am tempted to do this as I feel that the benefits of leaving a 5yr pension are few...?)

What can I do to save / plan to get a lump sum for retirement - what are the best schemes or plans in order to achieve a little nest egg for retirement - which to be honest I was looking forward to from when I was in the NHS - drat the Civil Service for moving the goal posts!

What can I do to top up my Civil Sevice Pension - as I have no intention of working until I am 60 (or even 65 as it looks like it is going to be, yuk), and want a decent pension on which to retire.

Any advice would be most gratefully received,

Luis.

Your best bet is to transfer the 5 years of contributions, you will then get the benefit of current salary uplift rather than being uplifted by just inflation. I returned to the Civil Service after an absence of 19 years and my frozen pension moved from £7,000 to £16,000 once transferred. I did not take the lump sum as it was very poor value with a £1 pound reduction in pension for every £12 taken as a lump sum.

At 28 years of age you best bet is to take out a SIPP and contribute to it monthly while keeping up your final salary scheme. You can take 25% from this pension when you retire.

dori2o

Wannabedebtfree wrote: »

I've just been looking on the civil service link and on one of them schemes

Your

pensionable earnings are £20,000, and your reckonable
service is 30 years.
Pension = (£20,000 x 30) /80 = £7,500 a year or £625 a
month before deductions.

Mohammed leaves

premium after 20 years’ reckonable service. His final pensionable earnings are £18,000 a year.
Mohammed’s premium pension = 1/60 x 20 x £18,000 =£6,000 a year

I thought they were meant to be good.....

They are if your in a privilidged position.

However, as you can see, this completely blows apart the myth that ALL Civil Servants are going to get massive pensions when they retire.

Old_Slaphead

Wannabedebtfree wrote: »

I've just been looking on the civil service link and on one of them schemes


Your

pensionable earnings are £20,000, and your reckonable

service is 30 years.

Pension = (£20,000 x 30) /80 = £7,500 a year or £625 a

month before deductions.

Mohammed leaves

premium after 20 years’ reckonable service. His final pensionable earnings are £18,000 a year.

Mohammed’s premium pension = 1/60 x 20 x £18,000 =£6,000 a year

I thought they were meant to be good.....

They are good - relative to the amounts paid in and the basic salary level.

How much would it cost to buy an index linked £7500pa pension from age 60 - about £200,000. Not that many in private sector have funds that big. It would involve someone having to save around 25-30% of their salary each year.

rochja

I don't think anyone has posted on this before but it is an interesting wrinkle if you are thinking of taking a break from the Civil service during your "career." If you wait for your pension until retirement age you can amalgamate your service and the pension is based on the best 6 months earnings in your last 3 years. If you retire early then your amalgamated pension is based on final salary at the time of each break in service. So if you do 20 years break for five and do 15 more the first 20 years will be just about worthless AND the whole thing gets actuarially reduced by 10% of the total for every year early that you decide to go. It makes you think it would be worth transferring the money into a private pension doesn't it?

Middlestitch

Wannabedebtfree wrote: »

I've just been looking on the civil service link and on one of them schemes

Your pensionable earnings are £20,000, and your reckonable
service is 30 years.
Pension = (£20,000 x 30) /80 = £7,500 a year or £625 a
month before deductions.

Mohammed leaves premium after 20 years’ reckonable service. His final pensionable earnings are £18,000 a year.
Mohammed’s premium pension = 1/60 x 20 x £18,000 =£6,000 a year

I thought they were meant to be good.....

You have overlooked the tax free cash lump sum at retirement in the first part of your exampe...makes the deal considerably better than 'just' the pension you cite (which most people would be pretty happy to get)

PennyPen_2

rochja wrote: »

I don't think anyone has posted on this before but it is an interesting wrinkle if you are thinking of taking a break from the Civil service during your "career." If you wait for your pension until retirement age you can amalgamate your service and the pension is based on the best 6 months earnings in your last 3 years. If you retire early then your amalgamated pension is based on final salary at the time of each break in service. So if you do 20 years break for five and do 15 more the first 20 years will be just about worthless AND the whole thing gets actuarially reduced by 10% of the total for every year early that you decide to go. It makes you think it would be worth transferring the money into a private pension doesn't it?

Hello,

The classic pension scheme is based on your best 12 month period in the last 3 years of reckonable service. The premium pension scheme is based on your best year (complete tax year) for all your service.

If you were to take a career break for 5 years then these 5 years will not count towards your reckonable service. ie..if you worked for 5 years, took a 5 year career break then worked for 10 more years your service used in calculating your pension will be 20 years - 5 year career break = 15 years reckonable service.


What you were trying to say that when a member left for the career break their pension will be calculated at that point. However, a members pension will only be calculated upon leaving.

If a member worked for 5 years, resigned, then come back 5 years later and worked for 10 years their pension benefits will be as follows;

1st period of service - final pensionable salary x 5 years. This pension will be preserved until payment at scheme pension age. This pension will be subject to pension increases.

2nd period of service - rejoining 5 years after leaving. The member will have the option to aggregate (combine) these 2 periods of service. If a member chose to aggregate, then their 5 years reckonable service from their first period of service will be added to the current reckonable service. This will only be beneficial to a member if they have rejoined the civil service on a higher salary and if their pension will be more than what they would have accrued with pensions increases.

A member also has the option to aggregate upon leaving. If a member decides to have their pension paid early then it is reduced to take into account the extra months in which the pension is paid. If a member decides to have their pension paid early then it is reduced by approximately 5% for each year the pension is paid early.

I hope this all makes sense xx

PennyPen_2

Wannabedebtfree wrote: »

I've just been looking on the civil service link and on one of them schemes


Your

pensionable earnings are £20,000, and your reckonable

service is 30 years.
Pension = (£20,000 x 30) /80 = £7,500 a year or £625 a
month before deductions.

Mohammed leaves

premium after 20 years’ reckonable service. His final pensionable earnings are £18,000 a year.

Mohammed’s premium pension = 1/60 x 20 x £18,000 =£6,000 a year

I thought they were meant to be good.....

For the first calculation -This is a classic pension. As well as a pension the member will also be entitled to a lump sum of 3 times the annual pension. In this case the lump sum would be £22,500. The member would be paying 1.5% of their salary to be part of the pension scheme. 1.5% of £20,000 = £300. So the member has paid £300 a year and gets an annual pension of £7,500. I think that is a pretty good deal myself! On top of that, if the member is single when they retire, then they are entitled to a refund of contributions. If the member is married there is a spouses pension payable.

For the second calculation - This is a premium pension. Although there is no automatic lump sum available, the accural rate is lower therefore the annual pension is higher. The member has paid 3.5% of his salary to be part of the pension. 3.5% of £18,000 = £630. Again, there is a spouses/partners pension payable.

Although £7,500 and £6,000 a year does not sound like much to live on you need to take into account how little this has cost the member. This also goes some way to explain why the government is fazing out final salary pension schemes!!

Goldenyears

PennyPen wrote: »

Although £7,500 and £6,000 a year does not sound like much to live on you need to take into account how little this has cost the member. This also goes some way to explain why the government is fazing out final salary pension schemes!!
[/LEFT]

Yes, agreed but older members of the scheme with pre-1980 service will remember that in national pay negotiations when a true comparable with outside pay was calculated then 8-10% was deducted in final offers to allow for the "non-contributory" pension. This was the government actuary's estimate at the time, though now of course it's way out and national pay negotiation is history.

PyncEntaica

Tax exempt employer has a plan document or other plan information from TIAA-CREF describing the arrangement as a 403b Money Purchase Pension Plan under which employer contributes a mandatory 4. Employer also has a separate 403b through TIAA-CREF under which the employees defer. I do not do much work with 403b plans, but I dont believe there is such an arrangement as a "403b Money Purchase Pension Plan". Can anyone comment on the same? I guess its possible that somewhere down the line someone just put a name on it and thats what they called it, however, in reality it may just be a true 401a money purchase pension plan. Thanks for any help.

Paul_Herring

PyncEntaica wrote: »

...403b...

I don't think you'll get an answer on here - the site is UK based, not US.