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

SilverSurfer2_2

Luis,
Congrats on thinking so far ahead. I am 76 and was forced to retire from the Civil Service at 60. Unemployment was high and I was lucky to get occasional casual jobs to bridge the gap until the State Pension started.

I was forced to take a lump sum which was insufficient to make up for the reduction in my index linked pension. If you are given a lump sum at a time of low interest rates you will not be able to buy a good annuity, even one with only 3% increase per annum.

Take the long term view and be prepared to change your investments as the economy changes. There will be many booms and slumps, many periods of full employment and high unemployment, high taxation and low taxation, high interest rates and low interest rates.

Remember you will be living on your pension at least until 2056 so inflation could be as bad as it was 32 years ago. Anyone on a fixed pension suffered badly. You were not yet born and many of your advisers would still have been at school so they may assume it will never happen again. An index linked pension is a very valuable safeguard against inflation and I do not think a private organisation will sell you one. Make the most of it before some future politicians water it down.

Question any adviser about the effect on an investment of major changes of the sort I mentioned.

Think in terms of your TOTAL NET WORTH ie all savings, investmants, pension rights, property minus all your debts. In the old days an index linked pension was valued at 15 times the gross annual pension but I do not know the current figure. Aim to increase your TOTAL NET WORTH year by year.

Our experience was that this became much easier once all of our children had finished their education and got married. Save hard now before you start a family because things will be tough until you no longer have to support them. It was like coming out of a long dark tunnel.

We are glad we saved hard because now we can help our grand-children instead of being a burden on our children.

Daisyboo_3

I've often checked this site, but this is first time posting. I'm hoping that someone can give me some sound advice because I find the whole pension thing very difficult to understand. I have CS 'classic' pension, which I've held for only 5 years - although I'm 40 now. I have savings of 12,000. I'm a single parent with two children and have no other source of income. I hope to clear my mortgage in 10 years time by monthly overpayment. I'm also trying to save for my daughter's university fund. I am worried about the future because there never seems to be enough money for now, without providing for my retirement too. I've taken lots of tips from this site and try my best to save as much as I can. As far as my pension goes, I know there will not be enough money available to keep me in my retirement. Any suggestions about what I could do now? Obviously if I saved hundreds a month I'd be laughing, but unfortunately I don't have that available to me. Any suggestions?

Andy_L

Should we "desticky" this thread? It's been about 4/5 years since the new CS scheme abolishing the automatic lump sum was introduced.
Perhaps replace it with a "Public Sector Pension Scheme" sticky to catch all the questions on CS, NHS, Teachers, Police, Fire Brigade,Millitary etc.

Andy

MascaraMinx

Before this post is "de-stickied" could I ask some questions of those in the know? I have a Civil Service "Classic" pension, which I have held for 6.5 years. I am now changing jobs to a different Civil Service department (not an internal transfer). The pensions booklet arrived the other day and I am only being offered the Premium or the Partnership pension. My first question is am I allowed to transfer to keep the Classic as I already have one, or will the act of resigning from one job and starting another render me ineligible?

If I am ineligible, I have to choose from Premium or Partnership. This is my first time trying to understand pensions, so I don't really "get" what contracting out means, what an annuity is, the implications this has for my the State pension, and how risky a Stakeholder pension is. I have read through this thread and the booklet I got, and I am more confused than ever. I also don't understand whether I should be transferring my old Classic pension across to this new one, or just leave it.

Any advice???

Confused Civvie

isasmurf

I'll reply in the other thread, could others do the same please to keep it altogether. Thanks.

Andy_L

Since this thread is still sticky:

The governments revised plans are now out:
http://www.civilservice-pensions.gov.uk/pension_reform.aspx

http://www.civilservice-pensions.gov.uk/upload/assets/www.civilservice_pensions.gov.uk/new_scheme_factsheet.pdf

Edited highlights

NEW ENTRANTS (Jul07)
Retirement age 65
Career average (2.3% accrual rate) rather than final salary (80ths or 60ths accrual)

ALL MEMBERS
Employers (average) contributions capped at 20% (increases above that to be shared by either increased contributions/lessened benefits)

Andy

lostcrusader

Just asking if I can ask any one on what my option should be. I have just been handed a pension statement that shows I am worth a small £9250 in a lump sum and £3000 per year in a pension.

I am now classed as long term ill health after various military operations over the years.

Should I try and cash in this pension to improve the quality of life in my home or leave.

I should say that I was on the original 1/80th pension scheme that was frozen and then I signed up to the 1/60th scheme so that any future job that will employ me will offer a better pension.

I am all confused to what is the best option as I have just turned 40 and in theory have 25 yrs to survive and thats on the understanding my health returns.

Any input is much appreciated.

Babylonian_2

MascaraMinx wrote:

Before this post is "de-stickied" could I ask some questions of those in the know? I have a Civil Service "Classic" pension, which I have held for 6.5 years. I am now changing jobs to a different Civil Service department (not an internal transfer). The pensions booklet arrived the other day and I am only being offered the Premium or the Partnership pension. My first question is am I allowed to transfer to keep the Classic as I already have one, or will the act of resigning from one job and starting another render me ineligible?

If I am ineligible, I have to choose from Premium or Partnership. This is my first time trying to understand pensions, so I don't really "get" what contracting out means, what an annuity is, the implications this has for my the State pension, and how risky a Stakeholder pension is. I have read through this thread and the booklet I got, and I am more confused than ever. I also don't understand whether I should be transferring my old Classic pension across to this new one, or just leave it.

Any advice???

Confused Civvie

I have a classic and have moved departments twice since the pension changes and have kept it with no problems - however, I have been just transferring from department to department - not leaving one job and then starting another with a break so have "continous service"

Andy_L

lostcrusader wrote:

I am now classed as long term ill health after various military operations over the years.

Should I try and cash in this pension to improve the quality of life in my home or leave.

You cannot "cash in" the pension as such (there being no actual pot of money). You could apply for medical retirement & get it paid immediatly, assuming your ill-health is such that you are unfit to do your job. The procedures & policies for doing this are here
http://www.civilservice-pensions.gov.uk/upload/assets/www.civilservice_pensions.gov.uk/new_scheme_factsheet.pdf

Stockylad_2

thefirs wrote: »

The extra monthly pension is a very good deal, though given the hatchet that the government is taking to public sector pensions it can't stay that high. Look at the annuity rates that insurance companies might quote you at age 65 - I doubt that you'd get 8.3% on an index-linked pension in the commercial arena.

Savings, investment, property. Stop spending that meagre cash reward you earn in your public-sector job on clothes, eating out, and holidays. Start getting your workday outfits at Oxfam, cycle to work (you'll live longer to enjoy the pension), and buy a tent. Stash the money saved until you're ready to blow it.

If only there were more like us. It's our taxes that fund those who forget or don't care to do all these things and who end up on means-tested benefits in retirement.

Is this true ? Are you saying that the people who make no provision and take 3 or 4 holidays year will get more state pension becaue they have nothing ?