Transfer from a civil service pension?

anotherdollar

I have been a member of a civil service scheme for 12 years on a final salary scheme & the normal retirement age is 60 (at the moment). I am currently 38 years old!

I am thinking about leaving the civil service and applying for a different job. The employer I am interested in also offer another final salary scheme, but retiring at 65 rather than 60. I would be offered a payrise with further pay progression over time (I am at the maximum of my payscale in the civil service, but with no option of promotion). So the final salary element is likely to be higher in the long-term than in the civil service.

Q1) If I get a new job, then should I transfer?

Here are the positives of transferring:-

1) my accumulated pension would be linked to a higher salary and is liklely to grow faster than the CPI over the long-term. My old scheme would be linked to the CPI and not salary increases.
2) I woud have one pension statement and not two.

Here are the negatives of transferring:-

1) I would be giving up 12 years in a scheme that currently pays out at 60 years old rather than 65 years old (5 years could be along time!)
2) My 12 year accumulated pension might pay out at 60, but the final salary element would increase for the next 22 years at CPI rather a salary (salaries generally increase faster than the CPI over the long-term)

I have another question:-

Q2) would the new provider offer me more than the equivalent of 12 years membership given my existing scheme is superior to the scheme I would be entering!

Many thanks,

Andy_L

The CS will come up with a cash value of your 12 years pension based on the pension benifits & various assumptions about longevity, salary, pay progression, stock-market performance etc. The new employer will take that value and do the calculation in the oposite order and decide to offer you X years membership in their scheme.
Until that calculation is done its a guess if transfering or not is better. As a rule of thumb you would get more years becasue the retirement age is higher in the new scheme however, assuming the new job is not also public sector, they will reduce the number of yeasr to reflect the higher salary

roddydogs

you are unlikely to be offered anywhere near 12 years, and dont forget a CC pension is iron clad and "indexed linked".............a "private" pension isnt

Andy_L

roddydogs wrote: »

you are unlikely to be offered anywhere near 12 years, and dont forget a CC pension is iron clad and "indexed linked".............a "private" pension isnt

Many private sector schemes have better & more iron-clad indexation than the CS scheme as they specifically said RPI indexation rather than whatever rate S2P/SERPS are increased by.

hugheskevi

Many private sector schemes have better & more iron-clad indexation than the CS scheme as they specifically said RPI indexation rather than whatever rate S2P/SERPS are increased by.

Most private sector schemes have a cap as well, often 5%, sometimes 2.5%, depending on when benefits were accrued....it is an interesting question as to whether one would prefer indexation of uncapped CPI or RPI with a cap, trading off expected value with extra inflation risk in the event of high inflation.

There is also the potential of a catastrophic loss of indexation should the sponsor of a private sector scheme fail, and the scheme be underfunded and enter the PPF.

On balance, I'd prefer the uncapped CPI indexation with the State as sponsor...but would have lingering qualms about the inherent political uncertainty/risk that inevitably comes from politicians constantly feeling the need to meddle with pensions, both public sector and more generally. In that regard, a funded scheme with a Trust board looking after my interests may be much safer than an unfunded Govt. scheme.

roddydogs

Andy_L wrote: »

Many private sector schemes have better & more iron-clad indexation than the CS scheme as they specifically said RPI indexation rather than whatever rate S2P/SERPS are increased by.

Yes but only if the private pension is fully funded, you cant guarantee this (i am a Kodak Pensioner sweating at the moment)

StephenM_2

trelore wrote: »

So the final salary element is likely to be higher in the long-term than in the civil service.

There might not be a long term. The scheme you move to is unlikely to still be open at 65, and may well close much sooner.

BobQ

trelore wrote: »

I have been a member of a civil service scheme for 12 years on a final salary scheme & the normal retirement age is 60 (at the moment). I am currently 38 years old!

I am thinking about leaving the civil service and applying for a different job. The employer I am interested in also offer another final salary scheme, but retiring at 65 rather than 60. I would be offered a payrise with further pay progression over time (I am at the maximum of my payscale in the civil service, but with no option of promotion). So the final salary element is likely to be higher in the long-term than in the civil service.
,

If you want to leave the civil service for a job that pays more good luck to you but I am puzzled as to why a 38year old is convinced he has no promotion potential in the civil service yet at the same time is convinced that in the private sector you will have a rosy progresssion to better paid jobs when your inherent abilities are the same in each case. Not asking you to explain this, but just wondering if you have an over rosy view of the private sector!

There is no right answer based on the information you give, a lot depends on the terms of the transfer and the assumptions you make about the future.

If you leave the pension where it is you have reasonable certainty that it will pay out at 60 and maintain its value by CPI. Were you to stay in the civil service you would soon be in a career average scheme with a NRA of 65 and the disincentive of abatement to draw the preserved pension at 60. But as you are leaving the CS, preserving is the "safe option".

Given the right terms of transfer and the rosy career you imagine it makes sense to transfer it as long as you are prepared to take the risk that the employer will still be able to fund the scheme. If for example they changed the scheme in two years to a defined contribution scheme you will still have pereseved final salary scheme without the benefits of much progression. Do you feel lucky?

hugheskevi

Were you to stay in the civil service you would soon be in a career average scheme with a NRA of 65 and the disincentive of abatement to draw the preserved pension at 60.

It will be an NRA of 67 for a person currently aged 38, and probably higher than this, given the link to life expectancy announced for State Pension age in the Budget (which extends to public service pension, given the NRA is linked to State Pension age).

Articles such as this one would suggest the Nra might be more like 73 :eek: Seems a bit unlikely, but given how much life expectancy has been increasing by, and how difficult to estimate it is, I guess it cannot be ruled out.

The OP is quite likely to be in rather odd position of having their pensionable pay quite a bit higher than their actual salary, assuming a few years of pay freeze/very low increases, as Civil Service scheme uses a final salary definition which includes the best of the last few years, revalued by CPI. Not that it changes anything, but it is interesting to note that it is likely to take many years for actual salary to catch up to pensionable salary for those not getting a promotion, and loosens the Golden Handcuffs of final-salary schemes.

BobQ

hugheskevi wrote: »

It will be an NRA of 67 for a person currently aged 38, and probably higher than this, given the link to life expectancy announced for State Pension age in the Budget (which extends to public service pension, given the NRA is linked to State Pension age).


The OP is quite likely to be in rather odd position of having their pensionable pay quite a bit higher than their actual salary, assuming a few years of pay freeze/very low increases, as Civil Service scheme uses a final salary definition which includes the best of the last few years, revalued by CPI. Not that it changes anything, but it is interesting to note that it will is likely to take many years for actual salary to catch up to pensionable salary for those not getting a promotion, and loosens the Golden Handcuffs of final-salary schemes.

Yes you are correct the new CS scheme will be 67 or higher - thanks for highlighting my mistake.

The point I was alluding to is that if someone stays in the CS with a preserved FS component of their pension they cannot draw it at 60 and continue to work full time without abatement applying so they wil lose money until they do retire. If they are in a non-CS pension, presumably this does not apply?

For those in the Premium variant of the CS scheme the calculation of best year can go back 10 years or more, but for Classic its only three years IIRC.

anotherdollar

I think I should explain that I would be leaving the civil service for an academic position in a university. So I would be leaving the civil service scheme (retiring at 60, final salary scheme, 3% contribution rate) for another state sector scheme (retiring at 67, average salary, 7.6% contribution rate). I'm not sure what type of scheme the university offer, since some are funded out of taxes (like the civil service) and some are funded from investments (like private sector schemes).

1) if I freeze my civil service pension, then this would be indexed by CPI, but what has already been accumulated would be paid out at 60.
2) Transfer to the university scheme, but it would pay out later, but would be linked to average salary. If I get the job, then I would get a pay rise and be at the bottom of the payscale, so pay progression should occur. I'm stuck at the max in the civil service, with limited promotion prospects.