Leaving Nuvos

hugheskevi

Also, is there an easy way to work out what benefits I would have accrued from 5 years in nuvos? It just seems to me like it won't be a lot. In the other scheme I would be able to contribute a lot more now and keep contributing if I start doing something else which is very likely to be self-employed.

The Civil Service publish their transfer value calculators here if you want to get a capital value to compare to the DC pot after you have calculated annual pension accrued. But as all the schemes are changing in 2015 it won't be of great use to you.

Whilst there are many circumstaces in which Partership willl give a higher expected income than Nuvos, I don't understand why you wouldn't use a personal pension in addition to Nuvos if your reason for choosing Partnership is only because you want the ability to contribute more and keep on contributing in the future - the options available under Partnership aren't very good (Stakeholder pensions, charging about 0.7% or so p/a).

civil12345

Thanks, I've just looked again and that makes it a lot clearly. Basically at the moment I pay in 4.7% of gross and get back 2.3% annually as pension. That's not taking into account any inflation.

Do you have any thoughts on the best way to boost the pension? Between buying added pension in the scheme, additional AVCs and stakeholder pension or other personal pension. Especially if I were only going to do it for a few years. I'm 28 now and would be looking to pay up to 50% of salary into it.

Thanks for your advice, I do appreciate it and sorry if my questions are silly!

jamesd

Better to be in Nuvos defined benefit for as long as possible and put any extra pension money into a different pension. That'll get you the predictability of the Nuvos defined benefits and variability of the other pension, a nice bit of diversification.

Though given your business plans, do be sure that you're using the maximum stocks and shares ISA investing before non-Nuvos pension contributions, so that money is potentialyl available to your business. Unless you want to use a pension to protect your assets from bankruptcy if the business fails. For that a pension beats ISA use because pension money is disregarded for bankruptcy, except near possible to retirement age, while S&S or cash ISA money isn't.

When do you want to retire? Under current rules ISA money is available in unlimited amounts at any age, non-Nuvos/defined benefit pensions from age 55 and Nuvos whatever the scheme rules say. This means that a mixture of ISA, non-Nuvos and Nuvos pension can be used to let you retire at 55 or earlier, with you drawing on the ISA capital as fast as required to get and keep a level income. A substantial S&S ISA component can be a major part of the planning for early retirement.

Thrugelmir

civil12345 wrote: »

Thanks, I've just looked again and that makes it a lot clearly. Basically at the moment I pay in 4.7% of gross and get back 2.3% annually as pension. That's not taking into account any inflation.

You receive 2.3% of each full year of services salary. This is linked to and increases with CPI. Until you retire.

So if you earn £20k in a year. That's a base pension of £460.

Suggest you work out how much you need to invest to obtain a pension of that level. 4.7% of your salary would buy you a fraction of the NUVOS scheme.

hugheskevi

This might help the OP.

Start with Nuvos. From what you have said (cross-referencing against scheme parameters) you earn £21,001 to £30,000. Take the mid-point of that, £25,501.

You contribute 4.7% of £25,501. In return you accrue £587 of pension. That is increased by CPI to age 65. Assume CPI of 2.5% in future years. £587 would increase to £1,462 after 37 years (ie assuming you turned 28 today).

Alternatively, you put that 4.7% into Partnership. You get an automatic employer contribution of 6.5% plus 3% for the match, add those to the 4.7% for a total contribution of 14.2%

14.2% of £25,501 is £3,621. Assuming a rate of return of 6% net of charges for the next 37 years, that is a final pot of £31,272. Based on current annuity rates for a male aged 65 for an RPI linked pension with spouse benefits based on female aged 63 (3.04%) that is an annuity of £951. - this is the closest match to Nuvos in annuity terms, but is more generous as it increases by RPI. Future annuity rates would be expected to fall as life expectancy increases, but against that would be expected to increase as gilt yields increase, so assuming today's rates probably is about right. However, the expected value of index-linked annuities is only about 75%, so if you chose to use income drawdown instead Partnership would come out better in the comparison.

Taking into account your contribution increase to Nuvos next year, the comparison for Nuvos vs Partnership changes to a pension at age 65 of £1,427 versus £971 in favour of Nuvos. Still not very close.

Increase the rate of investment return to 7%, and the numbers in the para above change to £1,427 versus £1,362. Given an RPI annuity is better than a CPI linked annual payment, you would probably prefer the slightly lower headline rate of £1,362 over £1,427 in that case.

That should give you a decent idea of how to do some sensible analysis of the options, some sensitivity, and shows how utterly crucial your assumed rate of return is.

[there are also secondary National Insurance issues you might want to take into account, but in theory at least the NI reduction is actuarial compensation for the State Second Pension you give up. There are also differences in the ancillary benefits, eg, survivor benefits to be aware of]

civil12345

Thanks for all the replies they have been very helpful.