Civil Service Pension Choices

jamesperrett

I work for an organisation that ties its pension arrangements to the main civil service pension scheme. At the moment I'm in the Classic scheme and have nearly 34 years of service. According to a recent union magazine, I'm one of those people in an age band subject to transitional arrangements where I'm going to have to choose whether to stay in the Classic scheme until a few months before I'm due to retire or move onto the new scheme when it starts in 2015. I will have 41 years, 6 months service when I reach 60 and I'm not expecting much of an increase in pay in the next 8 years or so.

As I understand it, if I want to retire at 60, there isn't much advantage in moving to the new system as the improved accrual rate will be negated by the actuarial reduction due to retiring early. Am I right or is there something I've missed? I'm hoping to be able to talk to our union pensions people but are there any other sources of advice for people in my situation?

jem16

jamesperrett wrote: »

I work for an organisation that ties its pension arrangements to the main civil service pension scheme. At the moment I'm in the Classic scheme and have nearly 34 years of service. According to a recent union magazine, I'm one of those people in an age band subject to transitional arrangements where I'm going to have to choose whether to stay in the Classic scheme until a few months before I'm due to retire or move onto the new scheme when it starts in 2015. I will have 41 years, 6 months service when I reach 60 and I'm not expecting much of an increase in pay in the next 8 years or so.

As I understand it, if I want to retire at 60, there isn't much advantage in moving to the new system as the improved accrual rate will be negated by the actuarial reduction due to retiring early. Am I right or is there something I've missed? I'm hoping to be able to talk to our union pensions people but are there any other sources of advice for people in my situation?

As you have transitional protection for the final salary scheme, you are able to stay on this as opposed to moving onto the CARE scheme. There is no benefit to you for moving. Stay where you are if you want to retire at age 60.

OldBeanz

No expert in the new system but if you had stopped a pension 8 years ago, it had risen with inflation and you had started another afresh then it would be worth a lot more than if you had one continuous pension.
If as appears likely that your pay rises will be under inflation for another 8 years then it may well be worth your while leaving the money in your old pension and starting another.

BobQ

You have a choice. The details of that choice will be announced in a few months so you will get more definitive information on your choice.

I think the main point for you to consider is that staying in Classic will see those benefits paid at 60 . If you opt to move to the new scheme the benefits after that will be paid at State retirement age (SRA) so will be reduced if you take them at 60. You are correct about that.

So if you built up 5 years under the new scheme that part of your pension would be reduced by about 5% for every year you have to SRA (so about 40%) or you would have to live on just the Classic part until it was paid at SRA.

Your union will not be able to give you advice on what to do in your specific circumstances, but they will provide some general guidance.

If you are definitely retiring at 60 it is probably best to stick with Classic to maximise your pension at 60. However, Classic will be based on your Final Salary at 60 (well best in the last three years) whereas the new scheme may accrue more but be deferred. So the choice depends on whether you have the savings to wait till SRA and what assumptions you make about final salary and inflation.

Another factor might be if you choose to work part time after 60.

RichandJ

BobQ wrote: »

You have a choice. The details of that choice will be announced in a few months so you will get more definitive information on your choice.

I think the main point for you to consider is that staying in Classic will see those benefits paid at 60 . If you opt to move to the new scheme the benefits after that will be paid at State retirement age (SRA) so will be reduced if you take them at 60. You are correct about that.

So if you built up 5 years under the new scheme that part of your pension would be reduced by about 5% for every year you have to SRA (so about 40%) or you would have to live on just the Classic part until it was paid at SRA.

Your union will not be able to give you advice on what to do in your specific circumstances, but they will provide some general guidance.

If you are definitely retiring at 60 it is probably best to stick with Classic to maximise your pension at 60. However, Classic will be based on your Final Salary at 60 (well best in the last three years) whereas the new scheme may accrue more but be deferred. So the choice depends on whether you have the savings to wait till SRA and what assumptions you make about final salary and inflation.

Another factor might be if you choose to work part time after 60.

I'm no public sector scheme expert, so this is a genuine question, wouldn't the benefits already built up retain an NRA of 60 & only future accrual be subject to NRA at new SPA and thus reduction ?

Most private sector schemes I have experience of retain the original NRA on any tranche of benefit before a change of NRA. So people can end up with some elements having an LRF applied and others an ERF. Fun to programme they are.

jamesperrett

Might be worth saying that, as I understand it, if I move to the new scheme next year, my Classic pension will still be calculated from the best of my last 3 years before I reach 60 so I won't have the benefit of CPI increases over the next 8 years.

BobQ

BobQ wrote: »

You have a choice. The details of that choice will be announced in a few months so you will get more definitive information on your choice.

I think the main point for you to consider is that staying in Classic will see those benefits paid at 60 . If you opt to move to the new scheme the benefits after that will be paid at State retirement age (SRA) so will be reduced if you take them at 60. You are correct about that.

So if you built up 5 years under the new scheme that part of your pension would be reduced by about 5% for every year you have to SRA (so about 40%) or you would have to live on just the Classic part until it was paid at SRA.

Your union will not be able to give you advice on what to do in your specific circumstances, but they will provide some general guidance.

If you are definitely retiring at 60 it is probably best to stick with Classic to maximise your pension at 60. However, Classic will be based on your Final Salary at 60 (well best in the last three years) whereas the new scheme may accrue more but be deferred. So the choice depends on whether you have the savings to wait till SRA and what assumptions you make about final salary and inflation.

Another factor might be if you choose to work part time after 60.

RichandJ wrote: »

I'm no public sector scheme expert, so this is a genuine question, wouldn't the benefits already built up retain an NRA of 60 & only future accrual be subject to NRA at new SPA and thus reduction ?

That is the case as I understand it and is what I think I said. The OP will get a Classic pension based on contributions up to the point he leaves the scheme based on his final salary when he draws the pension. Under classic this is 60 (although he could delay drawing that if he wished to continue working). If the OP moves to the new scheme, the benefits from that part of his pension get paid at SRA or will be reduced if taken before then. Sorry if my words caused any confusion.

Most private sector schemes I have experience of retain the original NRA on any tranche of benefit before a change of NRA. So people can end up with some elements having an LRF applied and others an ERF. Fun to programme they are.

This is the problem for many who build up significant pensions in the old and new schemes. The OP will have a choice about this since he could retire at 60 with only a few months spent in the new scheme from what he says.

BobQ

jamesperrett wrote: »

Might be worth saying that, as I understand it, if I move to the new scheme next year, my Classic pension will still be calculated from the best of my last 3 years before I reach 60 so I won't have the benefit of CPI increases over the next 8 years.

Yes but you cannot expect to have index linking and salary increases!

BoxerfanUK

Bear in mind that if you leave Classic and go into the new scheme for your last 8 years, not only will you not be able to draw your new pension until SRA (albeit at a better accrual rate) unless you opt for actuarial reduction...... you will not automatically get a 3x tax free lump sum on that 8 years in the new scheme whereas in Classic you will. Also, how much Classic pension will you lose between 60 and 66 by opting into the new scheme? 6 years payment @ 8/80ths to be taken into account.

jamesperrett

I hadn't noticed the lack of lump sum in the new scheme.

Given that Classic now allows for up to 45 years of contributions rather than 40, it looks like I will probably be better off staying with Classic as I will still be contributing to it up until 2 months before my 60th birthday.

BobQ

BoxerfanUK wrote: »

Bear in mind that if you leave Classic and go into the new scheme for your last 8 years, not only will you not be able to draw your new pension until SRA (albeit at a better accrual rate) unless you opt for actuarial reduction...... you will not automatically get a 3x tax free lump sum on that 8 years in the new scheme whereas in Classic you will. Also, how much Classic pension will you lose between 60 and 66 by opting into the new scheme? 6 years payment @ 8/80ths to be taken into account.

You do not automatically get a lump sum in the current scheme or in Premium but there is the option to commute up to 25% tax free.