Opting out of police pension (with reasons)

ed67812

Hi,

I know that there has been much talk about police pensions and if there was any chance of me continuing in the job, then I'd happily stay in the new career average scheme. But, I'm 70-30 in favour that I'll be leaving. (there are just easier, nicer ways to earn a reasonable pay slip without instances such as being attacked with a heroin/blood filled hypodermic etc).

I'm a member of the 2006 final salary scheme. That accrues an annual pension at 1/70th a year based on final salary. The scheme also pays a lump sum of 4 x pension. As of April this year, I will have 8 years so 8/70th of final pay. At this point the accrued rights under the 2006 scheme are frozen as we move to the CARE scheme. However, the accrued rights are still based on final salary when I eventually retire.

After April it will no longer be possible to move a public sector defined benefit scheme to a defined contribution scheme.

Therefore, I have the following options;
1) Do nothing and stay in the police and undoubtedly get the best pension possible to me (but no good as that involves staying in the police).
2) Do nothing and when I leave, take a deferred pension under the 2006 scheme. This would be based on my final salary upon leaving and would only be increased in line with CPI. This is not payable until 65.
3) Take the 'cash in value' of my pension and move it to a SIPP.

As of April, my final salary will be approx £38k, so my deferred pension would be worth about £4340 (38x8/70) and a lump sum of about 17370 (pension x 4).

I am still awaiting my accrued value, that I can move to a SIPP before the April deadline. I'm just wondering what sort of accrued cash in value I would need to transfer to a SIPP to make giving up my deferred pension worth it?

Thanks all

atush

Once you know you are going, then I'd take option 2. Option 3 could be better if your healrh is poor and you have no spouse.

But I would not opt out, i'd stay in until i left. To build up more years.

then look to put in 25% of salary in your next job. Dont forget your pension is worth this or more when comparing salaries.

greenglide

Do you gave time before April anyway!

Another scheme would probably want an IFA to approve but this is not totally certain.

If you got another job in the public sector or any job with another job with a Defined Benefit scheme you could transfer the police scheme to it?

hugheskevi

After April it will no longer be possible to move a public sector defined benefit scheme to a defined contribution scheme.

To be precise, before April 6th you must have returned signed instructions to transfer having received the transfer quote value. April 6th is a Monday, so that means that to transfer you must receive the quote, accept it, return the paperwork, and the administrator receive it by close of business on Friday (unless the administrator has a way to receive the paperwork over the weekend).

I'm just wondering what sort of accrued cash in value I would need to transfer to a SIPP to make giving up my deferred pension worth it?

Depends heavily on your age and risk tolerance.

Agree with others that Option 2 (which becomes Option 1 in the event you do not leave employment) would seem to be the most sensible course of action, unless there is something you haven't mentioned in the initial post.

PeacefulWaters

hugheskevi wrote: »

To be precise, before April 6th you must have returned signed instructions to transfer having received the transfer quote value. April 6th is a Monday, so that means that to transfer you must receive the quote, accept it, return the paperwork, and the administrator receive it by close of business on Friday (unless the administrator has a way to receive the paperwork over the weekend).

The Friday and Monday are bank holidays too.

Not to mention the end of the tax year tends to be busier for advisers.

xylophone

If you leave with a deferred pension, any widow and children would have some protection if you died in deferment?

http://www.policebenefits.co.uk/pension_scheme/dis/pps_guide.html

ed67812

I was under the impression that all survivor benefits stop when you opt out of the scheme or leave the police.

ed67812

Depends heavily on your age and risk tolerance.

Agree with others that Option 2 (which becomes Option 1 in the event you do not leave employment) would seem to be the most sensible course of action, unless there is something you haven't mentioned in the initial post.

I'm 29 and would likely look at relatively safe investments. I still have 31 years until that deferred pension. There's nothing im not telling, I just don't see me continuing in the police in view of the pay cuts / my personal employment prospects elsewhere.

In very simple terms the numbers above will only rise with Rpi. If u take.the transfer out, even if i invest low risk, rpi plus a couple of percent seems realistic and in 31 years time

Hopefully I will have my transfer value today

atush

AFAIK, survivors benefits are still there of some kind in deferment

hugheskevi

I was under the impression that all survivor benefits stop when you opt out of the scheme or leave the police.

Survivors remain entitled, although any enhancements which apply following death in service would be lost.

I'm 29

You won't be getting great value from the new scheme in April (assuming you will be leaving service in the next few years), but are old enough that you will be getting value even if you leave service soon after joining the scheme. Whilst it probably isn't a good idea, leaving the new scheme and making alternative provision would appear to be preferable to transferring out benefits from your existing pension so you may also wish to consider that.

and would likely look at relatively safe investments...In very simple terms the numbers above will only rise with Rpi. If u take.the transfer out, even if i invest low risk, rpi plus a couple of percent seems realistic and in 31 years time

CPI, no longer RPI.

Relatively safe investments further reduce the probability of transferring out being a good idea. The discount rate (the assumed rate of return to value benefits) in the scheme is CPI+3%, so if CPI is 2% you need to get 5% return after charges each year just to replicate the value you would get risk-free in the police scheme. The actuary will use the discount rate in calculating the value of your existing pension so you then would need to receive that pot and invest it to get 5% p/a after charges.

So CPI isn't the key number you have to beat, it is CPI+3%, after charges. Also consider the cost of securing an income in the future (should you wish to do so - annuities will only give you about an expected 90% of the value of your pot, at best).The figure is certainly beatable, although using relative safe investments will make it more difficult. But you also need to consider the value of the guarantee - ultra-safe investment yields are very low so you need to take risk to out-perform.

Nothing you have said suggests transferring out is a good idea.

ed67812

Thanks for that comprehensive answer. I guess that I I will at least stay in the 2006 scheme until it closes.

I just wanted to make sure I wasn't shooting myself in the foot before the rule changes to transferring out.

I will probably opt out of Care scheme though. Next year I'd have to pay in over 5k of 36k pay to get an annual salary of about 650. As I'm leaving within a few years, this deferred pension will be increased with inflation only and not payable until state retirement. Surely better to put that 5k into an alternative pension.