Alpha or Partnership?

Nang_Shim_Chagi

Hi,

I'm starting a job soon where I'll have the choice between the 2 civil service pension schemes, and just wanted to check that I'm making the right choice for my circumstances. I'm 43 and will have a starting salary of just under £34k, with the likelihood of this increasing to £40k+ after a couple of years. My only previous pension is from my last employer, but this only has a pot of about £1k.

For those of you who aren't familiar with them, Alpha is a defined benefits scheme where you contribute 5.45% of your salary to build up an annual pension equivalent to 2.32% of each year's salary. Partnership is a defined contribution scheme where the employer will contribute 13.5% until I am 46 and 14.75% thereafter, and will also match my contributions up to 3%.

I have read the documents on each scheme, and searched the forum and read some of the older threads discussing this, and it appears that most people consider Alpha to be the better option. There are however a couple of other things that I want to take into account. Firstly this isn't your typical civil service desk job, so working until I'm 67 might be a bit ambitious, and Alpha has roughly a 5% reduction for each year you retire before your NPA. Also, because Alpha is contracted out, it would lead to a reduced state pension. Do either of these considerations make Partnership a better choice?

Thanks in advance for any input.

jem16

Nang_Shim_Chagi wrote: »

Firstly this isn't your typical civil service desk job, so working until I'm 67 might be a bit ambitious, and Alpha has roughly a 5% reduction for each year you retire before your NPA.

If you want to retire before age 67, then contribute to a Personal pension in addition to the Alpha one. Then you can defer your benefits till NRA and use the proceeds of the PP to live on in the interim.

Also, because Alpha is contracted out, it would lead to a reduced state pension.

It won't be from April 2016 when contracting out is abolished for Defined Benefit schemes. It has already been abolished for Defined Contribution schemes.

Do either of these considerations make Partnership a better choice?

For me, no. I would always go with the security of the Defined Benefit scheme.

hugheskevi

In terms of expected value, going into Partnership and contributing 3% to get the maximum employer contribution for about 5-7 years would be expected to give you the best outcome, unless you want to purchase an index linked annuity (ie try to replicate the income stream from alpha - as index linked annuities are very expensive). Then at a future age (probably around 50) you would switch to alpha (as alpha is more valuable the older you are, and so for older members will beat Partnership as the highest age tier in Partnership is capped at 46). When you switched into alpha, you could also choose to transfer the Partnership pension across if that was desirable.

However, which is best depends on your risk tolerance. Also relevant is that you have no other Defined Benefit income - the first part of 'guaranteed' income is arguably the most valuable.

Firstly this isn't your typical civil service desk job, so working until I'm 67 might be a bit ambitious, and Alpha has roughly a 5% reduction for each year you retire before your NPA.

You can purchase an EPA option to reduce the NPA by 2 years in alpha.

gettingold45

Hi. I've just started with the Civil Service and have the choice of Alpha or a Partnership Pension. I am 45 with a salary of £27,000. I would like to retire at 55, or at least reduce my full time hours (doesn't everyone?).
With the Partnership there is the option to take retirement at 55 rather than wait to state pension age, which will probably be raised to age 90....
Please can someone help me out with this question: If I pay into a partnership pension for the next 10 years, what will I receive if I retired at age 55?
Many thanks

hyubh

gettingold45 wrote: »

I am 45 with a salary of £27,000. I would like to retire at 55

That doesn't sound realistic, unless you have a partner earning a lot more than 27K, or you have inherited wealth, or you have significant pensions already.

or at least reduce my full time hours

Look up 'partial retirement' in the scheme guide for Alpha:

http://www.civilservicepensionscheme.org.uk/media/95349/alpha_fullschemeguide_colour_v3.pdf

With the Partnership there is the option to take retirement at 55 rather than wait to state pension age, which will probably be raised to age 90....

Very unlikely if you are already 45.

If I pay into a partnership pension for the next 10 years, what will I receive if I retired at age 55?

The fact there is no clear-cut answer is the core difference between DC (Partnership) and DB (Alpha). What's your attitude to financial risk?

hugheskevi

With the Partnership there is the option to take retirement at 55 rather than wait to state pension age, which will probably be raised to age 90....

55 is the current minimum pension age. It was announced under the previous Government that minimum pension age will increase to State Pension age minus 10 years, but this has not yet been enacted. The minimum pension age is the earliest you will be able to receive either a Partnership or alpha pension. If you commence the alpha pension before State Pension age it will be reduced.

You can look up your State Pension age at this link.

Please can someone help me out with this question: If I pay into a partnership pension for the next 10 years, what will I receive if I retired at age 55?

The employer contribution rates for Partnership are set out at the bottom of this page. Note that employers will match member contributions up to 3%. So if you contribute 3%, the employer will be contributing 17.75% for a total contribution of 20.75%, or £5,602.50 based on your salary (it will be a bit less in the first year or two).

Play around with some pension calculations, such as this linked one, to get an idea of what you might get - but do pay attention to the assumptions, as they have a huge impact on the final numbers, and of course depend on investment performance which may well be significantly different to the assumed return in the calculator.