Civil Service Pension Opt Out and Redundancy Question

jamessanderson

Here goes!


I have a two part question really. The first part relating to Pension seems straight forward, however it is linked to the second part regarding compensation payment for Redundancy.


Pension


My pensionable earnings in 2014/15 were £53,500 due to weekend working and temporary pay rise. This resulted in a banked Classic pension of £16,500 and a lump sum of £49,500


Pensionable earnings in 2015/16 were £44,031.Banked Classic projected pension of £13,500 and lump sum of £40,500
Alpha Pension banked £1,000 (2016/17 will be the same)


Using the best of the last 3 years rule my banked classic will drop by £2,000 after 31/03/2017? This is relevant to the question below on redundancy.


Redundancy


It is (highly) likely that in the next 2-3 years that my post will be made redundant (age 50 now with 25.50 years service - 24.50 in classic)) I understand that under current conditions I would have the option of Voluntary Redundancy capped at 21 months plus 3 months notice, so in effect around 2 years pay OR Access to an unreduced classic pension (over 50) if topped up by employer, and classic lump sum payable?
I understand that this would not apply to Alpha pension as I would be under 55.


As this is likely to happen within the above time frames, am I therefore better opting out of Alpha and therefore preserving my best of the last 3 years = £16,500?


And most importantly IF I opt out now to preserve the higher pension and am then made redundant, have I unwittingly deferred by pension until 60yrs or at redundancy would my employer still be able to offer the option of immediate non- reduced pension at the time?


Can I join Partnership pension instead?


If anyone feels they can answer all these points please feel free to help me!

OldBeanz

First thought would be how definite is redundancy? "They" are reluctant to make anyone redundant without ensuring you apply for jobs in the same or similar grade anywhere in the country.
Unreduced pensions were stopped from my part of the CS shortly after the 2010 election. It was expected that part of the redundancy could be used to top up your pension. I would think it would be very difficult for any CS organisation to justify the expense of early retirement. In very simple terms it is £165k as opposed to less than 2 years pay.

Kynthia

If you haven't already been issued notice that you are in a redundancy process then you are too late for the 2010 civil service compensation scheme terms. You need to see what the new 2016 terms are when they are published as any redundancy package will be based on those lower terms. So anything else is speculation at the moment.

At present you can use your compensation to buy out the actuarial reduction in your Pension if you are over 50 when made redundant. Does your place also top up the amount needed if your compensation is insufficient as this is often a very attractive package? However I wouldn't like to say it's the best option as that's advice that should be done by someone qualified and regulated who knows your individual circumstances as for a start the tax implications are different and whether you intend to keep on working or not and where are relevant.

I don't believe opting out would stop you being able to take up the buy out option in your compensation package but you could call MYCSP to ask. Opting out would stop you building Alpha pension and break the link in your salary for Classic. As you say the latter might be a good thing but what if your salary goes up in the future or what if you're wrong about your pensionable salary figures? Annual benefit statements are crude and basic so you shouldn't rely on them too much and you should double check all your allowances and earnings from your 'best' year are definitely pensionable. Maybe get a formal quote if you can as then they'll at least do a proper data cleanse on your record to confirm it's accuracy.

Remember pension increases don't happen before you are 55. So you'll if you get an unreduced early pension both the pension and lump sum are at the value of your best year, and not current value. Once 55 you'll start to get CPI increases. Check this out though in case I've misunderstood it. It's probably more relevant to Premium members whose best year could be a lot longer ago than in Classic.

You have two points a year where you can switch to Partnership. I think October and April I think. Check if you lose your death in service benefits but you at least keep the employer contributions compared to opting out altogether.

jamesperrett

Worth remembering that (as I understand it) if you switch to another CS pension scheme, the salary used for the Classic calculation will still be the best of the last 3 years before you retire - not the 3 years before you switch. So, if you don't retire or leave the CS before April 2017, you will lose the effect of the higher salary in 2014/15. It is also worth knowing that the actual final salary calculation is done in 3 month steps so, if the higher pay was only in the second half of 14/15 you may have a few months extra before you have to make a switch.

Kynthia

jamesperrett wrote: »

Worth remembering that (as I understand it) if you switch to another CS pension scheme, the salary used for the Classic calculation will still be the best of the last 3 years before you retire - not the 3 years before you switch. So, if you don't retire or leave the CS before April 2017, you will lose the effect of the higher salary in 2014/15. It is also worth knowing that the actual final salary calculation is done in 3 month steps so, if the higher pay was only in the second half of 14/15 you may have a few months extra before you have to make a switch.

With Classic you had to choose to aggregate (link) your previous service with your new in the first 12 months. If you didn't they weren't linked and you kept your preserved award as it was. With Alpha I'm not sure but I think it's the opposite and you have 12 months to prevent aggregation when rejoining the scheme. Definitely something to be aware of if the OP rejoins the civil service pension scheme at any time.

Also OP if you should ever take your pension before the normal retirement age then another job in the civil service, or any employer that uses the PCSPS might not be the best option until you read up on abatement. Whereas this shouldn't be a problem with other employers and pension schemes.

inthebubble

I fear this may be complicated by the introduction of the new Public Sector Exit Cap, which is due to be introduced in the next Parliamentary session - date tbc though not before 1 October.


It limits the amount that a public sector employer can pay in compensation for leaving service to £95k, including any payment to buy out the costs of early payment of pension. Not sure about pay in lieu.

This provision has already gone through parliament, in the Enterprise Act, and is awaiting the publication of detailed regs before it comes into force.

hugheskevi

Using the best of the last 3 years rule my banked classic will drop by £2,000 after 31/03/2017?

Yes, I don't think it be as precise as that single date, but your pension would fall over time as the older higher salaries fell out of the calculation.

am I therefore better opting out of Alpha and therefore preserving my best of the last 3 years = £16,500?

As others have said, you will be exited under new reduced exit terms - see the consultation as this link.

If you opt-out of alpha you will not be eligible for any employer-funded buy-out of actuarial reduction of either your classic or alpha pension.

Can I join Partnership pension instead?

You can choose to switch to Partnership. This means you cease to be an active member of alpha and classic, and hence not eligible for any employer funded actuarial reduction buy-out.

I don't believe opting out would stop you being able to take up the buy out option in your compensation package

It does prevent the buy-out option - not many people appreciate this, and it can come as a nasty surprise, particularly with higher numbers of members opting out or switching to Partnership due to higher pension contributions and pension tax changes.

Opting out would stop you building Alpha pension and break the link in your salary for Classic. As you say the latter might be a good thing but what if your salary goes up in the future or what if you're wrong about your pensionable salary figures?

If salary increases within 5 years, the OP could re-join alpha and re-establish the final salary link.

Once 55 you'll start to get CPI increases. Check this out though in case I've misunderstood it.

Your understanding is correct - at age 55 the member pension is also increased to take account of missed increases (though no arrears are payable).

You have two points a year where you can switch to Partnership. I think October and April I think. Check if you lose your death in service benefits but you at least keep the employer contributions compared to opting out altogether.

Switching dates are correct. Partnership actually has better death benefits than alpha and classic, at least in terms of lump sum payment (position with survivor pension is less clear). Ill-health benefits are also provided under Partnership.

Worth remembering that (as I understand it) if you switch to another CS pension scheme, the salary used for the Classic calculation will still be the best of the last 3 years before you retire - not the 3 years before you switch.

That is correct with regard to the switch to alpha. If the OP chose to switch to Partnership the final salary link would be broken, but could be re-established if the OP rejoined alpha within 5 years.

inthebubble

http://www.cipd.co.uk/pm/peoplemanagement/b/weblog/archive/2016/06/21/cap-on-public-sector-exit-payments-due-this-autumn.aspx


This is the current position on the exit cap. In committee, ministers were clear that the £95k is set in stone - the regulations are likely to give more detail about how employers must implement it.