Advice re civil service defined contribution ( partnership ) scheme

pacificdragon

Good afternoon fellow MSE's

I have just been accepted for a civil service role and as a consequence will be eligible for the CS pension scheme. I'm currently a crown servant and have accrued 19 years on a final salary pension scheme which I do not intend to transfer across to the CS.

In addition to my crown service pension I also have a stocks and shares ISA which is just under £100k and mostly investment trusts but a small HYP element as that's how I started my portfolio. I'll shortly be selling the HYP part once I feel I've made a worthwhile profit and re invest that into the investment trusts.

I'm 38 years of age probably not going to retire until 65 so still have a good few years to build up the CS pension. I wouldn't call myself a sophisticated investor by any stretch but I enjoy researching the investment trusts I own, and regularly read this website and a few other financial news outlets so happy to put the effort in to hopefully get the reward.

Finally I hear you cry.... my question is, in relation to the civil service pension scheme I have two options alpha ( defined benefit scheme ) and partnership ( defined contribution scheme. ) I'm having a real dilemma deciding which one to choose.

Alpha is guaranteed so I don't need to worry other than making sure I can live within my means when it comes to retirement vs partnership whereby I'm happy to make investment decisions and understand I might get back less than I paid, but I maybe rewarded if I invest wisely. What I would appreciate from fellow fools is, once I retire in partnership scheme if I don't want to buy an annuity what options might I have, what would you recommend ?

My second question in relation to the partnership scheme is, can anyone point me in the right direction of how to research and compare the funds available to invest in.

Last question which I think the answer is no, in the partnership scheme is it possible for me to a DIY investment or do I need to choose between Scottish widows and Standard Life funds.

Thank you in advance for any replies and if I have missed any information that might help with answering my questions please feel free to ask..

PD

BobQ

pacificdragon wrote: »

Good afternoon fellow MSE's

I have just been accepted for a civil service role and as a consequence will be eligible for the CS pension scheme. I'm currently a crown servant and have accrued 19 years on a final salary pension scheme which I do not intend to transfer across to the CS.

In addition to my crown service pension I also have a stocks and shares ISA which is just under £100k and mostly investment trusts but a small HYP element as that's how I started my portfolio. I'll shortly be selling the HYP part once I feel I've made a worthwhile profit and re invest that into the investment trusts.

I'm 38 years of age probably not going to retire until 65 so still have a good few years to build up the CS pension. I wouldn't call myself a sophisticated investor by any stretch but I enjoy researching the investment trusts I own, and regularly read this website and a few other financial news outlets so happy to put the effort in to hopefully get the reward.

Finally I hear you cry.... my question is, in relation to the civil service pension scheme I have two options alpha ( defined benefit scheme ) and partnership ( defined contribution scheme. ) I'm having a real dilemma deciding which one to choose.

Alpha is guaranteed so I don't need to worry other than making sure I can live within my means when it comes to retirement vs partnership whereby I'm happy to make investment decisions and understand I might get back less than I paid, but I maybe rewarded if I invest wisely. What I would appreciate from fellow fools is, once I retire in partnership scheme if I don't want to buy an annuity what options might I have, what would you recommend ?

My second question in relation to the partnership scheme is, can anyone point me in the right direction of how to research and compare the funds available to invest in.

Last question which I think the answer is no, in the partnership scheme is it possible for me to a DIY investment or do I need to choose between Scottish widows and Standard Life funds.

Thank you in advance for any replies and if I have missed any information that might help with answering my questions please feel free to ask..

PD

Have you read the Scheme booklet?

http://www.civilservicepensionscheme.org.uk/media/176829/ppa-1_dec2015.pdf

I think it answers most of your questions.

The Partnership is more flexible, particularly if you want to invest in stocks and shares and have a fund you own. But the maximum employer contribution at your age is higher in Alpha, although this narrows as you get older. Of course in Partnership it is real money whereas in Alpha it is a nominal contribution backed by the DB guarantee.

kidmugsy

(i) Do you have the option to change your mind later? If "yes" go for the DB and then change to the DC once there's been an almighty stockmarket collapse. I suspect, though, that the answer is "no".

(ii) Might you want to retire early? Then you could live off the DC pension until your existing DB pension kicks in.

(iii) Many people who don't have a DB pension would give their eye teeth to have the chance of a civil service DB pension. Especially if your ISAs might be big enough to live off while waiting for your CS pension to pay out.

Other considerations: married? Healthy? From long-lived family? Children? Well insured? .....

Kynthia

I believe pension switching is open twice a year, possibly April and October. So you have the option to change your mind. Most people would prefer the low risk, low maintenance, guaranteed and index - linked pension. It pays out a percentage for life to a spouse and dependant aged children.

p00hsticks

kidmugsy wrote: »

(i) Do you have the option to change your mind later? If "yes" go for the DB and then change to the DC once there's been an almighty stockmarket collapse. I suspect, though, that the answer is "no".

As Kynthia says, there is the option to switch from one scheme to the other at certain times of the year, although I think you are only able to do this once or twice during your employment.

However, I don't think (although stand to be corrected) that a switch actually results in any existing pension 'fund' being transferred across - it simply defers the existing pension and starts one of the new type going foward.

kidmugsy

p00hsticks wrote: »

However, I don't think (although stand to be corrected) that a switch actually results in any existing pension 'fund' being transferred across - it simply defers the existing pension and starts one of the new type going foward.

That's ideal. I'd consider starting the DB pension with the expectation that an almighty crash might later tempt you into diverting your future contributions into the DC scheme.

pacificdragon

Thank you everyone for the comments. I don't start until April so I can only research what I could find on the internet about the CS pension scheme.

I've never thought about the switching should the market go south. I know I can switch not sure if there is a limit as to how many times I can do it.

Thank you everyone once again and sorry for the delay, virgin media broadband but up and down.

BobQ

pacificdragon wrote: »

Thank you everyone for the comments. I don't start until April so I can only research what I could find on the internet about the CS pension scheme.

I've never thought about the switching should the market go south. I know I can switch not sure if there is a limit as to how many times I can do it.

Thank you everyone once again and sorry for the delay, virgin media broadband but up and down.

All the information is on the internet at

http://www.civilservicepensionscheme.org.uk/

You have been told above you can only switch once

I am surprised that you were not sent all this information with the job offer.Otherwise how can you make a decision on the job?

hugheskevi

I'm currently a crown servant and have accrued 19 years on a final salary pension scheme which I do not intend to transfer across to the CS.

With CETVs being so high, transfers can be very good deals at the moment as transfer-in credits are calculated using a discount rate of CPI+3%, which is usually far higher than the discount rate used in CETV calculations.

once I retire in partnership scheme if I don't want to buy an annuity what options might I have, what would you recommend ?

The standard pension flexibility rules apply, as Partnership is a Group Personal Pension. So you could choose drawdown, full encashment or partial encashment. Although the rules will change well before you reach the ages these things apply.

My second question in relation to the partnership scheme is, can anyone point me in the right direction of how to research and compare the funds available to invest in.

Go to the Partnership page (link here) and follow the links into the Scottish Widows and Standard Life sites. Investment options and charges are shown in there.

Last question which I think the answer is no, in the partnership scheme is it possible for me to a DIY investment or do I need to choose between Scottish widows and Standard Life funds.

You can only choose the investments offered. Either or both providers might permit you to periodically transfer the pot out to your own pension if you want more investment options (you would need to ask them their policy about partial transfers).

But the maximum employer contribution at your age is higher in Alpha, although this narrows as you get older.

The alpha employer rate is set at scheme level (ie ignores individual characteristcs), includes past service deficit payments, assumes average member contributions (which no-one pays as member contributions are tiered) and then tiers employer contributions by member salary. That all means the quoted employer contributions have very little bearing on the actual value of the pension to the member.

The Partnership rates were set to provide a similar value of pension to the actual value of the employer contribution to alpha, calculated acturially. This is set out in the 2014 consultation (link here) which states:

The [Partnership] contribution rates are based on actuarial advice, and are intended to be similar to the cost to the Exchequer of providing the main scheme pension for members choosing to participate in Partnership instead.

As Kynthia says, there is the option to switch from one scheme to the other at certain times of the year, although I think you are only able to do this once or twice during your employment.

It is a little more complicated than this. The switching rules are set out on the switching form (link here). Members of premium and nuvos can only switch once, but alpha members can switch however many times they like, but only once per year.

However, I don't think (although stand to be corrected) that a switch actually results in any existing pension 'fund' being transferred across - it simply defers the existing pension and starts one of the new type going foward.

This is the default, but the member could transfer a Partnership pension pot into alpha within first 12 months of joining alpha if they wished, and could transfer an alpha pot into Partnership if they left alpha within 2 years of joining.

taking_stock

hugheskevi wrote: »

This is the default, but the member could transfer a Partnership pension pot into alpha within first 12 months of joining alpha if they wished, and could transfer an alpha pot into Partnership if they left alpha within 2 years of joining.

Do you know if this is the case for someone transferring back in to Alpha from the Partnership?
eg someone who was in Alpha, took a year in Partnership and then re-joins Alpha a year later with no break in service at any time. So, although they started Alpha more than a year ago, have re-joined within the last 12 months?
I know the rules state "...within 12 months of becoming eligible to join Alpha" but this doesn't explicitly answer it.

atrixa

taking_stock wrote: »

Do you know if this is the case for someone transferring back in to Alpha from the Partnership?
eg someone who was in Alpha, took a year in Partnership and then re-joins Alpha a year later with no break in service at any time. So, although they started Alpha more than a year ago, have re-joined within the last 12 months?
I know the rules state "...within 12 months of becoming eligible to join Alpha" but this doesn't explicitly answer it.

Hi, there is a pension switch form on the website somewhere that states that you can switch either way once a year. There doesn't appear to be a limit on the amount of times you can do this over your membership. It might be worth checking with the admin before you make your final decision, though. I would like to note, that for a DC scheme, Partnership has pretty good contribution rates and you can effectively get a free pension, Wish mine was that generous!