Clueless on Pensions - Civil Service Alpha or Partnership?

FrankBlossom

Hi all,

It's been very helpful to follow this post so Im hoping that I can still get some replies to this as my questions is a bit different.

I am planning to work around 20-25 years in the CS, and will probably have periods where I will work in private sector. I will also like to retire early so what I'm thinking that in my case the alpha pension might actually put me at a disadvantage vs partnership?

The reason why I'm saying this is that
1. Once In private I won't be able to contribute to my alpha but I can still contribute to my partnership
2. With partnership, I could actually get my pension early while with Alpha I have to wait until 68 and then I might be dead by 75
3. This is unrelated but seems important, in case of death, alpha only gives 37.5% to your partner while with partnership they would get the full amount.

Would love to hear some feedback on my reasoning.

enthusiasticsaver

My daughter is in a civil service pension scheme and I recommended the Alpha scheme. It is linked to salary rather than contributions. Basically it is a promise to pay when you retire which is why there is no contribution from your employer. You will be able to take the pension early but it will be reduced depending on how early you take it. With the partnership you are very reliant on how the stock market performs. No guarantees as to the eventual income you will get. Funding early retirement can be done all sorts of ways. My daughter is overpaying into her Alpha pension so if she takes it early the reductions will affect her less. My husband and I did the same with our DB schemes and eventually went at age 58.


The partnership account is purely an investment vehicle which is why it can be transferred in death but no guarantees on amount or how long it will last. The Alpha scheme gives 37.5% DB pension to spouse for the rest of their life.

hyubh

FrankBlossom wrote: »

1. Once In private I won't be able to contribute to my alpha but I can still contribute to my partnership

- As Alpha is CARE with a revaluation rate in deferment that is (nearly always) the same as the revaluation rate for active members, it makes no practical difference to the pension accrued to date whether you are still an active member or not. Or put another way: not being in Alpha in 10 years time doesn't give any reason not to be in Alpha now.

- Potentially being able to contribute to your old Partnership account after leaving is a bit 'meh' because you wouldn't get any civil service employer contribution (clearly), and you could just contribute to another DC pension of your choosing instead.

2. With partnership, I could actually get my pension early while with Alpha I have to wait until 68

You could take it earlier with an actuarial reduction.

3. This is unrelated but seems important, in case of death, alpha only gives 37.5% to your partner while with partnership they would get the full amount.

Apples and pears. The 37.5% is an indexed-linked payment for life; 'the full amount' is a pot of money.

(PS - this isn't trying to convince you that Alpha is better as such, though personally I'd take it over even a very good DC arrangement like Partnership.)

TheShape

How about Alpha (with EPA or added pension) + Personal Pension + LISA + S&S ISA.

I contribute to a Civil Service Pension (Alpha) so I have a good idea what pension i will receive from state pension age. I'd like to retire earlier than that though so paying for the EPA (Early Pension age) I can hopefully manage to retire 3 years before state pension age. I'd like to retire earlier than that though, so perhaps by Investing enough into a LISA I'll be able to retire at 60. Be nice to retire even before that so perhaps the Personal pension will give me enough to fund the years from 55 (perhaps 56,57,58) until 60. Maybe I'll be lucky enough to retire before that if I've got enough in my S&S ISA to fund a couple of years before I can take my personal pension.

Having a defined benefit pension like the Alpha scheme gives me some certainty about my income from state pension age. Add the EPA, i can have some certainty about the 3 year period to SPA. If i can invest enough through other means I can think about retiring earlier than that. If that's one year early, so be it, if it's 10 years earlier even better.

edinburgher

While I personally think Alpha is the pony to bet on (I waited for 6 years to rejoin a similar scheme after leaving the CS), I feel that Partnership is being painted as worse than it is.

For starters, some of the assumptions being bandied about are unrealistic. The government contribution with Partnership isn't static (it increases with age to a contribution of 14.75%). If OP wanted to retire at 68, they would have had 22 years of this higher amount.

In addition to this, the government will also match up to an additional 3% of employer contribution made (so OP could start with 14% of total wages going into it at an actual cost of 3% of gross wages and then go up to 20.75% from 46).

While I believe that pound for pound, Alpha offers greater simplicity and value, Partnership could still provide a lucrative pension accessible 10 years earlier than Alpha.

Indebted2U

Without doubt I'd say go for the Alpha scheme

Zypher

A few key points to note.

Alpha is linked to state pension age so when it goes up so will your pension age.... (i wonder what will happen if they aboliah the state pension or when they abolish it)

Your alpha pot can be revolorised down as well as up. Its not linked to inflation but rather a govenrment defined figure(tho so far it has matched cpi i believe)

I dont know much about partnership pensions but only a fool would buy an annuity that paid 19k if you could have the pot of 1,050,000.... you would have to live for 55 years to recop the £1,050,000.

Id still go for alpha but dont expect it to be around for the 41 years to retirement though it very much think it will probably be closer to 75 year old state retirement age by then.

AnotherJoe

The SP will never be abolished because it would be financial suicide for whichever party tried to introduce that.

What they might do is increase the age at which you are eligible, the rate at which it increases (but look at the howls of protest when even that is suggested) and what other benefits you are entitled to when in receipt of SP.

As for only a fool would take the annuity, your 55 year calculation is off as it takes no account of inflation, so it would likely be half that based just on holding cash, it takes no account of risk,(many would be worried about a stock market crash just after they received the money), knowledge (how many have the knowledge to manage a million pounds worth of investments) or the abilty to take an enhanced annuity.

Plus there are of course many fools. So you can rest assured that quite a high % would take an annuity allowing them to sleep at night and not have to be a stock market guru or worry about be ripped off in later years. After all many people here, and there's a whole forum for them, studiously do everything to pay off their mortgage really early despite extra payments into a pension being worth many times what those into a mortgage are worth.

To me the main downside of Alpha is as you say that you get it quite late. If you have ambition to retire not just early but really early, let's say somewhere between 40 and 50, it doesn't really work for that as you have too many years to bridge between retiring and getting access to your pension pot let alone the DB pension and then SP. it may still be realistic to take it early and take a cut on how much is paid though?

AK92_2

JoeCrystal wrote: »

Because that's how the Civil Service Alpha work atm??? For every year of service, you will get 2.32% of your salary for that year. 2.32% of £20,246 is £469.70 per year. Assuming your pension for each year get adjusted in line with prices at the same rate as your pay, then 41/43.1 works out as 95% so therefore, it is £19,259 in real money but that is most straightforward version. You will get pay rise and get promotions and so on and you may not stay for 41 years.

Each year, you build up 2.32% of the salary in that year and these years get revalued. Lot of years added up to a lot of pension. And don't forget that you can apply for added pension for up to £6,500 with a lump sum payment or monthly payment.

Perhaps a stupid question (and sorry to hijack an old thread) but assuming OP builds up £19.2k and decides to retire at the mandated age of 68, not the early age, they would get £19.2k a year?



I knew the Alpha Pension was good, but that seems alot of money compared to the 5% or so they pay out of their gross wages for pension contributions per month (this is what comes out of my civil service payslip, so debating the merits of sticking with or not)


Thanks

hyubh

AK92 wrote: »

Perhaps a stupid question (and sorry to hijack an old thread) but assuming OP builds up £19.2k and decides to retire at the mandated age of 68, not the early age, they would get £19.2k a year?

If the OP 'builds up' a pension of £19.2k pa, then by definition that's what they get at NPA.

I knew the Alpha Pension was good, but that seems alot of money compared to the 5% or so they pay out of their gross wages for pension contributions per month

Accrual rate is 2.32% of pensionable pay each year, revaluation rate CPI (so, exactly neutral for inflation). Contribution rate has nothing to do with the pension earned.

(this is what comes out of my civil service payslip, so debating the merits of sticking with or not)

You're debating the merits of opting out - seriously...?