Civil Service pensions Classic and Alpha conundrum

Vidyasagar

Thanks all. Very informative indeed.

Many thanks to hyubh. You put in a lot of good info.

Vidyasagar

Could i ask a supplementary question. After i move from the classic to the Alpha scheme, i would like to go part time in the last 3 years of my employment.

As the closed classic scheme uses the final salary in the last 3 years for pension calculations, will they use the FTE salary for pension calc or the part time final salary. Should i ensure that i have a FTE salary in the last 3 years and reduce my part time plans to just 2 final years of employment.

Have i explained my question or confused the issue.

westv

Vidyasagar wrote: »

Could i ask a supplementary question. After i move from the classic to the Alpha scheme, i would like to go part time in the last 3 years of my employment.

As the closed classic scheme uses the final salary in the last 3 years for pension calculations, will they use the FTE salary for pension calc or the part time final salary. Should i ensure that i have a FTE salary in the last 3 years and reduce my part time plans to just 2 final years of employment.

Have i explained my question or confused the issue.

From what I understand the Classic pension is based on your full time equivalent salary. I'm sure others will clarify that though.

AnotherJoe

Vidyasagar wrote: »

The Alpha scheme has 2.2% of pensionable salary plus undefined employer contribution plus index linking. Sounds great. But the final take home pension is not explained..

Sounds straightforward , its 2.2% of pensionable salary per year, plus index linking so whatever teh value is no0w tahst what you'll get. eg if it paid £100/week today and inflation is 3% it will pay £103 in a years time, but you just need think about it in todays terms, £100.

(The employer contribution is irrelevant to your pension)

And, its better than pretty much any private pension you could get.

hugheskevi

They also say that if i dont join Alpha within 5 years then my classic part of pension will use the classic formula based on final salary at time of leaving classic. NOT salary at time of retirement.

Right - you only get the final salary link protection if you remain a member of the CARE scheme. Golden handcuffs!

Worth also pointing out that it can also work to a member's advantage not to have a final salary link. If a member's pensionable earnings increase by less than CPI, their classic pension may be higher if they leave classic and receive CPI revaluation rather than remaining in the scheme. Even fully protected members (ie those continuing to accrue future service in classic) can end up with a higher pension by opting out and receiving CPI revaluation than they would have if they stay in the classic scheme and accrue more years, if their pensionable earnings increase by less than CPI. Note, opting-out now effectively means 'switching to Partnership' as there are very few circumstances where a member should choose to fully opt-out rather than switch to Partnership, now Partnership is open to all members. Choosing to switch to Partnership means you are treated as a deferred member of classic and alpha, the same as you would be treated if you opted out of all pension arrangements.

The rules are different in the other final salary scheme, premium, which has rules which mean that in most cases pension increases by at least CPI for active members, even if their pensionable earnings increase by less than CPI.

The decision about whether it is financially optimal to switch to Partnership for the years leading up to retirement for those with a lot of classic benefits and who are not expecting pensionable salary increases above CPI can be both very difficult and financially significant, but most aren't aware it is something they should be considering. It is made even more complicated for those who are accruing alpha benefits, as the alpha benefits are going to be worth more than Partnership, which needs to be taken into account.

As the closed classic scheme uses the final salary in the last 3 years for pension calculations, will they use the FTE salary for pension calc or the part time final salary. Should i ensure that i have a FTE salary in the last 3 years and reduce my part time plans to just 2 final years of employment.

FTE salary is used to calculate final salary. There is no benefit (in terms of final salary calculation) in being full or part-time.

What may be relevant however is partial retirement, as you say earlier you plan to work to age 62. As classic receives no actuarial enhancement if you do not draw it after age 60, you may well wish to put your classic pension into payment at age 60. The pension will be subject to abatement but by choosing your part-time hours to take into account the value of your pension you can avoid abatement.

jamesperrett

hugheskevi wrote: »

The decision about whether it is financially optimal to switch to Partnership for the years leading up to retirement for those with a lot of classic benefits and who are not expecting pensionable salary increases above CPI can be both very difficult and financially significant, but most aren't aware it is something they should be considering.

That is something that I wish I had known about two or three years ago - if I had I may not have planned early retirement in the same way. However, I'm glad I'm out of the old job now although things haven't quite worked out as planned.

capital0ne

Vidyasagar wrote: »

I am afraid of Alpha because of 2 reasons. They would not introduce a scheme that is better than Classic.

Tho' not relevant, a bit before Alpha (I escaped before it was introduced) we had the choice to go to Classic Plus. Only a few took it up, I ignored it thinking they wouldn't have offered anything any better.
With 20/20 hindsight I should have looked into it as it was a 1/60th scheme, no lump sum, and it used you highest salary from the last 13 years, useful in my case because we could move to post that paid up to 40% extra for a few years. However the contributions were higher.
At the end of the day, these are all fantastic schemes.

Vidyasagar

I was going to ask about just this. From reading your post we probably work in the same sphere.

I have classic until 2019. Many of my colleagues, much younger than me left classic for 1 month towards the end of their period and then rejoined classic. They then migrated to Alpha. The reasons given were what you mentioned in your post ie,earnings rise will be less than CPI.

I dont fully understand what needs to be done and frankly dont understand what partnership is.

I have got a lot to learn.

Vidyasagar

Hugheskevi

How do i go about ensuring that my classic pension accrues the CPI. collaguues say that i have to opt out a month before it is due to close. Is that correct way to do it. And how to i ensure i go into the partnership aspect?

hugheskevi

How do i go about ensuring that my classic pension accrues the CPI. collaguues say that i have to opt out a month before it is due to close. Is that correct way to do it. And how to i ensure i go into the partnership aspect?

You have to spend more than 28 days out of classic to gain CPI increases, by creating a deferred award. You must also return to the pension arrangements before the date your tapered protection ends (ie before April 2019).

You can achieve this by opting out of classic then opting back in to the Defined Benefit pension arrangements after at least 28 days (if you do it, allow a few days leeway to be sure).

In your case, there is a problem with using Partnership. You could only switch back to the Defined Benefit pension arrangements after 1 year in Partnership. By then you would be re-joining alpha and the rules around re-joining are different then and your deferred classic award would be automatically cancelled as you had returned to alpha within 5 years of leaving classic.

Opting-out can be done anytime before you move to alpha, although you then return to nuvos rather than classic for the period before you move to alpha. But that may well actually be a good thing given the much higher accrual rate in nuvos, albeit the normal pension age of 65. You would have a choice upon joining nuvos to link your classic benefits to your final salary, which you decline. That creates a deferred classic award which increases by CPI. In April 2019 you would then move to alpha.

If you do any of this, I would try your very best to get details of what would happen in writing from the scheme administrator before you do it. Remember the scheme administrator will not give anything which may appear to be advice, so you would need to ask factual 'what if' questions. Also, note that which scheme you get put back in upon rejoining the pension arrangements in is the responsibility of your employer, not the scheme administrator, and in complicated areas such as this they may make mistakes.