Civil Service pensions Classic and Alpha conundrum

hugheskevi

What is better given that retirement age is 67. Pay in to finish early at 65 (-2 years) or make extra contributions to my alpha pension?

Other things being equal, they are of the same value as they are calculated using the same actuarial assumptions.

But an individual will have different characteristics to the 'average' member (nothing the 'average' member doesn't exist as, for example, a member cannot be 90% married as may be used in actuarial assumptions).

Making extra contributions would be better if you eventually exit on ill-health retirement, if you are at any risk of exceeding the Annual Allowance paying to finish early would be better. If you think your State Pension age may increase, paying to finish early may be better. But these are all marginal points.

I seems to me that you pension reduces due to the number of years early you take it only, so is it better to lower your hours as much as possible to increase the benefits of partial retirement? ie 30% over 20% if possible.

The hours you choose at partial retirement are usually determined in practice by what you need to reduce your salary by to avoid abatement of the pension being received. After that, there may be key income tax or national insurance thresholds to avoid, eg, working only enough hours to avoid paying higher rate income tax. After that, it is just a matter of preference in most cases.

greamec

Thanks again.
So if you reduce your hours by 20%,30% or 40% your pension pot will only drop by the same amount?

hugheskevi

So if you reduce your hours by 20%,30% or 40% your pension pot will only drop by the same amount?

No.

It may help to go through the process step-by-step.

1. A requirement to use partial retirement is that you agree to reduce your salary by at least 20%. This is usually done by reducing hours, but could be done by changing grade or job responsibilities. Subject to employer agreement, you can change to whatever hours/grade/responsibilities you wish, thus you can choose your post partial-retirement salary income.
2. When you take partial retirement, you can choose to take all or a proportion of your pension. If you do not choose to start receiving classic pension income at age 60, the pension income you could have received is simply lost, ie, it is not paid as arrears at a future date or reflected in an actuarially enhanced pension. However, any classic pension not commenced remains linked to final salary, so may increase.
3. Once you have made your choices about how much you have decided to reduce your salary and how much pension you have decided to commence, the abatement test is applied. If your pension plus reduced salary exceeds your salary prior to partial retirement, your pension will be reduced such that your reduced salary plus pension is equal to your salary prior to partial retirement. Clearly it is in your interests to make choices about your post partial retirement salary and pension income to avoid your pension being reduced by abatement, otherwise you are working for nothing for some of the time you are at work.

If you have a very large salary and a relatively low pension, abatement may not even be relevant as even taking the whole pension along with a 20% salary reduction may still not be more than the pre partial-retirement salary and hence abatement is not relevant.

Conversely, if your pension was high relative to pre partial retirement salary, you would need to significantly reduce salary at partial retirement if you wanted to take your whole pension and avoid abatement.

greamec

So if your classic pension has been frozen in 2015 and you have been moved to alpha is the value of your classic frozen at that point. How is its final value worked out and is there a way to calculate it.

Thanks again

hugheskevi

So if your classic pension has been frozen in 2015 and you have been moved to alpha is the value of your classic frozen at that point. How is its final value worked out and is there a way to calculate it.

The classic pension was not frozen in 2015. In 2015 you ceased to accrue further qualifying years, but remained an active classic member.

The formula to calculate classic pension is (qualifying years / 80 ) * salary. The salary figure is based on your current salary, not your 2015 salary. The automatic lump sum is 3 * pension.

Note that above when I write salary it is a reference to final pensionable pay, which is usually your salary over the last 12 months.

westv

Isn't it equivalent full time salary for those that reduce their hours prior to receipt of the classic pension?

hugheskevi

Isn't it equivalent full time salary for those that reduce their hours prior to receipt of the classic pension?

Yes.

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jamesperrett

hugheskevi wrote: »

Note that above when I write salary it is a reference to final pensionable pay, which is usually your salary over the last 12 months.

That's true in the majority of cases but, just to be pedantic, they actually look back at your last 3 years of service and use the best 12 month period in those 3 years - though they go back in 3 month steps from your retirement date so, if you have a variable pensionable salary, you need to pick your retirement date carefully.

hugheskevi

That's true in the majority of cases but, just to be pedantic, they actually look back at your last 3 years of service and use the best 12 month period in those 3 years - though they go back in 3 month steps from your retirement date so, if you have a variable pensionable salary, you need to pick your retirement date carefully.

Agreed, hence the 'usually' caveat. I didn't want to go into excessive detail to avoid confusion.

Note that when doing the step-backs, the highest period in cash terms is selected, and if results are identical for different periods, the most recent period is chosen. If the period chosen is not the most recent, it is adjusted for inflation to the retirement date. This can be important, as the 3 year look-back is only of use if pensionable FTE earnings actually go down in cash terms, not in the event of a pay freeze.

Kieran_Alex

I am being medically retired at the minute. I had the same question as you. I’ve had arguments on the phone with pension branch, arguing that that scheme paperwork said they are worked out using the individual scheme rules! I’ve been told that it doesn’t matter what scheme you were in, it’s all worked our based on the Alpha scheme now! And that’s what my figures show also😡😡😡