Alpha Pension valuation

tintin00

Hi Folks,

I am joining the Civil Service in a few weeks and have been exploring all the pension options available (with the help of some great forum members).

I have settled on my strategy, but am keen to track the 'value' of my new pension.

Reason being, I keep a good tab on my net worth, such as property and various pension plans. The DB pension is an 'asset' so keen to account for this.

Does anyone have a good methodology for tracking the value of the value of a DB pension scheme. I was planning on using the CETV of the plan, but cannot find any calculator or formula to ascertain the value.

Grateful for any input.

JoeCrystal

Considering that it is not possible to transfer the CETV out of the Civil Service Pension Scheme, I don't think there is any point of keeping track of the pension pot. The best thing you could do is to keep track of what pension you already accrued at an annual basis. You may also want to keep track of lifetime allowance if it looks like you will reach £1,030,000 in due course. In that case, multiply your expected annual pension by 20. Also, you need to add to this the amount of any tax-free cash lump sum if it is additional to the pension.

EDIT: It is also worth looking at how much your DC pots & SIPP can buy in the scheme as well. You need to transfer them in within 12 months of being eligible to join the scheme.

Brynsam

JoeCrystal wrote: »

Considering that it is not possible to transfer the CETV out of the Civil Service Pension Scheme, I don't think there is any point of keeping track of the pension pot. The best thing you could do is to keep track of what pension you already accrued at an annual basis. You may also want to keep track of lifetime allowance if it looks like you will reach £1,030,000 in due course. In that case, multiply your expected annual pension by 20. Also, you need to add to this the amount of any tax-free cash lump sum if it is additional to the pension.

Completely agree with your very sensible approach, but just for clarification it IS possible to transfer out of the Civil Service Pension Scheme. If you have less than two years of membership, you can take a cash transfer to a new pension arrangement of your choosing. If you have more than two years of membership, you can transfer but only to another defined benefit scheme which will accept the transfer.

HappyHarry

As said above, it has no asset value, it is simply a future income stream.


How do you value your current employment income? Perhaps you could use the same method, possible uprating your pension income by inflation?

London_Town

tintin,

Unless I'm missing something, the annual Alpha pension statement should be sufficient for you to track it as a financial asset. I've probably got a similar attitude to yours, as I like to track my net worth as it evolves.

I do this monthly on a spreadsheet, for things like savings and mortgage debt. Then once a year I get my Classic and Alpha statements which allows me to project retirement income. Surely that's all you'll need?

JoeCrystal

Brynsam wrote: »

Completely agree with your very sensible approach, but just for clarification it IS possible to transfer out of the Civil Service Pension Scheme. If you have less than two years of membership, you can take a cash transfer to a new pension arrangement of your choosing. If you have more than two years of membership, you can transfer but only to another defined benefit scheme which will accept the transfer.

Ah, thank you for the reminder! I was thinking purely in DC pensions there.

MrLeek

This may be stating the obvious but alpha will provide an annual statement. They break apart the pensions that you earn - for example, if you accrue 4 years of pension - one year each of EPA-3, EPA-2, EPA-1 and a year of normal state pension age - you effectively have four alpha pensions.

Each of those pensions can be added to. You can switch between EPAs with some paperwork but you can only contribute to one at a time. The other pensions still exist, they all are subjected to the annual increase/decrease that gets applied (last year my alpha pots were increased by 3%).

You can also claim the different alpha pensions at the time it suits you - so you could take EPA-3 early but take the rest at SPA (and the EPA-2 and EPA-1 will be increased to reflect the fact that you’ve taken them late)

hugheskevi

I was planning on using the CETV of the plan, but cannot find any calculator or formula to ascertain the value.

You can find the alpha CETV (and other) factors at this page.

It isn't a great way of keeping track of value though, as it is mostly dependent on the discount rate which HM Treasury keeps changing. As such, the 'value' of your pension as valued on CETV basis keeps changing. As HM Treasury have been reducing the discount rate, the 'value' of your pension on a CETV basis is increasing quite significantly.

Of course, the CETV value is probably going to be irrelevant to you, and what matters is the annual income which is unchanged by adjustments to the discount rate.

Personally, I'd suggest not valuing the pension on a capitalised basis, and having it as a separate part of your accounts, similar to how you may be recording State Pension entitlement and its value in your retirement. Your entitlement is to an annual income, not a capital amount, so I think keeping it in those terms is the best approach to record its value. If you do want to use a capitalised basis, CETV is probably the best approach despite its flaws.

tintin00

hugheskevi wrote: »

Personally, I'd suggest not valuing the pension on a capitalised basis, and having it as a separate part of your accounts, similar to how you may be recording State Pension entitlement and its value in your retirement. Your entitlement is to an annual income, not a capital amount, so I think keeping it in those terms is the best approach to record its value. If you do want to use a capitalised basis, CETV is probably the best approach despite its flaws.

Thank you all for your helpful and detailed replies. Above sums up what I know is the sensible approach.

I have been carefully tracking my overall saving rate (pensions included) and was hoping to include the DB pension, but clearly I just need to get my head round a much lower saving rate, but with the promise of a future income. FYI I am moving from a high paid job with a rubbish pension that I top up no end, to a much lower paid job with a ace pension (alpha).

Bravepants

Just wait for your annual pension statement. Otherwise accrue by 2.32% of gross annual pension per year and increase by inflation as is stood at the previous September.

MancJonny

Here is a YouTube video explaining Alpha:
https://www.youtube.com/watch?v=Wq3lEA_z9zA