Civil service pension help

Shytorque

I am a retired civil servant who worked for the MOD roughly 15 yrs,(joined 2004). I was placed on their Premium pension. My colleague (he joined in 2001), who is about to leave work who had effectively the same job as me. contacted me with a few questions about his forthcoming pension.
it transpires that he is currently on the Classic pension scheme, which entitles him to a 3x annual salary lump sum when he leaves , without any deductions from his monthly pension.
Premium pension scheme members do not receive this lump sum.
How has this happened? why was I not on the classic scheme and where is my lump sum?
can anybody help?
Thanks in advance Shytorque

Dazed_and_confused

According to the civil service pension website Classic was closed to new entrants from 1 October 2002.

Have you actually checked to see what benefits you were accruing compared to Classic?

It may be you were building up a bigger pension than you would have in Classic but with no lump sum as a consequence.

And have you checked if you can voluntarily give up some of your pension in return for a lump sum?

If you are unaware of how your pension works you would probably want to take a look at your State Pension forecast on gov.uk so there are no nasty surprises (or unexpected bonuses) when you reach State Pension age

Dazed_and_confused

On closer look you were accruing a bigger pension.

Classic was an 80ths scheme i.e. 20 years service gives you a pension of 20/80ths (one quarter of final salary)

Premium was a 60ths scheme i.e. 20 years service gives you a pension of 20/60ths (one third of final salary). But with no automatic lump sum.

Silvertabby

Dazed_and_confused wrote: »

On closer look you were accruing a bigger pension.

Classic was an 80ths scheme i.e. 20 years service gives you a pension of 20/80ths (one quarter of final salary)

Premium was a 60ths scheme i.e. 20 years service gives you a pension of 20/60ths (one third of final salary). But with no automatic lump sum.

Plus the automatic lump sum is 3 x pension, not salary.

mark5

Silvertabby wrote: »

Plus the automatic lump sum is 3 x pension, not salary.

As an example if he finished on a salary of 30000 with 18 years service he would receive about £20,250 lump sum, not £90000 and his annual pension would be roughly £6750.

I was a member of this scheme myself through DARA and it was a really good deal for the tiny contribution.

GunJack

mark5 wrote: »

I was a member of this scheme myself through DARA and it was a really good deal for the tiny contribution.

North or South? I may know you

Shytorque

Many thanks for all your replies.
Of course the lump sum is 3x pension and not salary, Doh!
So the main difference is 15/60 yrs not 15/80years.
Still feels like "I missed the boat".
Cheers again shytorque

Dazed_and_confused

I'd settle for your boat. Using your example of 15 years you are getting 33% more pension than your colleague.

If pensionable salary was say £30k then
15/80 = £5,625 plus lump sum £16,875

15/60 = £7,500 (no lump sum)

So after 20 years of retirement your colleague will have received £129k (£5,625 x 20 + £16,875)

You will have received £150k (£7,500 X 20).

And in reality you would be even better off as you are receiving more value from the annual inflation increase a civil service pension presumably receives).

Silvertabby

Shytorque wrote: »

Many thanks for all your replies.
Of course the lump sum is 3x pension and not salary, Doh!
So the main difference is 15/60 yrs not 15/80years.
Still feels like "I missed the boat".
Cheers again shytorque

Dazed beat me to it. Using mark5's example of a final salary of £30K and 18 years service:

1/80th scheme (automatic lump sum of 3 x pension)

Standard pension = £6750.00 and lump sum = £20,250.00

Maximum commutation = £5424.11 pension and £36160.71 lump sum

1/60th scheme (no automatic lump sum)

Standard pension = £30000/60 x 18 = £9000

Maximum commutation = £5785.71 pension and £38571.43 lump sum

or, more of a direct comparison with the 1/80th scheme:

£6750.00 pension and £27000 lump sum.

So, far from missing the boat you've well and truly floated it !

P.S. Are you making the classic mistake of thinking that 1/80th is bigger than 1/60th because 80 is more than 60? (had to explain that many times when the LGPS switched from 1/80th to 1/60th )

hugheskevi

One of the other key differences between classic and premium is how final salary is calculated.

In classic, it is simply the best salary in the last 3 years. This is calculated by looking at salary in last year, then stepping back 91 days and looking at the salary in the preceeding 12 months, and so on until a 3 year period is reached. If salary is unchanged (eg a pay freeze) the most recent figure is chosen. If salary from a previous period is used, it is increased by inflation to the current date.

In premium, inflation adjustments to past salary are applied before any comparison are made, and the best salary over a period of up to 13 years is used.

In normal times, the difference in approach wouldn't matter very much, as you would expect in most cases that salaries would increase by more than inflation. But over the last decade this hasn't been the case, and it is not unusual to see final salaries used to calculate pension entitlement being around 10% higher under premium calculation than they would be under classic.

Also for completeness, it should be noted premium members paid 2 percentage points higher member contribution rate than classic members between 2002 - 2015 (and for classic members who will get contributions refunded due to being unmarried at retirement, the difference is greater).

BobQ

hugheskevi wrote: »

One of the other key differences between classic and premium is how final salary is calculated.........

Very well put.

If you want to compare the schemes take the Pension in the Premium scheme and commute the pension to provide the same lump sum.

The impact of the different way of calculating pensionable pay is becoming less important. But the impact of public sector pay austerity over the past 10 years has meant that those retiring in the past few years from Premium have significantly benefited compared to those in Classic. But those in Classic who had the option to move to Premium in 2003? never imagined how significant this decision would be on their final pension.