Quick advice needed for pension transfer from USS to Alpha

intacted

Hi there, I got a quick question. I have moved from a job at a University (USS pension) to working for civil service. I was eligible to join Alpha scheme which I did and now I am wondering if I should transfer my old USS pension to Alpha. I got quotes from both to consider the transfer, so the value of the USS pot is £81k and that right now translates to £3.6k pa pension, plus £10k that I will get as lump sum. Alpha got back to me saying that for that pot they will offer £8.5k pa (no lump sum that I can see). It sounds much better and with both being the defined benefit pensions the comparison should be easy. But there are differences. Alpha I can only take at the age of 68, when USS I can 3 years earlier. But with all that is currently going on with USS it may be a good idea to transfer, but I am worried of putting all eggs in one basket. I am currently 40 years old and earn around £55k pa. Can someone maybe help me understand pros and cons?

kinger101

Factoring 20% income tax on the annual pension, the breakeven point in Alpha will be between 72 an 73 y/o,
Based on average life expectancy post 65, Alpha is the likely winner.  On an income income of £55K, you're also nudging into HR tax.  I'm not sure what employer options are for AVCs, but on that income, you should be making additional contributions to either that or a SIPP to reduce your annual income back to £50K to drop yourself back into basic rate.  You can either them take employer pension early, or use SIPP pot to live off until employer pension kicks in.

There's probably other people in Alpha who can comment on merits of AVC vs SIPP.

Age	USS	USS Cumm	Alpha	Alpha Cumm
65	12880	12880	0	0
66	2880	15760	0	0
67	2880	18640	0	0
68	2880	21520	6800	6800
69	2880	24400	6800	13600
70	2880	27280	6800	20400
71	2880	30160	6800	27200
72	2880	33040	6800	34000
73	2880	35920	6800	40800
74	2880	38800	6800	47600
75	2880	41680	6800	54400

Bravepants

There are calculators available on the Civil Service pensions website. I joined an organisation with a Civil Service Scheme in 2005 and transferred a USS pension into the then Premium Pension. I haven't regretted it. Your £8.5k a year offer sounds better than £10k lump sum and £3.5k a year any day of the week!

If you need to go earlier than 68 then you could take an actuarially reduced Alpha pension.

There are Excel spreadsheets available from the site that provides you with the actuarial reduction figures. I have them here. So, if your Alpha quote says £8.5k at 68, then if you retire on your 65th birthday, the actuarial reduction would be 0.838 (83.8%) of £8.5K, so £7.1k. Still better than USS!

Regarding extra pension provision...You can buy Added Pension in Alpha, by monthly deductions from pay AND a single lump sum once a year. Buying extra guaranteed and index-linked pension income is overall a better option than SIPP.

(Edited to re-order information!)

german_keeper

You can also commute some of your Alpha pension into a lump sum and I think there is a calculator for that on the MyCSP website. The commutation rate at 12:1 is rubbish so probably not a wise move but by combining that with Bravepants suggestion I think you could then do an exact comparison. I have had a quick look at the Alpha AR factors and it looks to me like with NPA of 68, for 65 the factor is 0.84.
Also I am thinking the annual increase in accrual is probably relevant. Alpha is CPI, USS may be different.

kinger101

^^
For deferred members, the yearly revaluation is based on "official pensions" (therefore currently CPI), but after 5%, they'll only match half the excess up until 10%.  Not sure if this is the same in Alpha, but there is a significant inflation risk for someone over two decades from retirement.

I think USS wrote this rule in hoping it would gradually erode their liabilities, and then were then disappointed to find they were in period of low inflation.  But who knows what the cumulative effect will be in the future.

NedS

I have a deferred USS pension of around £4k and am a current member of the CS Alpha scheme.

My deferred USS pension grows at CPI annually, capped at 5%. Shame it's no longer RPI, but in the current low inflation world this seems quite reasonable. My Alpha pension grows at CPI annually.

I think the Alpha scheme is linked to state retirement age, so the age at which you get alpha could conceivably rise again from 68 so that maybe a risk you should consider.

The commutation factor of USS is a lot better. Last time I modeled (2019) it was 17.588 compared to 12.0 of alpha.

As bravepants said above, I would definitely consider making extra contributions, either by purchasing additional pension from alpha if you want to increase your DB allocation or to a SIPP if you want more DC. Personally I have done both, aiming for enough DB to cover our every day living costs from guaranteed income and enough DC to bridge the gap from early retirement and to pay for the extra things in life we may like.

intacted

Thank you lots for all your help! I really appreciate it. It is unlikely I would want to retire earlier than 68 so I think I am willing to risk it by transferring my USS pot to alpha. About extra contributions I am not really sure how that works in Alpha. I right now contribute 5.45% of my gross salary to the pension, but If I was to increase it, i know I would go back to a basic rate of tax but I would have to contribute 8% of my salary, and I don't even know how is the employer matching the extra contribution as the website is quite confusing to me. I know when I pay basic rate of 5.45% I am adding 2.32% of my salary to a future annual pension. So that would be £54.300x2.32%=£1260 to my annual pension every year until I retire. If I stayed on exactly the same salary for another 28 years that would result in a decent £35k pa pension (that doesn't include the CPI of course). But if I increase it to 8% isntead of 5.45% would that result in bigger increase of the 2.32% factor? Cannot seem to find it anywhere.

Dazed_and_C0nfused

Don't think you can increase the 5.45%.

You can buy extra pension or pay to take it early but they are separate elements to the main Alpha pension I think.

Employer matching in a defined benefit or CARE scheme is irrelevant from the perspective of what pension you would get as they are defined amounts, there is no pot.

intacted

Bravepants said:

Regarding extra pension provision...You can buy Added Pension in Alpha, by monthly deductions from pay AND a single lump sum once a year. Buying extra guaranteed and index-linked pension income is overall a better option than SIPP. 

HI OK, so I went through the options available in alpha and I think if I was to pay additional £116 per month towards the added alpha pension I will drop into a basic tax rate. I used the calculator provided online on alpha website and it says what I pasted below. But I do not understand what is that sef added pension, per year? So If i contribute already to alpha by 5.45% and every year I end up with £1260 towards my annual pension does that just goes on top of it?: You have chosen to calculate a monthly payment of £116.00 per month, this will purchase a self added pension of: £150.75

Bravepants

The added pension goes on top of your normal Alpha Pension, yes. This will be confirmed in your annual pensions statement.

MyCSP updates the Added Pension calculator each year. The calculations are valid in there for only ONE year. So your £116 per month assumes that you will only pay this for one year, and in return you will get an additional £150.75 per year of Alpha Pension. So you will have paid £1392 over the 12 month period and you will get back £150.75 extra per year when you retire. Each February your company will send you an email to ask if you wish to buy Added Pension for the year, and you can complete another application form for that year. They used to offer the option of making a payment over a number of years, but I think the preferred option is to just do it year on year because the purchasing price of Added Pension changes.

intacted

I have been in civil service for only 9 months so I do not have access to annual statement or the online pension portal, they said that will change after I got my first annual statement. If the application for added pension is happening for each tax year I hope I will be able to apply for this year too, maybe they can backtrack those missing payments, I will send them an email on monday. Anyway thanks a lot everyone for your help! I will take your advice, I will transfer to Alpha, and I will get that added pension so I do not waste money on 40% tax instead