Transfer DC Pension into Alpha Civil Service?

PeterC365

michaels said:

I think the default spousal benefit is only 1/3 for Alpha

However it has full CPI indexation so that is the annuity you need to compare against.

And as above you need to assume some sort of real terms growth for the money pot, somewhere between 2 and 5% is probably realistic; then you need to factor in that annuity rates are also variable. 

Once you do this returns are not that different but I still went for the transfer in as I value the certainty.  In the past (and maybe again in the future) it could also help with the LTA but obliviously at the expensive of inherit-ability.

Default Alpha is 1/3 but I can’t find details for an approx annuity rate for that with CPI online.

I’m fortunate in having more than the £275k so my thinking is to look a floor level income, secure that via CS pension and leave the rest in my SIPP - possibly increasing investment risk and growth. 

Would potentially allow me to also bridge anytime from 57-67 and also look at EPA options. 

Happy to hear anyone’s thoughts and experiences 

Albermarle

PeterC365 said:

hugheskevi said:

PeterC365 said:

Wanted to resurrect this thread, I'm joining the CS and would have the opportunity to transfer in from my DC scheme.  
I'm coming in at a salary around £47k so assuming the 50% rule applies I could get £23.5k.

I'm currently 46 so using the added pension calculator, £1000 DB pension costs £11782 extrapolated out I reckon it would cost £275k to max out. 

Is my thinking correct and is this the proverbial no brainer I think it is.  My logic being £275k would only buy me about £12k based on a Joint Life / 50% annuity with 3% escalation.

Remember to take into account real growth on investment between age 46 and 67/68 in your annuity comparator figure.

My thinking was after inflation and fees it’s probably a wash or 1-2% growth. I’m pretty vanilla global track invested. 

In the previous decade, real growth was in the region of 7 to 10% pa.
This decade was predicted to be slower and so far has proved to be the case. However seems unlikely there will be no  real growth in the years ahead.

hugheskevi

Assuming no real return after fees for a global equity tracker over the next 20 years is very pessimistic.

Also take into account that you would get a 25% tax free lump sum from the DC pension, whereas any lump sum you take from alpha will be on such bad commutation terms that you are effectively being taxed to take it instead of income.

If you are comparing an RPI linked annuity be aware that is much better than CPI indexation over time (approximately 1 percentage point difference each year).

There is a big difference between indexation capped at 3% and uncapped indexation.

Also consider that you are unlikely to annuitise the DC pot, so whilst it may be of use to assess value, be sure to consider how much you value the flexibility of DC compared to the inflexible DB, especially for early retirement and income smoothing in advance of State Pension.

Although you will be building up DB and could purchase extra, it will still accrue slowly. You can always build (rebuild) a DC pot but building DB is harder. If you were to leave for private sector then DB would probably be unavailable.

The DB pension comes with some uncertainty, primarily around future change to State Pension age, but recent years have also seen retrospective change to indexation (RPI to CPI). The DC pension comes with investment risk but probably less risk than the DB pension to future government policy change.

Personally I'd value a good DB core pension so would transfer at rates which are reasonable (which they are).

michaels

PeterC365 said:

michaels said:

I think the default spousal benefit is only 1/3 for Alpha

However it has full CPI indexation so that is the annuity you need to compare against.

And as above you need to assume some sort of real terms growth for the money pot, somewhere between 2 and 5% is probably realistic; then you need to factor in that annuity rates are also variable. 

Once you do this returns are not that different but I still went for the transfer in as I value the certainty.  In the past (and maybe again in the future) it could also help with the LTA but obliviously at the expensive of inherit-ability.

Default Alpha is 1/3 but I can’t find details for an approx annuity rate for that with CPI online.

I’m fortunate in having more than the £275k so my thinking is to look a floor level income, secure that via CS pension and leave the rest in my SIPP - possibly increasing investment risk and growth. 

Would potentially allow me to also bridge anytime from 57-67 and also look at EPA options. 

Happy to hear anyone’s thoughts and experiences 

I have done very similar in the last 12 months about 5 years older than you and am then also maxing contributions as added pension (and EPA as this has some tax advantages) but planning this for only about 2 years before retiring.  It was about 25% of our combined pension savings.  The loss of the TFLS (effectively) is a negative I missed in my planning.  Taking the DB early is on my radar as when I do I can then assign 100% benefit to my DW who has very limited provision on her own. 

Personally I value having the secure index linked baseline and will be more adventurous with my remaining DC pot.

With a hopefully realistic SWR we are currently looking at between 45-50k gross inflation adjusted for life as a couple retiring at 55 with only the loss of one state pension on first death.

NedS

PeterC365 said:

michaels said:

I think the default spousal benefit is only 1/3 for Alpha

However it has full CPI indexation so that is the annuity you need to compare against.

And as above you need to assume some sort of real terms growth for the money pot, somewhere between 2 and 5% is probably realistic; then you need to factor in that annuity rates are also variable. 

Once you do this returns are not that different but I still went for the transfer in as I value the certainty.  In the past (and maybe again in the future) it could also help with the LTA but obliviously at the expensive of inherit-ability.

Default Alpha is 1/3 but I can’t find details for an approx annuity rate for that with CPI online.

I’m fortunate in having more than the £275k so my thinking is to look a floor level income, secure that via CS pension and leave the rest in my SIPP - possibly increasing investment risk and growth. 

Would potentially allow me to also bridge anytime from 57-67 and also look at EPA options. 

Happy to hear anyone’s thoughts and experiences 

If you do not currently have any DB pension income, then I think that is a very sensible thing to consider, and there is no better DB scheme than the CS scheme with it's uncapped indexation (just ask those currently suffering with a 2.5% cap!)

As you say this will not use all of your SIPP, and you can always rebuild your SIPP over the next 10 years with additional contributions knowing you have a good base income provided by the DB pension. It gives you a stake in both games which isn't a bad place to be.

PeterC365

michaels said:

PeterC365 said:

michaels said:

I think the default spousal benefit is only 1/3 for Alpha

However it has full CPI indexation so that is the annuity you need to compare against.

And as above you need to assume some sort of real terms growth for the money pot, somewhere between 2 and 5% is probably realistic; then you need to factor in that annuity rates are also variable. 

Once you do this returns are not that different but I still went for the transfer in as I value the certainty.  In the past (and maybe again in the future) it could also help with the LTA but obliviously at the expensive of inherit-ability.

Default Alpha is 1/3 but I can’t find details for an approx annuity rate for that with CPI online.

I’m fortunate in having more than the £275k so my thinking is to look a floor level income, secure that via CS pension and leave the rest in my SIPP - possibly increasing investment risk and growth. 

Would potentially allow me to also bridge anytime from 57-67 and also look at EPA options. 

Happy to hear anyone’s thoughts and experiences 

I have done very similar in the last 12 months about 5 years older than you and am then also maxing contributions as added pension (and EPA as this has some tax advantages) but planning this for only about 2 years before retiring.  It was about 25% of our combined pension savings.  The loss of the TFLS (effectively) is a negative I missed in my planning.  Taking the DB early is on my radar as when I do I can then assign 100% benefit to my DW who has very limited provision on her own. 

Personally I value having the secure index linked baseline and will be more adventurous with my remaining DC pot.

With a hopefully realistic SWR we are currently looking at between 45-50k gross inflation adjusted for life as a couple retiring at 55 with only the loss of one state pension on first death.

Appreciate everyone's input on this, I wanted to just check Micahels you said you missed the loss of TFLS in your planning I take it you mean by committing the the transfer you lose 25% of the amount you transfer ie I spend 200k on purchasing DB and I loose the potential 50k tax free. 

I also wasn't quite clear on what you mean by assigning 100% benefit to your DW can you explain that further, I too have a DW with very limited provision. 

I think I'm very similar in my thinking to yourself in valuing some core BD benefit that would generally meet day to day outgoings and retaining a DC pot to enhance flexibility for early retirement and inheritance down the line for my kids 

PeterC365

hugheskevi said:

Assuming no real return after fees for a global equity tracker over the next 20 years is very pessimistic.

I agree, I am somewhat pessimistic.  I found this to be an interesting take monevator expected returns article (can't post the link - newbie) and having a roughly 10-15 year horizon before pushing the button I don't want to overcook it - hence why I said 1-2% annualised real return. It's total crystal ball stuff though...

michaels

PeterC365 said:

michaels said:

PeterC365 said:

michaels said:

I think the default spousal benefit is only 1/3 for Alpha

However it has full CPI indexation so that is the annuity you need to compare against.

And as above you need to assume some sort of real terms growth for the money pot, somewhere between 2 and 5% is probably realistic; then you need to factor in that annuity rates are also variable. 

Once you do this returns are not that different but I still went for the transfer in as I value the certainty.  In the past (and maybe again in the future) it could also help with the LTA but obliviously at the expensive of inherit-ability.

Default Alpha is 1/3 but I can’t find details for an approx annuity rate for that with CPI online.

I’m fortunate in having more than the £275k so my thinking is to look a floor level income, secure that via CS pension and leave the rest in my SIPP - possibly increasing investment risk and growth. 

Would potentially allow me to also bridge anytime from 57-67 and also look at EPA options. 

Happy to hear anyone’s thoughts and experiences 

I have done very similar in the last 12 months about 5 years older than you and am then also maxing contributions as added pension (and EPA as this has some tax advantages) but planning this for only about 2 years before retiring.  It was about 25% of our combined pension savings.  The loss of the TFLS (effectively) is a negative I missed in my planning.  Taking the DB early is on my radar as when I do I can then assign 100% benefit to my DW who has very limited provision on her own. 

Personally I value having the secure index linked baseline and will be more adventurous with my remaining DC pot.

With a hopefully realistic SWR we are currently looking at between 45-50k gross inflation adjusted for life as a couple retiring at 55 with only the loss of one state pension on first death.

Appreciate everyone's input on this, I wanted to just check Micahels you said you missed the loss of TFLS in your planning I take it you mean by committing the the transfer you lose 25% of the amount you transfer ie I spend 200k on purchasing DB and I loose the potential 50k tax free. 

I also wasn't quite clear on what you mean by assigning 100% benefit to your DW can you explain that further, I too have a DW with very limited provision. 

I think I'm very similar in my thinking to yourself in valuing some core BD benefit that would generally meet day to day outgoings and retaining a DC pot to enhance flexibility for early retirement and inheritance down the line for my kids 

You can have a TFLS from the alpha pension but you only get £12 of TFLS for each £1 of ongoing annual income you give up.  This is such poor value that it makes no sense hence it is likely you will only take taxable annual income from Alpha rather than any TFLS.

Once you start drawing the pension you can choose to reduce the annual amount by a proportion (for me about 8%, on a sliding scale) and then have your partner eligible to receive 100% rather than the standard 33% if you pre-decease.  Note this can only be done once you start drawing, hence I am hoping to retire before SPA but rather than using my DDC pot to bridge until SPA and drawing the DB then I will likely take the DB early (with the resulting reduction) so I can put in place this extra protection for my DW.  However I also need to investigate providing this extra protection during the period between retirement and SPA via life insurance as I guess that might work out cheaper.

PeterC365

Do you have a link to where it tells you that this proportioning can be done? I haven’t seen that but it’s pretty handy. 

At todays rates 10 yr £20k per annum for someone 55 in good health I’m seeing policies at £25/month.  Similarly a £200k decreasing term is about the same price. 

michaels

The allocation factors are her:
alpha-allocation-factors-and-guidance.pdf (civilservicepensionscheme.org.uk)