McCloud for deferred Nuvos/Alpha scheme members

ljayljay

Following the McCloud judgement I can understand that it will be pretty complex to resolve best course of action for all members.

However, just to check that my understanding is correct will it be fairly straightforward for most, if not all, ex-Nuvos scheme members to revert back to Nuvos until 2022, or in my case when I left in 2019? They are both career average, accrual rate almost identical but Nuvos NPA is 65 rather than the individuals SPA.

I am almost 60 so have plenty of time for it to get sorted but just interested in case I decide to take early with an acturial reduction.

hugheskevi

Your thinking is correct. For those who reached state pension age prior to 2018 though, alpha will be better than nuvos as the alpha normal pension age was 65 for those members.

Members who suffer ill-health will also be better off under alpha.

george_jetson

In general is this a good “rule of thumb” for all legacy schemes? In particular Classic as I think Alpha accrued at a faster rate - but is career average rather than final salary. 

I know circumstances will depend on individual circumstances but until we get a proper comparison tool I was wondering if - everything else being equal - it is reasonable to assume the older schemes are “better”.,.

hugheskevi

In general is this a good “rule of thumb” for all legacy schemes? In particular Classic as I think Alpha accrued at a faster rate - but is career average rather than final salary. 

I know circumstances will depend on individual circumstances but until we get a proper comparison tool I was wondering if - everything else being equal - it is reasonable to assume the older schemes are “better”.,.

No, for those not too far from retirement (say 55+) alpha will usually be better than classic. This is because final salary links remain in place, so all past service is the same. This enables the much higher alpha accrual rate to outperform classic, whereas if classic had been closed and no final salary link applied alpha would be less favoured.

Premium and classic plus are less clear - the more generous final salary definitions (looks back 13 years and increases for inflation) combined with the last decade of pay restraint can make premium extremely good. It is not uncommon for a member's 'final pay' as measured by their best inflation-adjusted salary over last 13 years to be as much as 10% higher than their actual salary. Effectively, they have a non-contributory 1/60ths scheme with NPA 60 for that 10% of salary compared with nothing under alpha, so premium can outperform alpha even for older members.

Younger members are more likely to benefit from the older schemes, but if they do not have much salary progression that may not be the case.

It is extremely dangerous to assume anything - far too many members put far too much emphasis on either alpha having a higher NPA, or assuming that a new scheme must be worse than the schemes it replaced. The big savings came mostly from the RPI-CPI switch for revaluation/indexation in 2011, and also the increase in member contributions between 2012-2014. The change to the post 2015 schemes was more of a redistribution (from younger members to older members in the Civil Service, less so in schemes that put in place enhanced in-service revaluation such as NHS and Teachers) than a cut - although most of the govt. literature on pension reform savings lumps all these changes together and refers to them as the 2015 changes, despite all the big cuts having already taken place by then.

george_jetson

hugheskevi said:

No, for those not too far from retirement (say 55+) alpha will usually be better than classic. This is because final salary links remain in place, so all past service is the same.

I fall into this position and was confused as Alpha seems more advantageous but I assumed the older scheme would be "better" - I was wondering what I was missing...

hugheskevi said:

It is extremely dangerous to assume anything - far too many members put far too much emphasis on either alpha having a higher NPA, or assuming that a new scheme must be worse than the schemes it replaced. 

Definitely guilty of this...!

Thanks for the comprehensive and useful reply

ljayljay

hugheskevi said:

Premium and classic plus are less clear - the more generous final salary definitions (looks back 13 years and increases for inflation) combined with the last decade of pay restraint can make premium extremely good. It is not uncommon for a member's 'final pay' as measured by their best inflation-adjusted salary over last 13 years to be as much as 10% higher than their actual salary.

I concur as I was in the Premium scheme until being made redundant in 2008. When I applied for my deferred pension recently I was pleasantly surprised at the revaluation after RPI/CPI based on my 'best' year in, I think, 2003/4.

After a further redundancy in the private sector I rejoined CS pension & ended up on a higher pay grade than when I left in 2008. However, due to pay freezes etc my pay ended up being £6K less than my revalued pay from 2003/4.

Like you say it is dangerous to assume anything after all the changes that have taken place.

At least your original reply regards Nuvos/Alpha does confirm to me my original thinking....many thanks.