Civil service pension McCloud Review

pat1976

Apologies if this has already been discussed, I did try a search. 

I was in Premium and was transitioned to Alpha in 2015 along with most others. The review means that I can now choose at retirement  whether I would rather have Premium or Alpha pension on the period up to 2022.

Premium is 1/60th final salary per year worked paid at 60.
Alpha is career average 2.3% annual salary for each year worked paid at 67 (or is it SPA).

My final salary and career average across this period are pretty much identical due to a lack of pay rises and my lack of ambition. So Alpha will actually pay more, but at a later date.

Can anyone advise on how to compare the two?
Also are you aware of any other major differences between the two?

I have at least 15 years to decide, but I do like to know where I stand. 
Thanks 

Dazed_and_C0nfused

Another option is to take Alpha at 60 with an actuarial reduction.

hugheskevi

I was in Premium and was transitioned to Alpha in 2015 along with most others. The review means that I can now choose at retirement  whether I would rather have Premium or Alpha pension on the period up to 2022.

For the period 1st April 2015 - 31st March 2022 to be precise

Premium is 1/60th final salary per year worked paid at 60.

Noting final salary is measured in a number of ways, with the highest measure used for calculation purposes (last 12 months, best inflation-adjusted salary from last 4 complete scheme years which is 1st April - 31st March and highest average inflation adjusted salary over 3 complete years from last 13 years)

Alpha is career average 2.3% annual salary for each year worked paid at 67 (or is it SPA).

Alpha is 2.32%, payable without reduction from individual's State Pension age.

Can anyone advise on how to compare the two?

Most straightforward way is to look at amount of alpha pension payable with actuarial reduction from age 60. Actuarial factors are at this page.

However, as your premium final salary definition is most likely to be based on a measure other than salary over last 12 months, you do not know what you are comparing anyway (it isn't shown on your Annual Benefit Statement, so unless you have records and can calculate it yourself you will not know your current premium entitlement - the inflation adjustment from past years can commonly see the pension 10% higher than shown on Annual Benefit Statements).

Also are you aware of any other major differences between the two?

Depending on date of joining, your premium pension may have a protected minimum pension age of 50 (if joined before 6 April 2006).

pat1976

Thanks for the replies, I'll look at the actuarial reductions. 

My annual benefit statement does  show my Premium  benefits, but as of the 2015 wind up. Possibly going forward they might show it up to 2022 although that will likely cause confusion. 

hugheskevi

pat1976 said:

My annual benefit statement does  show my Premium  benefits, but as of the 2015 wind up. Possibly going forward they might show it up to 2022 although that will likely cause confusion. 

It shows them, but they are not accurate. They are based on your years of service and salary as at 31st March 2020. The actual calculation is based on years of service and final pay. As described above, final pay has multiple definitions, and as your pay has not increased in the last few years, it is very likely that the final pay definition is higher than salary as at 31st March 2020.

Although using salary as at 31st March 2020 is fine to get the numbers in the ballpark (+/- 10% or so), you do not have an accurate basis from which to start a detailed comparison. That means any conclusions you may draw from such a comparison are at best inaccurate, and potentially quite significantly so.

This is described on the scheme webpage, under the tax pages FAQs:

I have used the figures on my Annual Benefit Statement (ABS) and do not agree with your figures?

The pension figures on your ABS are an illustration of your accrued benefits as at the statement date (31 March 2020). The pensionable earnings used to calculate the annual pension is based on your actual salary and allowances in payment on the statement date and any bonuses received in the last 12 month period.

The pension figures used to calculate your Pension Input Amount shown on your PSS are the pensionable earnings calculated in accordance with the scheme rules, if you were to retire on that day. Therefore the pension figures on your ABS and those used for the PSS are not the same.

Also, the scheme was not wound-up in 2015. Wind-up is a technical term under which the liabilities of a pension scheme are moved to another party (eg an insurer) and the scheme closed. In 2015, the schemes were closed to further accrual for younger members, although final salary link and existing purchases of voluntary benefits continued.

The consultation says that future ABS will show the details up to 2022, but I would expect it to be sometime before that happens (probably 2023, maybe even 2024).

Trying_to_be_good

You don’t make a decision until you leave. The ill-health benefits are much better under Classic (or other legacy schemes) than alpha and would apply until Mar 22. Partner benefits are also different, the newer schemes are much more modern (less traditional, assuming marriage/civil partnership).
Basically, if you’re likely to be further promoted, Final Salary will give a beneficial outcome for the remedy period. If you’re unlikely to be much further promoted, alpha is likely to be better, but who knows the answer to that until it happens?

hugheskevi

Trying_to_be_good said:

The ill-health benefits are much better under Classic (or other legacy schemes) than alpha

Classic only has a single tier of ill-health but does have an enhancement. It is likely to be better than lower-tier alpha ill-health but less good than alpha upper tier ill-health (depending on age) I would expect.

I would also expect alpha ill-health to be better than classic plus, premium and nuvos ill-health due to the higher accrual rate of alpha (and the higher normal pension age becomes a good thing under upper-tier ill-health) - why do you think the legacy scheme ill-health arrangements would be better?

Trying_to_be_good said:

Basically, if you’re likely to be further promoted, Final Salary will give a beneficial outcome for the remedy period. If you’re unlikely to be much further promoted, alpha is likely to be better, but who knows the answer to that until it happens?

It does depend on age as well. Someone not too far off NPA who is promoted is still very likely to be better off under alpha for the remedy period due to the continuing final salary linkage after a member switches to alpha.

MoosMum

I am in Classic nearing NPA.  Looking at the figures it looks like I will be better off moving into Alpha for the remedy period as suggested. However whilst in Classic I was buying added years going back to early 90s until 2019. If I move to Alpha does anyone know what will happen to the added years bought in Classic from 2016 up to 2019?Will the payments be refunded or added to my CS pension up to to the start of the remedy period? Many thanks

hugheskevi

MoosMum said:

whilst in Classic I was buying added years going back to early 90s until 2019. If I move to Alpha does anyone know what will happen to the added years bought in Classic from 2016 up to 2019?Will the payments be refunded or added to my CS pension up to to the start of the remedy period? Many thanks

The Added Years contract would have continued whether you stayed in classic or switched to alpha (ie if you were younger than you are so moved in 2015). Hence the Added Years contract shouldn't be affected by the choice of scheme for 2015-22 period.

MoosMum

hugheskevi said:

MoosMum said:

whilst in Classic I was buying added years going back to early 90s until 2019. If I move to Alpha does anyone know what will happen to the added years bought in Classic from 2016 up to 2019?Will the payments be refunded or added to my CS pension up to to the start of the remedy period? Many thanks

The Added Years contract would have continued whether you stayed in classic or switched to alpha (ie if you were younger than you are so moved in 2015). Hence the Added Years contract shouldn't be affected by the choice of scheme for 2015-22 period.

Thanks for the response. I wasn't moved to Alpha due to my age.  So if I swap my Classic for Alpha in the remedy  will I in effect receive a little more pension each year as I have made these additional contrbutions?  I've tried doing calculations for Classic and Classic/Alpha using actuarial reduction table as I know exactly what my salary will be when I retire . Unless My CSP publish a revised retirement modeller I suppose I will just have to wait until I ask for my final pension figures!!

hugheskevi

MoosMum said:

Thanks for the response. I wasn't moved to Alpha due to my age.  So if I swap my Classic for Alpha in the remedy  will I in effect receive a little more pension each year as I have made these additional contrbutions? 

Yes. It is probably easiest to illustrate with figures. Assume that as at 31st March 2015 you had 30 years of service in classic (normal service and Added Years together). If you then decide to have alpha for the 2015-22 period, you will accrue alpha pension for those years, and also a small amount of extra years of service in Classic (the Added Years you are purchasing). So you could end up in 2022 with 7 years of alpha pension, and 31 years of service in classic, for example.