Clarification on CSPS assumptions

ManaLeh

Good evening, I've plucked up the courage to ask a question.

I have been a member of the CSPS since 2003; currently in Alpha having been moved from Premium in 2015. I will be 54 in May and would like to leave the CS in the next 2 to 3 years although I don’t intend to take pension benefits until I’m 60. I’m hoping to fund the gap between leaving the CS and turning 60 with my small Personal Pension (current pot approx. £73k) and some part time work.

With the purchase of added years and transfer in of a previous pension pot I calculate I’ll have 22 Reckonable Years at April 2021. This doesn’t take account of the McCloud judgement impact and my assumption is if I choose to select Premium for the years between 2015 and 2022 I could boost that to 29 years – all applicable at age 60?

Having looked at past expenditure and considering future plans I believe I need circa £25k per year of pension income. My normal salary is around £53,000 so half of that  should come close to my required figure. I have some savings (£100k) for contingency, no debts and am mortgage free. My statement from the Gov website says I’m entitled to a full pension at 67 and don’t need any more years of contributions to qualify. I know that’s not quite the right wording but hopefully it makes sense.

I was temporarily promoted in April 2020 (at a higher salary grade). I chose not to apply for the job and will step back to my previous role on 1 April 21. The temporary salary uplift is pensionable.

I have been following the forum for a little while and would very much appreciate answers to a few questions please:

1.   If, for example, I left the CS in May 2023 aged 56 am I right in thinking that my pension would be based on pensionable earnings from 1 April 20 to 31 March 21 (i.e. the higher salary), as the best scheme year of the last four?

2.   If the answer to question 1 is yes, would the pensionable salary figure be subject to any inflation adjustment? If yes, would that adjustment only occur once I’ve left the scheme or would it be accruing in the background even if, for example, I worked a further 2 or 3 years? This seems particularly important given that I’m not expecting any pay rises in future years.

3.  I will have some disposable income in the coming year(s) and wondered where it would be best directed? Assuming I could ‘save’ £1000 per month should I top up the personal pension pot – which I can do via AVCs directly from my salary. Or is there a more efficient way of boosting my DB pension through alpha additional contributions?

I read in a previous answer by Hugheskevi that additional contributions to Alpha could count under the Premium Scheme, due to McCloud, but I’m afraid I don’t follow how that might work. Would that be a more effective route to increase my DB pension at 60? I was considering regular contributions rather than a lump sum but I appreciate the deadline is looming for this decision.

Any answers/thoughts would be gratefully received. Many thanks.

hugheskevi

1.   If, for example, I left the CS in May 2023 aged 56 am I right in thinking that my pension would be based on pensionable earnings from 1 April 20 to 31 March 21 (i.e. the higher salary), as the best scheme year of the last four?

Yes, being careful to leave no later than March 2025.

2.   If the answer to question 1 is yes, would the pensionable salary figure be subject to any inflation adjustment? If yes, would that adjustment only occur once I’ve left the scheme or would it be accruing in the background even if, for example, I worked a further 2 or 3 years? This seems particularly important given that I’m not expecting any pay rises in future years.

Yes, it would be increased by CPI each year. It accrues in the background.

3.  I will have some disposable income in the coming year(s) and wondered where it would be best directed? Assuming I could ‘save’ £1000 per month should I top up the personal pension pot – which I can do via AVCs directly from my salary. Or is there a more efficient way of boosting my DB pension through alpha additional contributions?

It sounds like your premium pension alone will be largely sufficient from age 60 to meet your income needs. So once you reach State Pension age you should have plenty.

In itself, that rather points away from enhancing the DB pension, as that would boost income in all future years - including those post age 67 which you don't especially need. DC pension can efficiently fund the period between age 56-60 and then top up income between 60-67 to smooth income up to State Pension age.

Your premium pension should be around £26K p/a and State Pension around £9K, so say £35K in total. Ignoring tax, that means:

4 years of DC @ 35K = £140K

7 years of DC @ 9K (35-26) = £63K

Of that, you have £73K already in DC, so about £130K short, but you have £100K of savings which after 20% uplift would be £125K. And that is without any part-time work.

I read in a previous answer by Hugheskevi that additional contributions to Alpha could count under the Premium Scheme, due to McCloud, but I’m afraid I don’t follow how that might work. Would that be a more effective route to increase my DB pension at 60? I was considering regular contributions rather than a lump sum but I appreciate the deadline is looming for this decision.

You would simply purchase alpha Added Pension, and in due course when you are offered choice of premium or alpha service for the period 2015-22, if you choose premium then the alpha Added Pension you purchased up to April 2022 would be converted in Premium Added Pension (it would be equivalent value, so the annual amount would be lower, having a Normal Pension age of 60 rather than 67).

Any answers/thoughts would be gratefully received. Many thanks.

I think in your position more DC would work quite well,  and piling lots into DC - subject to Annual Allowance - whilst perhaps drawing on savings a little to facilitate large contributions would be very tax efficient.

Nothing wrong with Added Pension, but it doesn't look like an ideal fit for your circumstances.