Understanding civil service pension employer contribution

ghafooci

I'm a civil servant in the alpha scheme, and trying to understand how employer contributions work in order to make a decision on whether it's worth buying 'added pension'. 

For simplicity, let's assume my pensionable earnings are £50,000 in the year 2021-22. The applicable employee rate is 5.45% so my contributions would be 5.45% of 50,000 = £2,725

The applicable employer rate for my pensionable earnings is 27.9%. What does this mean? Does it mean that my employer is paying into my pension 27.9% of 2,725 = £760.28?

Also, would the contribution rate be the same for 'added pension payments'? E.g. if I bought £2,000 of added pension would my employer be contributing 27.9% of 2,000 = £558?

Many thanks for any advice. Employer contribution is not obvious from the annual benefit statements and I find it very puzzling.  

Dazed_and_C0nfused

Nothing really as Alpha is a DB scheme, you don't have a pension fund/pot like you would with a DC scheme.

You are paying £2,725 (£2,180 after taking into the tax benefit).

In return you have accrued a pension of £1,160.

What the employer contributes doesn't alter that.

NedS

Further, with respect to buying added pension, neither the employer contributions or your own employee contributions bare any relevance. To answer your question, the rates are not the same when buying added pension as added pension is not subsidised by the employer.

Buying added pension is a standalone contract. You get a quote (using the added pension calculator) that, for example, paying £10,000 would buy you £1000 additional pension at your normal scheme retirement age, which will increase with CPI inflation along with the rest of your Alpha pension. The quoted price will be based on your current age. If you think it's a good deal, go for it. If not, don't. But don't confuse it with any employer/employee pension contributions that may show on your payslip.

You can almost view buying added pension like purchasing an annuity in advance that is index linked to rise with CPI inflation and will start paying at your state retirement age.

NedS

See here for details on added pension:

https://www.civilservicepensionscheme.org.uk/members/how-to-increase-your-pension/added-pension/

and the calculator is here:

https://www.civilservicepensionscheme.org.uk/members/member-calculators/

MX5huggy

ghafooci said:

I'm a civil servant in the alpha scheme, and trying to understand how employer contributions work in order to make a decision on whether it's worth buying 'added pension'. 

For simplicity, let's assume my pensionable earnings are £50,000 in the year 2021-22. The applicable employee rate is 5.45% so my contributions would be 5.45% of 50,000 = £2,725

The applicable employer rate for my pensionable earnings is 27.9%. What does this mean? Does it mean that my employer is paying into my pension 27.9% of 2,725 = £760.28?

Also, would the contribution rate be the same for 'added pension payments'? E.g. if I bought £2,000 of added pension would my employer be contributing 27.9% of 2,000 = £558?

Many thanks for any advice. Employer contribution is not obvious from the annual benefit statements and I find it very puzzling.  

Your rate of contributions and your employers rate are not significant facts, they don’t effect what you get. But for the record it’s 27.9% of your pensionable pay that it costs them so £13900 per year that’s is why it’s such a good deal. 

If you buy added pension your employer will not add anything, which is why it can look poor value compared with the main benefits. 

kidmugsy

ghafooci said:

I'm a civil servant in the alpha scheme ... to make a decision on whether it's worth buying 'added pension'.

Try comparing it with other ways you might invest to support yourself in old age. For example if you are under forty compare it with a LISA.

marlot

ghafooci said:

I'm a civil servant in the alpha scheme, and trying to understand how employer contributions work in order to make a decision on whether it's worth buying 'added pension'. 

For simplicity, let's assume my pensionable earnings are £50,000 in the year 2021-22. The applicable employee rate is 5.45% so my contributions would be 5.45% of 50,000 = £2,725

The applicable employer rate for my pensionable earnings is 27.9%. What does this mean? Does it mean that my employer is paying into my pension 27.9% of 2,725 = £760.28?

Also, would the contribution rate be the same for 'added pension payments'? E.g. if I bought £2,000 of added pension would my employer be contributing 27.9% of 2,000 = £558?

Many thanks for any advice. Employer contribution is not obvious from the annual benefit statements and I find it very puzzling.  

Essentially there are two types of pension.

With a Defined Contribution pension, you and/or your employer add money to a pot.

With a Defined Benefit pension there is no pot as such.  Instead, you earn a promise of a future payment.

Defined Benefit schemes are usually very valuable.  Alpha is a rather good Defined Benefit scheme.

marlot

Dazed_and_C0nfused said:

Nothing really as Alpha is a DB scheme, you don't have a pension fund/pot like you would with a DC scheme.

You are paying £2,725 (£2,180 after taking into the tax benefit).

In return you have accrued a pension of £1,160.

What the employer contributes doesn't alter that.

I would just add that the £2,180 is a one-off.  In return you get the £1,160 every year of your retirement.

Next year you pay another £2,180.  And get another £1,160 every year of your retirement.

Your accrued slices of £1,160 are uprated by inflation each year.

Amazing value for money!

Hollytom

The employer contributes 27% percent of your salary. The easiest way to check exactly how much is by looking on your payslip the ers contribution is detailed on there. 

That’s why the civil service pension is so good in my opinion 

hugheskevi

Hollytom said:

The employer contributes 27% percent of your salary. The easiest way to check exactly how much is by looking on your payslip the ers contribution is detailed on there. 

That’s why the civil service pension is so good in my opinion 

The employer contribution is comprised of:

• 19.3% to cover the cost of newly accruing pension
• 3.1% to cover past notional deficits (which primarily arise due to changes in the scheme discount rate, which is based on long-run expected GDP growth)
• 4.6% to cover 2016 Cost Cap breach (which has not been calculated yet, although the McCloud judgment has increased pension costs for those who joined before 2012)

(Source: 2016 Valuation, page 27)

The Civil Service pension is very good, but the amount the employer pays is largely meaningless other than a high figure reflecting the generosity of the scheme - especially as the 19.3% cost of newly accruing pension is spread across the scheme as whole and does not relate to individuals. The cost of providing the pension is higher for older members than it is for younger members which is not reflected when looking at average contribution rate. The scheme is truly sensational for members in their sixties, but still decent for those in their 20s.

To demonstrate the disconnect between employer contributions and scheme generosity, prior to the 2016 Valuation the average employer contribution rate was 21.1%. Following the Valuation it increased to an average of 27.3% (0.3% is added to fund administration, and the actual rates are tiered by pensionable earnings). The pension members accrue remained unchanged, despite the near 30% increase to employer contribution rates.

Breadbin76

Hi all,

Could I ask a further question following on from the detailed info above.

I am currently paid £2750 gross per month and currently in the Alpha scheme I pay approx £137 per month, with my civil service employer paying approx £685 per month (representing 27% of my gross).

I am lookinh at an external job advert with a salary band between £27k and £33k and an offer of 6% employers pension contribution. This is a non-civil service job.

For arguments sake, if I took the job on the same salary I am on now, is it a shut and closed case that I would be technically worse off per month? (I.E. they are not meeting the current pension I am accumulating).

I thought it was a case that the CS pension at 27% was simply untouchable, but reading how the employer % is effectively meaningless has me wondering.

Also CS pension website states that each year you add 2.32% of earnings towards your alpha pension.

If I took a job at the same salary witu an employer contribution some 21% lower, will that tangibly affect my pension?

Thank you.