Alpha pension...

Sonny_1980

Hi,

Apologies in advance because for those that do understand how this pension works, these might be silly questions but I'm a bit lost...
I've read quite a few posts and the pension guide, but I still don't quite understand how to figure out how much I would be paid when I retire...
I understand that for a salary of 45,000 a year I would contribute 5.45% and the employer 27.1%? But then I read some posts where people say that these figures are not important, and some websites say you basically get paid 2.32% of your salary multiplied by the years of service.

So assuming I would have the same salary for 20 years of service, I would be paid 20,880 a year? (45,000*0.0232*20) ?
Is this right? If it is, where is the benefit of this pension if I'm contributing with 5.45% of my salary, therefore I'm contribution with more money than I will get when I retire? 

P.S. I've just realized I'm being stupid... My contributions after 20 years of service would be a total of 49,050 but I would getting 20,880 for every year I live after retirement...
Unless I'm still being stupid, I don't understand what is the point of the 27.1% contribution of the employer if they use a career average salary to calculate the 2.32% you are paid?

NedS

Yes, you are heading in the right direction.

For every year of service, you accrue 2.32% of your salary towards your final pension, payable at State Pension age. So if your salary is £45,000 per year, each year you accrue £1044 pension - after 20 years, ignoring adjustments for inflation and assuming you've never had a pay rise, that would be a pension of £20,880pa for life. The amounts are also adjusted in line with CPI inflation (uncapped) each year so that £1044 worth pension today will still have the same purchasing power in 20 years time when you retire.

With regards to contributions from yourself an your employer - you can view it that your 5.45% contribution (£2452.50) is the cost to purchase that £1044 inflation linked pension payable for life (which you realised in your final paragraph).

The employer contribution, currently 27.1%, is irrelevant to you - it's just indicative of the cost to your employer (combined with your 5.45% contribution) of paying for that promise to pay you £1044 of index-linked pension for life.

You have one of the most valuable pensions you can get - it really does not get any better that this.

Bravepants

I think the only point of stating the employer contribution is for budget and accounting purposes. Your department would get an annual budget from UK Gov and your department's accountants would have to account for how that budget is spent, including salaries and pensions.

All you need care about is that your 5.45% of contributions accrues a pension at a rate of 2.32% your annual salary every year. The pension is index linked to CPI with no cap. It is one of the most generous Defined Benefit pensions available.

Andy_L

Sonny_1980 said:

Hi,

Apologies in advance because for those that do understand how this pension works, these might be silly questions but I'm a bit lost...
I've read quite a few posts and the pension guide, but I still don't quite understand how to figure out how much I would be paid when I retire...
I understand that for a salary of 45,000 a year I would contribute 5.45% and the employer 27.1%? But then I read some posts where people say that these figures are not important, and some websites say you basically get paid 2.32% of your salary multiplied by the years of service.

So assuming I would have the same salary for 20 years of service, I would be paid 20,880 a year? (45,000*0.0232*20) ?
Is this right? If it is, where is the benefit of this pension if I'm contributing with 5.45% of my salary, therefore I'm contribution with more money than I will get when I retire? 

P.S. I've just realized I'm being stupid... My contributions after 20 years of service would be a total of 49,050 but I would getting 20,880 for every year I live after retirement...
Unless I'm still being stupid, I don't understand what is the point of the 27.1% contribution of the employer if they use a career average salary to calculate the 2.32% you are paid?

"you basically get paid 2.32% of your salary multiplied by the years of service." is what you will get as a pension (its not quite that becasue of inflation & pay progression but its close enough for casual conversation)

The 27.1% of salary is a (rough) estimate of how much it costs the employer to provide you that pension of 2.3% of salary. ie if you were looking to change jobs you should consider that as part of your total reward package

NedS

Andy_L said:

The 27.1% of salary is a (rough) estimate of how much it costs the employer to provide you that pension of 2.3% of salary. ie if you were looking to change jobs you should consider that as part of your total reward package

Yes, I view the benefit as being worth approximately a third of the salary, so if OP were to change jobs t0 a role with minimal pension provision, I would expect a salary of around £60k to match that £45k + Alpha role

Sonny_1980

Thank you all for your replies. I'm trying to decide if it's worth to move to a civil service job with "just" a 10% salary increase from my current salary. Usually I wouldn't change jobs unless I'm getting at least 15-20% salary increase but this pension seems like a great benefit when compared to the private sector...

Thrugelmir

Sonny_1980 said:

Unless I'm still being stupid, I don't understand what is the point of the 27.1% contribution of the employer if they use a career average salary to calculate the 2.32% you are paid?

To fund the scheme and the benefits available to you. This is what the employer has to contribute. Your contributions alone are no where near close to buying them. 

michaels

Sonny_1980 said:

Thank you all for your replies. I'm trying to decide if it's worth to move to a civil service job with "just" a 10% salary increase from my current salary. Usually I wouldn't change jobs unless I'm getting at least 15-20% salary increase but this pension seems like a great benefit when compared to the private sector...

I decided it was worth moving to CS to get alpha for a salary cut of 32.5%.  I think the alpha is worth the same as a pension contribution of 50% on top of the CS salary.  You can also transfer some of an existing DC pot into alpha at what appears to be a very beneficial rate.

marlot

Sonny_1980 said:

Thank you all for your replies. I'm trying to decide if it's worth to move to a civil service job with "just" a 10% salary increase from my current salary. Usually I wouldn't change jobs unless I'm getting at least 15-20% salary increase but this pension seems like a great benefit when compared to the private sector...

Because alpha is linked to CPI (with no limit), it is particularly valuable at a time of high inflation.  My accrued alpha pension grew faster than my pay.

I also transferred a different DB pension in - well worth getting a quote.

Andy_L

michaels said:

Sonny_1980 said:

Thank you all for your replies. I'm trying to decide if it's worth to move to a civil service job with "just" a 10% salary increase from my current salary. Usually I wouldn't change jobs unless I'm getting at least 15-20% salary increase but this pension seems like a great benefit when compared to the private sector...

I decided it was worth moving to CS to get alpha for a salary cut of 32.5%.  I think the alpha is worth the same as a pension contribution of 50% on top of the CS salary.  You can also transfer some of an existing DC pot into alpha at what appears to be a very beneficial rate.

So you're 1.25% better off over all ;-)

michaels

Andy_L said:

michaels said:

Sonny_1980 said:

Thank you all for your replies. I'm trying to decide if it's worth to move to a civil service job with "just" a 10% salary increase from my current salary. Usually I wouldn't change jobs unless I'm getting at least 15-20% salary increase but this pension seems like a great benefit when compared to the private sector...

I decided it was worth moving to CS to get alpha for a salary cut of 32.5%.  I think the alpha is worth the same as a pension contribution of 50% on top of the CS salary.  You can also transfer some of an existing DC pot into alpha at what appears to be a very beneficial rate.

So you're 1.25% better off over all ;-)

Buying 20k gold plated DB for 260k is the real draw.  The entry rules also make it more difficult to join at an equivalent grade but much easier to join at a lower one then go for a promotion board.