Civil service pension

adonis10

Very basic query here. Currently applying for new roles and noticed a CS one and couldn’t quite get over how generous the pension seems. 5.45% employee contribution for a 2.32% annual accrual. So, hypothetically, on a £50k salary that is £1,160 per annum guaranteed. Ignoring RPI uplifts and so on, and based on an estimated 25 year retirement, that 1 years worth of contribution buys £29k (1.16*25) of pension. So the equivalent in a DC scheme would be to invest £29k per annum (ignoring growth and is very much rudimentary calculations).

Am I missing something or is it genuinely gold plated v DC schemes?

german_keeper

The pension is great. Don't bank on anywhere near inflation matching payrises however. Swings and roundabouts really, I haven't earned anything like the amount of money my mates have earned over the years, most of them tradesmen and skilled men in engineering. But I'm the one who took partial retirement at 54 and full retirement at 57. Mind you a cautionary word on that, me and our lass have never had expensive tastes and we have brought up 3 kids and live in a very nice 4 bedroom 3 bathroom house but have never earned more than 40k per annum between us. Horses for courses.  

hugheskevi

adonis10 said:

Ignoring RPI uplifts and so on

Revaluation and indexation is based on CPI, not RPI.

So the equivalent in a DC scheme would be to invest £29k per annum (ignoring growth and is very much rudimentary calculations).

Am I missing something or is it genuinely gold plated v DC schemes?

The Civil Service pension will increase by CPI each year, whereas you would expect a much higher annual return (on average) from a DC pension. This is why the Civil Service pension is so much better for those close to retirement than it is for younger members.

DC pensions will usually benefit from salary sacrifice contributions, which the Civil Service scheme does not offer.

The Civil Service has a terrible commutation rate for lump sum, making it unattractive to take in many cases and instead taking the higher (taxable) income.

Civil Service offers little to no ability to flex pension receipt, eg, taking more in years prior to State Pension age which you can easily do with a DC pension.

Civil Service pension has no inheritance of remaining pot as DC does.

Survivor benefits are fairly poor, at 37.5% of member's pension, whereas with DC a survivor would inherit 100% of the remaining pot.

Nonetheless, the Civil Service scheme is still better than almost all employer DC schemes.

LateNightHunter

hugheskevi said:

The Civil Service pension will increase by CPI each year, whereas you would expect a much higher annual return (on average) from a DC pension. This is why the Civil Service pension is so much better for those close to retirement than it is for younger members.

DC pensions will usually benefit from salary sacrifice contributions, which the Civil Service scheme does not offer.

The Civil Service has a terrible commutation rate for lump sum, making it unattractive to take in many cases and instead taking the higher (taxable) income.

Civil Service offers little to no ability to flex pension receipt, eg, taking more in years prior to State Pension age which you can easily do with a DC pension.

Civil Service pension has no inheritance of remaining pot as DC does.

Survivor benefits are fairly poor, at 37.5% of member's pension, whereas with DC a survivor would inherit 100% of the remaining pot.

Nonetheless, the Civil Service scheme is still better than almost all employer DC schemes.

You are absolutely right, but I will be moving mine at 55, so that the years I have spent building it up will be better than putting anywhere else and then I can move it to a DC to avoid the bold

hugheskevi

LateNightHunter said:

You are absolutely right, but I will be moving mine at 55, so that the years I have spent building it up will be better than putting anywhere else and then I can move it to a DC to avoid the bold

You will need to move it out via another DB scheme which could be difficult - transfers to DC schemes are not permitted.

Silvertabby

LateNightHunter said:

hugheskevi said:

The Civil Service pension will increase by CPI each year, whereas you would expect a much higher annual return (on average) from a DC pension. This is why the Civil Service pension is so much better for those close to retirement than it is for younger members.

DC pensions will usually benefit from salary sacrifice contributions, which the Civil Service scheme does not offer.

The Civil Service has a terrible commutation rate for lump sum, making it unattractive to take in many cases and instead taking the higher (taxable) income.

Civil Service offers little to no ability to flex pension receipt, eg, taking more in years prior to State Pension age which you can easily do with a DC pension.

Civil Service pension has no inheritance of remaining pot as DC does.

Survivor benefits are fairly poor, at 37.5% of member's pension, whereas with DC a survivor would inherit 100% of the remaining pot.

Nonetheless, the Civil Service scheme is still better than almost all employer DC schemes.

You are absolutely right, but I will be moving mine at 55, so that the years I have spent building it up will be better than putting anywhere else and then I can move it to a DC to avoid the bold

Are you saying that you have a Civil Service DB pension that you intend moving to a DC scheme at 55?  If so, I hate to break this to you - but that isn't an option.  Unfunded CS pensions can only be transferred to another DB scheme which, realistically speaking, means another public sector pension fund.  

michaels

hugheskevi said:

adonis10 said:

Ignoring RPI uplifts and so on

Revaluation and indexation is based on CPI, not RPI.

So the equivalent in a DC scheme would be to invest £29k per annum (ignoring growth and is very much rudimentary calculations).

Am I missing something or is it genuinely gold plated v DC schemes?

The Civil Service pension will increase by CPI each year, whereas you would expect a much higher annual return (on average) from a DC pension. This is why the Civil Service pension is so much better for those close to retirement than it is for younger members.

DC pensions will usually benefit from salary sacrifice contributions, which the Civil Service scheme does not offer.

The Civil Service has a terrible commutation rate for lump sum, making it unattractive to take in many cases and instead taking the higher (taxable) income.

Civil Service offers little to no ability to flex pension receipt, eg, taking more in years prior to State Pension age which you can easily do with a DC pension.

Civil Service pension has no inheritance of remaining pot as DC does.

Survivor benefits are fairly poor, at 37.5% of member's pension, whereas with DC a survivor would inherit 100% of the remaining pot.

Nonetheless, the Civil Service scheme is still better than almost all employer DC schemes.

You can 'assign' some of the pension to the spouse to provide equal provision on first death, rates looked reasonable to me.

Also actuarial reduction for taking pension early are fair so beneficial to do so for tax purposes if planning on retiring early.

Also on joining CS you can transfer in accrued DC (up to 50% of pensionable income) at what I think are beneficial rates compared to purchase of annuity. (Age early 50s, transfer in 19k pa DB for about 240k DC)

Also AA calculation for DB is much more generous than DC (I guess this applies to all DB not just CS)

LateNightHunter

hugheskevi said:

LateNightHunter said:

You are absolutely right, but I will be moving mine at 55, so that the years I have spent building it up will be better than putting anywhere else and then I can move it to a DC to avoid the bold

You will need to move it out via another DB scheme which could be difficult - transfers to DC schemes are not permitted.

Silvertabby said:

LateNightHunter said:

hugheskevi said:

The Civil Service pension will increase by CPI each year, whereas you would expect a much higher annual return (on average) from a DC pension. This is why the Civil Service pension is so much better for those close to retirement than it is for younger members.

DC pensions will usually benefit from salary sacrifice contributions, which the Civil Service scheme does not offer.

The Civil Service has a terrible commutation rate for lump sum, making it unattractive to take in many cases and instead taking the higher (taxable) income.

Civil Service offers little to no ability to flex pension receipt, eg, taking more in years prior to State Pension age which you can easily do with a DC pension.

Civil Service pension has no inheritance of remaining pot as DC does.

Survivor benefits are fairly poor, at 37.5% of member's pension, whereas with DC a survivor would inherit 100% of the remaining pot.

Nonetheless, the Civil Service scheme is still better than almost all employer DC schemes.

You are absolutely right, but I will be moving mine at 55, so that the years I have spent building it up will be better than putting anywhere else and then I can move it to a DC to avoid the bold

Are you saying that you have a Civil Service DB pension that you intend moving to a DC scheme at 55?  If so, I hate to break this to you - but that isn't an option.  Unfunded CS pensions can only be transferred to another DB scheme which, realistically speaking, means another public sector pension fund.  

Oh!

I was following this guidance:

"A DB to DC transfer is a 'block transfer' if two (or more) members of a DB scheme transfer to the same receiving scheme at the same time. The transfer must represent the members' total rights under the transferring scheme (including any DC rights) and can't be split across more than one receiving scheme"

My partner and I are in the same scheme and we are the same age, so we were looking to both move at the same time

Silvertabby

LateNightHunter said:

hugheskevi said:

LateNightHunter said:

You are absolutely right, but I will be moving mine at 55, so that the years I have spent building it up will be better than putting anywhere else and then I can move it to a DC to avoid the bold

You will need to move it out via another DB scheme which could be difficult - transfers to DC schemes are not permitted.

Silvertabby said:

LateNightHunter said:

hugheskevi said:

The Civil Service pension will increase by CPI each year, whereas you would expect a much higher annual return (on average) from a DC pension. This is why the Civil Service pension is so much better for those close to retirement than it is for younger members.

DC pensions will usually benefit from salary sacrifice contributions, which the Civil Service scheme does not offer.

The Civil Service has a terrible commutation rate for lump sum, making it unattractive to take in many cases and instead taking the higher (taxable) income.

Civil Service offers little to no ability to flex pension receipt, eg, taking more in years prior to State Pension age which you can easily do with a DC pension.

Civil Service pension has no inheritance of remaining pot as DC does.

Survivor benefits are fairly poor, at 37.5% of member's pension, whereas with DC a survivor would inherit 100% of the remaining pot.

Nonetheless, the Civil Service scheme is still better than almost all employer DC schemes.

You are absolutely right, but I will be moving mine at 55, so that the years I have spent building it up will be better than putting anywhere else and then I can move it to a DC to avoid the bold

Are you saying that you have a Civil Service DB pension that you intend moving to a DC scheme at 55?  If so, I hate to break this to you - but that isn't an option.  Unfunded CS pensions can only be transferred to another DB scheme which, realistically speaking, means another public sector pension fund.  

Oh!

I was following this guidance:

"A DB to DC transfer is a 'block transfer' if two (or more) members of a DB scheme transfer to the same receiving scheme at the same time. The transfer must represent the members' total rights under the transferring scheme (including any DC rights) and can't be split across more than one receiving scheme"

My partner and I are in the same scheme and we are the same age, so we were looking to both move at the same time

Block transfers only protect any enhanced rights, such as an earlier NRA or entitlement to a higher tax free lump sum.  

Where is that extract from?

Dazed_and_C0nfused

adonis10 said:

Very basic query here. Currently applying for new roles and noticed a CS one and couldn’t quite get over how generous the pension seems. 5.45% employee contribution for a 2.32% annual accrual. So, hypothetically, on a £50k salary that is £1,160 per annum guaranteed. Ignoring RPI uplifts and so on, and based on an estimated 25 year retirement, that 1 years worth of contribution buys £29k (1.16*25) of pension. So the equivalent in a DC scheme would be to invest £29k per annum (ignoring growth and is very much rudimentary calculations).

Am I missing something or is it genuinely gold plated v DC schemes?

And it's a net pay scheme so the real cost in your example is only 4.36%.

And the pension accrued seems to get the CPI increase on 1 April so your real cost contribution of £2,180 has become a pension of ~£1,270 based on current inflation estimates.

adonis10

hugheskevi said:

adonis10 said:

Ignoring RPI uplifts and so on

Revaluation and indexation is based on CPI, not RPI.

So the equivalent in a DC scheme would be to invest £29k per annum (ignoring growth and is very much rudimentary calculations).

Am I missing something or is it genuinely gold plated v DC schemes?

The Civil Service pension will increase by CPI each year, whereas you would expect a much higher annual return (on average) from a DC pension. This is why the Civil Service pension is so much better for those close to retirement than it is for younger members.

DC pensions will usually benefit from salary sacrifice contributions, which the Civil Service scheme does not offer.

The Civil Service has a terrible commutation rate for lump sum, making it unattractive to take in many cases and instead taking the higher (taxable) income.

Civil Service offers little to no ability to flex pension receipt, eg, taking more in years prior to State Pension age which you can easily do with a DC pension.

Civil Service pension has no inheritance of remaining pot as DC does.

Survivor benefits are fairly poor, at 37.5% of member's pension, whereas with DC a survivor would inherit 100% of the remaining pot.

Nonetheless, the Civil Service scheme is still better than almost all employer DC schemes.

Your post seemed massively negative towards the CS scheme but said it’s better than most DC. What is a good comparison? For example, DC with employer conts of 10% as a ball park? How does it compare? Presumably due to the levels of growth available it is inferior for someone younger? I’m 39 so could in the theory attract growth of, say, 10% on a DC v CPI in DB?