Civil Service Partnership Pension & Alpha

drummersdale

Hi,

I am taking partial retirement from next week and henceforth will be in the Alpha pension until I take full retirement.  Someone suggested to me that another option (for what might be another 3-4 years) would be to move to Partnership which I believe would mean making no further contributions (I know I have the opportunity to make additional contributions and the Government will add up to a further 3%) but to which they will add 14.75% (given my age).  So if I am reading this correctly with a P/T salary of £26,500 that could equate to c£3,908 per annum going into an "investment pot" which is then subject to the ups and downs of the stock market?  So if I was to do 4 years and that was to not move up or down (unlikely I know but for an example) I would get 4 x £3,908 = £15,365 when I fully retire?  I'm assuming the upside is potentially a further lump sum in a few years time and no further pension contributions - the downsides (the ones I can think of at least) being no annual pension that I would receive from Alpha (albeit reduced for taking it 3 years early) and that the potential £15,365 could reduce significantly should the market (or the investment fund) underperform?  

Thanks

hugheskevi

Alpha is considerably more generous than Partnership for older workers. From a value perspective, alpha should be the best choice unless there are some very specific considerations about need for money and life expectancy.

drummersdale

So Alpha would be more generous even though it might amount to a couple of years contributions and taken perhaps 3 years earlier than age 67 so actuarially reduced? I should say I’ll be 60 next year so taking the 41 and a half years I have already accrued as predominantly Classic when I partially retire next week - not sure if that makes any difference?

hugheskevi

So Alpha would be more generous even though it might amount to a couple of years contributions and taken perhaps 3 years earlier than age 67 so actuarially reduced? 

Yes, considerably so.

I should say I’ll be 60 next year so taking the 41 and a half years I have already accrued as predominantly Classic when I partially retire next week - not sure if that makes any difference?

No, very sensible to take classic then as you get no benefit from delaying taking it. You just then accrue new alpha benefit from your service after age 60.

NedS

drummersdale said:

So Alpha would be more generous even though it might amount to a couple of years contributions and taken perhaps 3 years earlier than age 67 so actuarially reduced?

Taking a pension early with actuarial reduction does not materially alter it's 'value'. Actuarial reduction is designed to be cost neutral for the average lifespan - you get a reduced payment for a longer period, so assuming you live to an average age, you will receive roughly the same amount of pension. Live longer, and you lose out a little, die sooner and you've benefited. But largely your decision will likely be based around whether you need to bring forward that income a few years from 67, or whether you need a higher guaranteed income in later life.

drummersdale

Thanks @hugheskevi is Alpha the better option value wise as although Partnership might be jam today (in terms of taking a lump sum) Alpha will continue for as long I draw it and also rise in line with CPI?

drummersdale

Thanks @NedS I just need to find that crystal ball and all will be well! Thanks for your thoughts.

hugheskevi

drummersdale said:

Thanks @hugheskevi is Alpha the better option value wise as although Partnership might be jam today (in terms of taking a lump sum) Alpha will continue for as long I draw it and also rise in line with CPI?

It just a straightforward value thing.

Assume pensionable earnings of £20,000. Alpha accrual=£464 payable from age 67. Expected lifespan around 87, so 20 x £464 =£9,280 (ignoring inflation increases). That is at a cost of £1,090 of member contributions. Taking it early reduces annual  payment but increases years paid, so all about neutral.

Compare to Partnership. Assume a 3% member contribution to get matching. That is £4,150 into the pot, at a cost of £600.

It isn't close.

drummersdale

So it comes down to do I want an additional regular amount of pension from Alpha - which if I was to work another 4 years with a P/T salary of £26,500 @ 2.32% = £615 per annum so an additional £2,460 of pension per annum for life (less actuarial reduction for taking it a few years early) - with contributions of 5.45% a month - or Partnership pension of £26,500 @14.75% = £3909 per year x 4 = £15,636 with no contributions.

It does seem that a potential extra 20 x £2,460 (roughly) is a no brainer in those stark terms.

Dazed_and_C0nfused

Realistically though if you fancied the pot generated by partnership wouldn't you actually contribute 3% yourself making it £22k with the additional employer contributions you would get as well?

Alpha is still better in the long term in pure monetary terms although don't forget Alpha will cost you £4.6k in contributions (a bit less if you get higher rate relief).  

The actuarially reduced pension might be c£2.1k although in reality the inflation increases added to Alpha would make it a little bit more (or maybe even a big bit more given yesterday's BOE news!).

kassy64

You probably already know this but although Alpha comes with zero lump sum automatically (unlike Classic) you can commute some of the Alpha pension to give a lump sum.