Civil Service pension opt out and voluntary exit

njtt

I wonder if anyone could help me? I am 60 in December this year. I joined the Civil Service (and the Classic Scheme) in September 2000 and have been with the same employer since then.  On 1 October 2020 I was transferred into Alpha. In May 2022 I opted out of the Civil Service pension scheme (PCSPS). My reason for opting out is that 95% of my pension has built up under Classic on a final salary pension. While my salary is unlikely to increase much, inflation is likely to be very high and so it made sense to preserve the pension to rise in line with inflation - recognising that there are a lot of unknown variables.

What I want to understand is the impact of this opting out on any application for voluntary exit under the (to be revised) Civil Service Compensation Scheme (CSCS). In particular:

1. If I am opted out from the PCSPS, am I also opted out of the voluntary exit schemes in the CSCS? Am I out of scope for voluntary exit payments? Is there any discretion?

2. If I am, it may make sense to opt back in. What would be the impact of opting back in vis a vis any exit terms? Voluntary exit terms are based on length of qualifying or reckonable service but would my length of service be carried back to when I first joined (2020) or when I opted back in (2022)? In other words, does the opt out somehow 'break' the length of service for voluntary exit? Again, is there any discretion?

3. And if I opt back in , what would be the the impact on my pension? I had thought originally that I would have a 'preserved' pension (up to May 2022) and then a new pension - but when I asked Mycsp they said - "If you decide to opt back in within 5 years your service will be linked and you will only have one award when you leave." Presumably my pension would then be based on my final salary when I eventually leave (with a 'gap' for the period of opt out but otherwise the same as before).

What I am worried about is that I opt back in to be within scope of CSCS but then fine that I lose the benefit of getting inflation-linked increases to a preserved pension and also do not qualify for exit payments based on 20 years service (if they say the link is broken).

Can anyone help?

Thank you!

NedS

I'm definitely not an expert, but the only potential benefit I'm aware of as part of a voluntary exit (redundancy) would be pension buy-out whereby the employer may pay, as part of your redundancy package, the buy-out costs of taking your pension early, un-reduced. As the NRA of Classic is 60, and you turn 60 in December, what do you think you can gain (or what is it you are afraid you may lose). Are you expecting to be offered a voluntary exit before Dec? Any voluntary offer comes with 3 months notice, so you would likely be 60 by the time of any exit and would be entitled to your Classic pension in full anyway?

If you had stayed a member, and had built up entitlement under Alpha, which has a NRA equivalent of SPA (67 for you), then there may have been a buy-out benefit for taking Alpha early without reduction, but that does not apply to you as you chose to leave the scheme.

hugheskevi

As an opted-out member of scheme you are still eligible for cash payment but not eligible for pension buy-out - although that is irrelevant, as your cash exit payment would exceed cost of buy-out anyhow. The cash payment would be based on the length of your current period of service, ie, back to 2000.

Now that all members have been moved to alpha (or are in Partnership or opted-out), rejoining within 5 years of leaving scheme automatically results in the deferred award being cancelled. If rejoining after more than 5 years the deferred award remains in place.

You don't mention anything about Partnership in your post? Your thinking appears sound, but I would expect you to have switched to Partnership and chosen contribute 3% to get full employer match.

sammyjammy

Did you have transitional protection in Classic?  Are you aware of the McCloud judgement which means you would have been "paying in" to Classic right up to April of this year?

njtt

Thanks hugheskevi - that is good to know. I did not follow what you meant when you said the "pension buy-out is irrelevant, as your cash exit payment would exceed cost of buy-out anyhow".  Are you saying that it would not be worth it because the cash payment would be enough to buy it out (and presumably they do not allow you to buy it out and, if there is money left over, to give you the balance!). I had assumed the likely cost of buy out would exceed the cash payment but I am not quite sure what the likely cost of a buy out would be.

It is a good point about partnership. Yes, I did want to do it for the reasons given but, when I looked into it, it seemed that I had to give 3 months notice and could only switch on two dates a year - and so I was too late if I wanted the preserved pension as soon as possible (since I wanted to opt out quickly because of pro-rata-ing any increase). Is it possible to do it later and keep the preserved benefits do you know (I would definitely want to consider that because of the employer's contribution).

Thanks for the quick reply!!

njtt

Thanks sammyjammy - yes, I am aware of it! Not sure I appreciate all the complexities but I do know the basic gist and the future options.

hugheskevi

I did not follow what you meant when you said the "pension buy-out is irrelevant, as your cash exit payment would exceed cost of buy-out anyhow".  Are you saying that it would not be worth it because the cash payment would be enough to buy it out (and presumably they do not allow you to buy it out and, if there is money left over, to give you the balance!). I had assumed the likely cost of buy out would exceed the cash payment but I am not quite sure what the likely cost of a buy out would be.

The buy-out provision is that the employer will fund buy-out of pension reduction if it is more than the cash exit entitlement. Otherwise, the cost of buyout is deducted from cash exit cost and the remainder of the cash paid. In your case the cash exit cost would exceed cost of buyout so it is cash entitlement that matters.

You can calculate cost of buy out using this calculator.

It is a good point about partnership. Yes, I did want to do it for the reasons given but, when I looked into it, it seemed that I had to give 3 months notice and could only switch on two dates a year - and so I was too late if I wanted the preserved pension as soon as possible (since I wanted to opt out quickly because of pro-rata-ing any increase). Is it possible to do it later and keep the preserved benefits do you know (I would definitely want to consider that because of the employer's contribution).

You need to give between 2-3 months notice depending on when in the month you apply, and can switch at any time.

It should be straightforward for your payroll to commence payments to the Partnership provider, but they could be awkward. May as well ask them and see what they say.

njtt

NedS said:

I'm definitely not an expert, but the only potential benefit I'm aware of as part of a voluntary exit (redundancy) would be pension buy-out whereby the employer may pay, as part of your redundancy package, the buy-out costs of taking your pension early, un-reduced. As the NRA of Classic is 60, and you turn 60 in December, what do you think you can gain (or what is it you are afraid you may lose). Are you expecting to be offered a voluntary exit before Dec? Any voluntary offer comes with 3 months notice, so you would likely be 60 by the time of any exit and would be entitled to your Classic pension in full anyway?

If you had stayed a member, and had built up entitlement under Alpha, which has a NRA equivalent of SPA (67 for you), then there may have been a buy-out benefit for taking Alpha early without reduction, but that does not apply to you as you chose to leave the scheme.

Thanks NedS. Very good points and you have clarified my woolly thinking about it. I am not sure I will get any voluntary exit at all and certainly not by 60. You're right - the only advantage would be for any pension built up outside Classic between 60 and NRA of 67. In fact, I did not mention that, when I first joined in 2000, I also transferred in 3 years and bought 12 added years and so my total 'Classic' element is about 34 or 35 years which I think reinforces the points you have made. Thanks again for pointing this out - really appreciated.

NedS

So assuming you take your Classic pension at 60, if you remain in work, is it then possible for you to rejoin Alpha and benefit form contributing to that (Alpha is still pretty good for us oldies). Or maybe you plan to stop working at 60?

njtt

NedS said:

So assuming you take your Classic pension at 60, if you remain in work, is it then possible for you to rejoin Alpha and benefit form contributing to that (Alpha is still pretty good for us oldies). Or maybe you plan to stop working at 60?

Thanks NedS. Yes, I could but, if I rejoin Alpha within 5 years, it has the effect (as I understand it) of ignoring the time you opted out and you go back to how you were but with a 'gap'. I opted out because I wanted a preserved pension linked to (high) inflation rather than a (mainly) final salary pension linked to a lower-than-inflation pay rise. You are right that think is linked to my expected 'retirement' (I hope actually it will be another job). If I thought I would work where I am for a few more years it might make sense to join Alpha but I am not sure that I will be able to. I think it is more realistic that I will have to leave within the next year or so and, in that case, maximising my Classic benefits seems the better option (but there are lots of unknowns and it feels a bit like a numbers game). Does that make sense?

NedS

njtt said:

NedS said:

So assuming you take your Classic pension at 60, if you remain in work, is it then possible for you to rejoin Alpha and benefit form contributing to that (Alpha is still pretty good for us oldies). Or maybe you plan to stop working at 60?

Thanks NedS. Yes, I could but, if I rejoin Alpha within 5 years, it has the effect (as I understand it) of ignoring the time you opted out and you go back to how you were but with a 'gap'. I opted out because I wanted a preserved pension linked to (high) inflation rather than a (mainly) final salary pension linked to a lower-than-inflation pay rise. You are right that think is linked to my expected 'retirement' (I hope actually it will be another job). If I thought I would work where I am for a few more years it might make sense to join Alpha but I am not sure that I will be able to. I think it is more realistic that I will have to leave within the next year or so and, in that case, maximising my Classic benefits seems the better option (but there are lots of unknowns and it feels a bit like a numbers game). Does that make sense?

Yes, that makes sense, except...

It is the link to classic that you want/need to break in order to benefit from high inflation revaluations. Surely if you put your classic pension into payment at age 60, it is done and dusted - there can be no linking if you remain in the employment of CS and/or choose to join Alpha (Alpha is a CARE scheme linked to annual CPI anyway so no issues there and would be beneficial for you to join if you can). Unless I'm mistaken or have misunderstood??