Very low pension CETV

wild_quinine

Gary1984 said:

CETVs can be reduced by some factor, particularly when a scheme is underfunded. Does your CETV mention a reduction factor or something like that?

The scheme is supposedly in surplus, although that's after the 4th round of cuts in the last decade, so could go either way. There's no mention of a reduction on the CETV though.

Marcon said:

The new scheme sounds a bit too good to be true, but fab if it's as glittering as you believe!

When you say the actual rate is 'essentially double', would you just like to give the accrual rate in the old scheme and the accrual rate in the new one?

I think it is as good as it sounds, but I could be missing something.

Just to be clear I'm comparing USS, the University scheme, against the Civil Service Pension Scheme (Alpha).

USS has an employee contribution rate of 9.8% and an accrual rate of 1/85. On the plus side, there's also a 3/85 lump sump.

Back to the downsides: there's an inflation cap at 2.5% CPI, and an earnings cap at 40,000. Above the earnings cap contributions do do not go into the DB scheme, or add to the lump sum. Some of them go an individual DC pot, and some of them just go into subsidising the scheme, so you never see that bit again.

In practice this means a maximum accrual of about 470 pension for each year of service, and a maximum lump sum of 1400.

With 20 years to go, I could only increase my DB pension by up to 9400, and lump sum by 28000, and that's assuming there are no more cuts in the next 20 years, after four rounds of cuts in the last decade. Also, that's before we take into account the fact that the real value of the pension will drop any year inflation is above 2.5% CPI.

By comparison,the civil service scheme has an employee contribution rate of 5.45%, currently goes up in line with CPI, and has an accrual rate of 2.32% (or 1/43.1)

OK so there's no lump sum, but someone on 40,000 is paying in £2180 in contributions each year instead of £3920 at the same salary, and earns 928 pounds of pension rather than 470.

If I had a salary of exactly 40000 for the next 20 years I'd have added 18500 to my pension instead of 9400.

OK, so there's no lump sum, but you also have an extra 1700 pounds a year that you can play with.

There's also no earnings cap, so if someones salary goes above 40,000 per year, it still goes into their pension, although at some point the employee contributions rise to 7.45%.

Silvertabby

Have you asked the civil service for a quote as to how much CS benefits the transfer would 'buy' you?  Or are you just looking at the amount of the CETV? CS Alpha is a CARE scheme, so any quote will just be the amount of pension bought, with years of service being irrelevant.

USS withdrew from the Club Scheme some years ago, so any transfers into public sector schemes, such as the CS, won't be on such generous terms.  But I would have thought that they would be better than the terms you seem to be quoting.

Note that even if the USS had still been a club scheme you wouldn't have been given 20 years CS service for 20 years USS, but the transfer would have given you comparable benefits in the new scheme.  ie, after taking better accrual rates/NRA/etc into account.

snowlaser

A transfer value of 9 x your annual DB pension does seem quite low to me.

Transfer values have come down about 50% in the last year or so, but on the schemes I am involved with that has moved it from being a very exceptional 30-40 x the pension to a more usual 15-20 x the pension.

That said, 9x is not absolutely impossible, especially if (for example) the pension does not increase in payment and transfer values are being reduced for underfunding or something like that.

The multiple will also depend on your age: usually the younger you are the lower the multiple (to reflect the time before actually receiving the pension).  So if the multiple is 20:1 at NRA 65 then aged 45 you might only get 13:1 (for example).  I don't know how old you are.