CIVIL SERVICE CLASSIC / ALPHA ADVICE

NedS

westv said:

hugheskevi said:

horsewithnoname said:

The Classic pension has lost about 20% since 2010, because pay has been cut in real terms. And that’s before this year’s inflation. 

Certainly if you are 60 you need to consider taking at least your Classic before inflation erodes it further- unless you are optimistic about getting a pay rise or a promotion 

For those some way from retirement, it is worth knowing that switching to Partnership creates a deferred Classic award, which increases in line with CPI from point of deferment. 

When earnings are increasing by less than prices it is not uncommon for members to have a higher classic pension based on a year or two of deferment than they would have had if they had remained in the scheme paying contributions.

Leaving a DB scheme for a DC scheme is a major financial decision, but it is worth considering.

Does that mean switching out of Alpha though? Classic will already be deferred for a lot.

Yes, I think if you move from Classic to Alpha, the Classic pension retains it's link to final salary so is not treated as deferred and hence won't be increasing with CPI. If you are not expecting your salary to increase above inflation, then your Classic is being gradually eroded by inflation - or in the case of 2022/3/23 not so gradually eroded by inflation (2% pay rise, 10.1% inflation).

To break the link and put Classic into deferment, you would have to leave the DB scheme which can be achieved by switching to the DC Partnership scheme as suggested by @hugheskevi above.

german_keeper

Switching to Partnership in 2015 is the best decision I ever made. The inflation proofing of my Classic pension and the extra flexibility offered by Partnership has been a major factor in allowing me to partially retire in 2019 at the age of 54 and fully retire in August this year at the age of 57.

I think there are large numbers of civil servants who don't understand their options and also don't really appreciate how beneficial the New State Pension arrangements are. I fear that many will retire at State Pension Age and then wonder what they are going to do with all their money.   

westv

NedS said:

westv said:

hugheskevi said:

horsewithnoname said:

The Classic pension has lost about 20% since 2010, because pay has been cut in real terms. And that’s before this year’s inflation. 

Certainly if you are 60 you need to consider taking at least your Classic before inflation erodes it further- unless you are optimistic about getting a pay rise or a promotion 

For those some way from retirement, it is worth knowing that switching to Partnership creates a deferred Classic award, which increases in line with CPI from point of deferment. 

When earnings are increasing by less than prices it is not uncommon for members to have a higher classic pension based on a year or two of deferment than they would have had if they had remained in the scheme paying contributions.

Leaving a DB scheme for a DC scheme is a major financial decision, but it is worth considering.

Does that mean switching out of Alpha though? Classic will already be deferred for a lot.

Yes, I think if you move from Classic to Alpha, the Classic pension retains it's link to final salary so is not treated as deferred and hence won't be increasing with CPI. If you are not expecting your salary to increase above inflation, then your Classic is being gradually eroded by inflation - or in the case of 2022/3/23 not so gradually eroded by inflation (2% pay rise, 10.1% inflation).

To break the link and put Classic into deferment, you would have to leave the DB scheme which can be achieved by switching to the DC Partnership scheme as suggested by @hugheskevi above.

Ok. So you gain Classic CPI increases but lose Alpha CPI increases. Anybody who does it will need to do some calculations.

montventoux

Have been reading this thread with interest given that I’ve decided to leave the Civil Service (CS) October 2023 after 39 years and live off savings until I hit 60 in October 2025.

My plan is to defer my Alpha pension entitlement (8 years) for two years and take it actuarily reduced (7 years early) at 60.  Expecting the actuarily hit to be circa 32%

In terms, of my Classic pension entitlement (31 years) my original plan was not to drawn it until 60.
However, given that it’s real value continues to be eroded by inflation as NedS points out and the fact that any future pay ‘increases’ are highly unlikely to be above 2% I’m now thinking of taking it two years early at aged 58 when I leave the CS ensuring it is increased in line with CPI.  The actuarily hit on the Classic lump sum /taking it two years early is 9%.

Decisions, decisions!

Dazed_and_C0nfused

montventoux said:

Have been reading this thread with interest given that I’ve decided to leave the Civil Service (CS) October 2023 after 39 years and live off savings until I hit 60 in October 2025.

My plan is to defer my Alpha pension entitlement (8 years) for two years and take it actuarily reduced (7 years early) at 60.  Expecting the actuarily hit to be circa 32%

In terms, of my Classic pension entitlement (31 years) my original plan was not to drawn it until 60.
However, given that it’s real value continues to be eroded by inflation as NedS points out and the fact that any future pay ‘increases’ are highly unlikely to be above 2% I’m now thinking of taking it two years early at aged 58 when I leave the CS ensuring it is increased in line with CPI.  The actuarily hit on the Classic lump sum /taking it two years early is 9%.

Decisions, decisions!

But if you decide to leave both Alpha and Classic become deferred pensions.

So Classic will be best 12 months (in last 3 years before you leave?).  With CPI applying after that.  And also CPI from when the pension goes into payment.

Hamster19655

montventoux said:

Have been reading this thread with interest given that I’ve decided to leave the Civil Service (CS) October 2023 after 39 years and live off savings until I hit 60 in October 2025.

My plan is to defer my Alpha pension entitlement (8 years) for two years and take it actuarily reduced (7 years early) at 60.  Expecting the actuarily hit to be circa 32%

In terms, of my Classic pension entitlement (31 years) my original plan was not to drawn it until 60.
However, given that it’s real value continues to be eroded by inflation as NedS points out and the fact that any future pay ‘increases’ are highly unlikely to be above 2% I’m now thinking of taking it two years early at aged 58 when I leave the CS ensuring it is increased in line with CPI.  The actuarily hit on the Classic lump sum /taking it two years early is 9%.

Decisions, decisions!

Thanks everyone for their input.

Regarding what you are saying Montventoux, my understanding is that if you deferred your Classic element of your pension it will still increase with CPI as will the lump sum (due to being deferred). If you take it two years early you will be hit with the 9% reduction on both the pension payments PLUS 9% reduction on your lump sum. Could cost quite a bit. 

My thoughts would be if you don't need the money then let it sit. 

I could be wrong and I am sure someone else with more knowledge than me could confirm or clarify.

Thanks

montventoux

I initially misunderstood NedS comments!

By leaving in October 2023 both Alpha and Classic will become deferred as Dazed_and_C0nfused comments.

I believe I would only get a partial CPI increase (October 23- March 24) in the first year of deferment?

Hamster19655

montventoux said:

I initially misunderstood NedS comments!

By leaving in October 2023 both Alpha and Classic will become deferred as Dazed_and_C0nfused comments.

I believe I would only get a partial CPI increase (October 23- March 24) in the first year of deferment?

I think you are right about the partial CPI increase.

Regarding your retirement plans....they are not dissimilar to my own. When the McCloud remedy is applied late 2023 it will put everyone who was on Classic back unto Classic up to April 2022, if they desire. My thoughts were that as I would be leaving Alpha within 2 years of being put into the Alpha Scheme then I would just get my contributions back as I have been in the scheme less than 2 years. So would need to leave before April 2024. I have read this 2 year rule somewhere on the Pensions website pages. 

Does this strike a chord with anyone else as in being correct? 

horsewithnoname

You won’t get your contributions back as your previous Classic will also be “counted “ so you will have done more than 2 years. 

I took my Classic at 58 (partly retired) and I’ve worked out that after the April 2023 increase I’d be only £464 a year worse off than if I’d waited till 60 (in January), and that includes 2 pay “rises” 
You do only get the CPI increase pro rata in the first year of taking your pension, so if you have your pension for 2 months you get 2/12ths of the relevant CPI 

Don’t assume Classic will be better than Alpha, it may be, but it may not so give it due consideration when the choice comes after October 2023. 

When you partly retire you can take your classic and leave your alpha, not sure if you can do that when you fully retire?