Alpha Pension v Police Pension

LEBeouf

Morning all, I appreciate there's a lot of variables. However, could someone kindly tell me what the better pension scheme is between the Alpha Civil Service Pension, and the 2015 Police Pension Scheme please?

Thanks in advance 

Universidad

LEBeouf said:

Morning all, I appreciate there's a lot of variables. However, could someone kindly tell me what the better pension scheme is between the Alpha Civil Service Pension, and the 2015 Police Pension Scheme please?

Thanks in advance 

There's a little linguistic trick in the word "better" that most people miss. Better must always be in respect of something, in order to be meaningful. So better in respect of what?

How early you can retire? Accrual rate? Options for added pension or AVC?

And why are you comparing them? Are you comparing two jobs, or considering a pension transfer after moving jobs, or wondering whether to concentrate onadded pension for your pension or your partners?

LEBeouf

Universidad said:

LEBeouf said:

Morning all, I appreciate there's a lot of variables. However, could someone kindly tell me what the better pension scheme is between the Alpha Civil Service Pension, and the 2015 Police Pension Scheme please?

Thanks in advance 

There's a little linguistic trick in the word "better" that most people miss. Better must always be in respect of something, in order to be meaningful. So better in respect of what?

How early you can retire? Accrual rate? Options for added pension or AVC?

And why are you comparing them? Are you comparing two jobs, or considering a pension transfer after moving jobs, or wondering whether to concentrate onadded pension for your pension or your partners?

Great points, well presented. 

Effectively looking at a career change from the Police into a civil service role. Lots of pros for the change, however the pension is big factor.

I appreciate the Police pension scheme is a great scheme as pensions go. Though from my own (limited) research, the Alpha pension is a half decent one too?

I've got 5yrs service with the police and envisage to be working for another 30yrs into my mid 60s on the current PPS.

So to answer your question, accrual, AVCs and being able to retire comfortably as early as possible are all factors I'd like to explore. Obviously I'll chat this over with an IFA in needs be. Just wondering if the plethora of knowledge on here could offer any views! 

Dazed_and_C0nfused

Alpha accrued more basic pension (1/43 vs 1/55).

But Police has better inflation protection than Alpha.

There will be lots of nuances between schemes.

They may have significantly different early payment factors (actuarial reduction) which sounds like it would be important for you.

Contributions rates may differ too.

Universidad

They're both very good schemes. The civil service scheme accrues pension faster, but the police scheme allows you to retire significantly earlier. The civil service scheme costs you less up front, than the police scheme.

The police scheme is one of the very, very rare schemes that has not aligned the "Normal Pension Age" of the scheme with the "State Pension Age", which for you will be 68 or later. Instead the Normal Pension Age is 60.

You say you want to retire mid 60s, but I'm going to work out "value" estimates based on the ages at which you *could* retire without reductions.

Assuming the same salary of 35,000 per year in either role, you would earn 633 pounds of annual pension with the police, or 812 pounds of annual pension with the civil service.

Your employers contributions don't matter much to you, but yours do. The police pension scheme will cost you 392 pounds per month, but the civil service only 158.

You plan to work for another 30 years.

Assuming, for simplicity, that this salary never changes, then (in addition to anything you have already accrued) you would have a pension of 18990 with the police, available from 60, or 24360 with the civil service, available from age 68 (at the moment).

Assuming that you live to age 84, that would mean you would collect 455,760 from the police over that time, or 389,760 from the civil service.

I've ignored inflation for the time being, but the police pension matches CPI and then adds a little bit. The civil service pension matches CPI. So on a pure value for money basis, the police pension puts you up more there.

None of this tells you much about what you would do in the 8 years between 60 and 68... for example if you take the police pension, but keep working till state pension age, you'll probably pay more tax in those 8 years, and therefore recieve less of the amount you've earned, after tax. Whereas if you keep working and take the civil service pension at 68, the civil service pension will be significantly higher after an additional 8 years paying in to the scheme. What does all that mean for your life? That's a highly personal matter.

Assuming you live to 84, each year of pension you get with the police is worth about 15K and each year with the civil service is worth about 13K (in total over retirement, assuming you live to 84). All that's on top of that imaginary 35K salary, remember.

The amount you pay in each year would be about 1900 with the civil service, but about 4700 with the police. That means you're up just over 10K with the police pension, and just over 11K with the civil service. But the police pension actually goes up in real terms a little bit over time.

These are very loose figures, to give you an illustrative idea. But you can see - there's really not much in it, and what you want to do with your career matters more than some of the counting of the pennies. Plus, if the average salary for your skillset is higher in one sector or the other, that would probably more than make up for any of the differences dicussed above.

Personally, I wouldn't switch jobs for the pension scheme alone between these two schemes (and I am someone who has done that in another more obvious case!)

Neither would I be afraid of losing out if I did fancy the move. Just my opinion.

In terms of retiring early - 60 with the police is a good start with no messing about.

You can pay extra up front using EPA in the civil service to reduce the effective retirement age by up to 3 years. You'd still contribue less total than in the police, but the gap would be closing, and your retirement age would still be higher.

The current actuarial reduction with the civil service to retire at 60 would mean you'd lose about 1/3rd of the value of your pension from a starting point of 68.

That would mean your take home would be 16K at 60 rather than 24K. But you'd collect it for 8 years longer, so you'd still collect almost exactly the same amount if you make it to 84 (and only start doing any worse if you live longer than that - die you and you come out ahead for retiring early.)

hugheskevi

A key point to note for decision making at an early stage of career is that the police pension has 'golden handcuffs' ie, your pension suffers considerably if you leave service.

Revaluation of police pension whilst in active service is by earnings (edit: CPI+1.25%, not earnings) and the Civil Service scheme is by prices. If you leave service, revaluation is by prices.

If you leave the police pension scheme before age 55 the normal pension age reverts to State Pension age, ie, changes from 60 to 68 and thus losing 8 years of pension.

Hence the more police pension service you have, the stronger the golden handcuffs become. This means that if you were to remain with the police, you wouldn't want to be leaving at age 50, for example, due to the big pension loss this would entail. Whereas the Civil Service has essentially the same terms for deferred and active members, so leaving service doesn't come with a pension penalty. 

Andy_L

hugheskevi said:

A key point to note for decision making at an early stage of career is that the police pension has 'golden handcuffs' ie, your pension suffers considerably if you leave service.

Revaluation of police pension whilst in active service is by earnings and the Civil Service scheme is by prices. Over time earnings should be more than price growth. If you leave service, revaluation is by prices.

If you leave the police pension scheme before age 55 the normal pension age reverts to State Pension age, ie, changes from 60 to 68 and thus losing 8 years of pension.

Hence the more police pension service you have, the stronger the golden handcuffs become. This means that if you were to remain with the police, you wouldn't want to be leaving at age 50, for example, due to the big pension loss this would entail. Whereas the Civil Service has essentially the same terms for deferred and active members, so leaving service doesn't come with a pension penalty. 

Are you thinking of the older Police scheme?

The 2015 scheme is a CARE with CPI+1.25% for defereed & active members

hugheskevi

Andy_L said:

hugheskevi said:

A key point to note for decision making at an early stage of career is that the police pension has 'golden handcuffs' ie, your pension suffers considerably if you leave service.

Revaluation of police pension whilst in active service is by earnings and the Civil Service scheme is by prices. Over time earnings should be more than price growth. If you leave service, revaluation is by prices.

If you leave the police pension scheme before age 55 the normal pension age reverts to State Pension age, ie, changes from 60 to 68 and thus losing 8 years of pension.

Hence the more police pension service you have, the stronger the golden handcuffs become. This means that if you were to remain with the police, you wouldn't want to be leaving at age 50, for example, due to the big pension loss this would entail. Whereas the Civil Service has essentially the same terms for deferred and active members, so leaving service doesn't come with a pension penalty. 

Are you thinking of the older Police scheme?

The 2015 scheme is a CARE with CPI+1.25% for defereed & active members

Oops, just assumed it was earnings like most of the uniformed services and didn't look it up. You are quite right, revaluation for active members is CPI+1.25%. But deferred members get CPI, from 2015 members guide (see page 25):

A Deferred Pension will be increased in line with CPI under the Pensions (Increase) Act 1971 from the time that you leave the police force or opt out until the date at which your benefits become payable.

LEBeouf

Universidad said:

They're both very good schemes. The civil service scheme accrues pension faster, but the police scheme allows you to retire significantly earlier. The civil service scheme costs you less up front, than the police scheme.

The police scheme is one of the very, very rare schemes that has not aligned the "Normal Pension Age" of the scheme with the "State Pension Age", which for you will be 68 or later. Instead the Normal Pension Age is 60.

You say you want to retire mid 60s, but I'm going to work out "value" estimates based on the ages at which you *could* retire without reductions.

Assuming the same salary of 35,000 per year in either role, you would earn 633 pounds of annual pension with the police, or 812 pounds of annual pension with the civil service.

Your employers contributions don't matter much to you, but yours do. The police pension scheme will cost you 392 pounds per month, but the civil service only 158.

You plan to work for another 30 years.

Assuming, for simplicity, that this salary never changes, then (in addition to anything you have already accrued) you would have a pension of 18990 with the police, available from 60, or 24360 with the civil service, available from age 68 (at the moment).

Assuming that you live to age 84, that would mean you would collect 455,760 from the police over that time, or 389,760 from the civil service.

I've ignored inflation for the time being, but the police pension matches CPI and then adds a little bit. The civil service pension matches CPI. So on a pure value for money basis, the police pension puts you up more there.

None of this tells you much about what you would do in the 8 years between 60 and 68... for example if you take the police pension, but keep working till state pension age, you'll probably pay more tax in those 8 years, and therefore recieve less of the amount you've earned, after tax. Whereas if you keep working and take the civil service pension at 68, the civil service pension will be significantly higher after an additional 8 years paying in to the scheme. What does all that mean for your life? That's a highly personal matter.

Assuming you live to 84, each year of pension you get with the police is worth about 15K and each year with the civil service is worth about 13K (in total over retirement, assuming you live to 84). All that's on top of that imaginary 35K salary, remember.

The amount you pay in each year would be about 1900 with the civil service, but about 4700 with the police. That means you're up just over 10K with the police pension, and just over 11K with the civil service. But the police pension actually goes up in real terms a little bit over time.

These are very loose figures, to give you an illustrative idea. But you can see - there's really not much in it, and what you want to do with your career matters more than some of the counting of the pennies. Plus, if the average salary for your skillset is higher in one sector or the other, that would probably more than make up for any of the differences dicussed above.

Personally, I wouldn't switch jobs for the pension scheme alone between these two schemes (and I am someone who has done that in another more obvious case!)

Neither would I be afraid of losing out if I did fancy the move. Just my opinion.

In terms of retiring early - 60 with the police is a good start with no messing about.

You can pay extra up front using EPA in the civil service to reduce the effective retirement age by up to 3 years. You'd still contribue less total than in the police, but the gap would be closing, and your retirement age would still be higher.

The current actuarial reduction with the civil service to retire at 60 would mean you'd lose about 1/3rd of the value of your pension from a starting point of 68.

That would mean your take home would be 16K at 60 rather than 24K. But you'd collect it for 8 years longer, so you'd still collect almost exactly the same amount if you make it to 84 (and only start doing any worse if you live longer than that - die you and you come out ahead for retiring early.)

Thank you very much for the detailed reply! Lots of great points to mull over, really appreciate it! 👍