Move from Civil Service pension scheme to private sector role with a DC pension at 55?

Treesandmoney

would i (male 55) currently working in central government with 15 years in pension (Alpha/Nuvos) be wise to move roles to a private sector (more interesting role!) for a  pay rise of about 10% but an 7% employer contribution DC pension?  Crunching the numbers is making me hesitate, thinking that I would be unwise to move at my age as any salary gains would be offset by the worse pension, given i'm hoping (!) to retire in 5 years' time.  Anybody had experience of doing the same?   i'm finding the My CSP pension website a bit opaque in terms of effective/notional employer contribution rates...

Dazed_and_C0nfused

Treesandmoney said:

would i (male 55) currently working in central government with 15 years in pension (Alpha/Nuvos) be wise to move roles to a private sector (more interesting role!) for a  pay rise of about 10% but an 7% employer contribution DC pension?  Crunching the numbers is making me hesitate, thinking that I would be unwise to move at my age as any salary gains would be offset by the worse pension, given i'm hoping (!) to retire in 5 years' time.  Anybody had experience of doing the same?   i'm finding the My CSP pension website a bit opaque in terms of effective/notional employer contribution rates...

Why do you think contribution rates are relevant to the Alpha scheme?

The Alpha pension is based on the scheme rules so you accrue 1/43rd of pensionable pay each year you are a member.  Which is revalued annually for inflation (CPI).

Whether the employer contributions are 1% or 51% won't alter that.

Could you use the new DC pension pot to find the gap from 60 to 67 when your Alpha and State Pension will be payable?

Universidad

Dazed_and_C0nfused said:

Why do you think contribution rates are relevant to the Alpha scheme?

They're not - the poster was pointing out that the new private sector role, with a DC scheme, has a 7% contribution. 

That is relevant, because although the salary is 10% higher, the 7% contribution rate will almost certainly not do as well over just 5 years as Alpha. In terms of pension schemes, something like Alpha works very well at the end of your career for value, because it doesn't cost any more than when you're young, even though the scheme will have less time to invest it. 

That said, don't live your life according to the best pension scheme. If there's a job you actually want, you should do that job. It's not like the next 5+ years of your life are less important than your retirement years.

I've definitely done the opposite of this and gone somewhere specifically for the pension, but the job I want doesn't pay enough to live on. 

If yours does, I personally would not hold back on it.

If you want to play both sides, and have any large pots of accessible money lying around, you could buy some more Alpha Added Pension before leaving with a lump sum... but note that this particular way of adding pension does get more expensive with age...

hugheskevi

Treesandmoney said:

would i (male 55) currently working in central government with 15 years in pension (Alpha/Nuvos) be wise to move roles to a private sector (more interesting role!) for a  pay rise of about 10% but an 7% employer contribution DC pension?  Crunching the numbers is making me hesitate, thinking that I would be unwise to move at my age as any salary gains would be offset by the worse pension, given i'm hoping (!) to retire in 5 years' time.  Anybody had experience of doing the same?   i'm finding the My CSP pension website a bit opaque in terms of effective/notional employer contribution rates...

Alpha is more valuable the older you get, as the scheme has a high accrual rate (1/43) but a low revaluation rate (CPI). The older you are, the less the low revaluation rate matters and hence the more valuable alpha becomes.

Put in terms of value, I'd say it would be in the regioin of between 25-40% of pensionable earnings at your age (the range being due to considerable assumptions in the valuation process, in particular, the discount rate). Hence I'd be wanting more than a 10% uplift in pay and 7% DC pension to move.

Worth noting that you could choose to move to the Partnership Defined Contribution scheme in the Civil Service pension, contribute 3% and get an employer contribution of 17.75%. Partnership is notably worse than alpha at your age, yet the remuneration package under Partnership would be comparable with the private sector job.

QrizB

hugheskevi said:

Treesandmoney said:

... given i'm hoping (!) to retire in 5 years' time.

Alpha is more valuable the older you get, as the scheme has a high accrual rate (1/43) but a low revaluation rate (CPI). The older you are, the less the low revaluation rate matters and hence the more valuable alpha becomes.
Put in terms of value, I'd say it would be in the regioin of between 25-40% of pensionable earnings at your age (the range being due to considerable assumptions in the valuation process, in particular, the discount rate). Hence I'd be wanting more than a 10% uplift in pay and 7% DC pension to move.

Thinking out loud, a year of Alpha buys you 1/43rd (2.326%) of your salary as a pension.

To get the same amount from a DC pot at 4% drawdown would require a pot worth 58% of your salary.

To get the same amount from an RPI-linked single-life annuity (using HL's current list where they're suggesting 4.673%) would require a pot worth 49% of your salary.

Now, you might bank on some growth during the five years before you retire but beating inflation by 3% pa for 5 years only reduces those numbers by about a sixth, to 49% and 41% respectively. And of course you'll only get five years' growth on the DC contributions from your first year in the job; the next year's contributions will have four years, then three, then two etc.

Alpha seems a clear winner.

Universidad said:

That said, don't live your life according to the best pension scheme. If there's a job you actually want, you should do that job. It's not like the next 5+ years of your life are less important than your retirement years.

This, too, is true.

If you think you can have an adequate retirement with your current pension values, switching to a more interesting job for five years before retiring might be just the tonic you need.

NedS

hugheskevi said:

Treesandmoney said:

would i (male 55) currently working in central government with 15 years in pension (Alpha/Nuvos) be wise to move roles to a private sector (more interesting role!) for a  pay rise of about 10% but an 7% employer contribution DC pension?  Crunching the numbers is making me hesitate, thinking that I would be unwise to move at my age as any salary gains would be offset by the worse pension, given i'm hoping (!) to retire in 5 years' time.  Anybody had experience of doing the same?   i'm finding the My CSP pension website a bit opaque in terms of effective/notional employer contribution rates...

Alpha is more valuable the older you get, as the scheme has a high accrual rate (1/43) but a low revaluation rate (CPI). The older you are, the less the low revaluation rate matters and hence the more valuable alpha becomes.

Put in terms of value, I'd say it would be in the region of between 25-40% of pensionable earnings at your age (the range being due to considerable assumptions in the valuation process, in particular, the discount rate). Hence I'd be wanting more than a 10% uplift in pay and 7% DC pension to move.

I'm a similar age, and I've always considered Alpha to be worth around a third of my salary, which falls pretty much in the middle of the range my more knowledgeable friend @hugheskevi cites above.

So purely in terms of monetary value the 10% uplift in pay and 7% DC pension broadly represent around half the value of Alpha that you would be giving up - more like a 17% reduction than 17% gain.

Marcon

Treesandmoney said:

would i (male 55) currently working in central government with 15 years in pension (Alpha/Nuvos) be wise to move roles to a private sector (more interesting role!) for a  pay rise of about 10% but an 7% employer contribution DC pension?  Crunching the numbers is making me hesitate, thinking that I would be unwise to move at my age as any salary gains would be offset by the worse pension, given i'm hoping (!) to retire in 5 years' time.  Anybody had experience of doing the same?   i'm finding the My CSP pension website a bit opaque in terms of effective/notional employer contribution rates...

If you're hoping to retire in 5 years time but have the chance of a new and more interesting way to spend the final years of your working life, why not consider retiring a year or two later to help make up for any pension loss you'd suffer by changing jobs? Pensions aren't the only things which make a job attractive...

Treesandmoney

thanks all for your comments - certainly gave me food for thought and I decided to remain where I am -  the fairly stark financial advantages of the pension (plus the flexibility of current role and 5 extra days of leave) swung it for me.  couple of more years to go and I'll be off hopefully doing all sorts of exciting stuff