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Civil Service Added Pension Calculator Query

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  • NedS
    NedS Posts: 4,501 Forumite
    Fifth Anniversary 1,000 Posts Photogenic Name Dropper
    edited 13 February 2024 at 9:02AM
    FB13 said:

    My slightly niggle is that I don’t know if I will stay in the public sector until retirement and even if I do, I think there is a chance that pensions switch to DC or otherwise become less attractive in the next 30 years. I wonder if I should build up additional DB pension while I can even if it is more expensive. On the other hand, I’m aware I can take more risk given the time I have left to retirement. 
    Indeed, this is the key question / dilemma.
    Firstly, I guess the good thing is that you are thinking about pensions at a relatively young age, and making significant additional contributions, be they DB or DC.
    I like the balance and flexibility a combination of DB/DC assets gives me. I have aimed to have enough uncapped inflation-linked income (DB/SP) to cover my essential needs so I can at least sleep well at night, and to have enough DC income for any discretionary spending in retirement. It's all well and good having a huge DC pot, but it needs to be underpinned by the security of a firm DB/SP base in my view (others may feel differently).
    DB pensions do not get any better than the CS scheme, so if you believe the scheme may not be available to you forever, either because it may be withdrawn (unlikely*) or you may not work for the CS long term (far higher risk IMHO), you could make a case for building up a good DB base now and focus on your DC pot later.
    So you could work backwards, imagine you are at retirement age now - how much pension income would you desire/require, and how would you like it to be split over DB and DC. Once you have a clearer idea of how much DB income you would like in retirement, you can start to plan how to achieve that goal given your views on how long you may stay in the CS.

    * I think it unlikely the CS DB scheme would be replaced with a DC scheme. At present, those notional 27% employer alpha conts go towards paying the pensions of current retirees -  if they converted to a DC scheme, they'd actually have to actually pay 27% of your salary into a pot for you AND continue to fund the current commitments of the scheme, which would involve a MASSIVE upfront cost which the treasury simply could not afford. The government is effectively locked in to a scheme from which it would be prohibitively expensive to exit. More likely the government may seek to erode the value of the scheme benefits over time to make them more affordable as we see happening in schemes like USS.

  • I would echo @NedS sentiments above.
    I expect the value of open public sector DB pensions to erode over time, but I do not expect the value of previously accrued benefits to erode significantly, other than possibly through increases to state pension age.
    I have definitely held a strong personal preference towards increasing my DB pension out of a combination of valuing the certainty of DB and wanting to fill up before the plate gets taken away. 
    However now that I'm close to a DB amount that I could comfortably live on the value, to me, of more flexible funds has increased enough to justify the risk of putting my 'extra' pension contributions into a DC pot... And the flexibility of payment arrangements for AVCs and the discount rate change are what sealed it for this year ahead. 

  • michaels
    michaels Posts: 29,104 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    I guess going forward the govt could save money by reducing the 1.7% (hopefully only on future contributions) and of course you are locked to the state retirement age that may go up even more with the DB option.  Going DC you can potentially lock in current retirement age of 57 (or even 55 if you had a DC pot in place at the time)
    I think....
  • FB13
    FB13 Posts: 156 Forumite
    Part of the Furniture 100 Posts Name Dropper Combo Breaker
    NedS said:
    FB13 said:

    My slightly niggle is that I don’t know if I will stay in the public sector until retirement and even if I do, I think there is a chance that pensions switch to DC or otherwise become less attractive in the next 30 years. I wonder if I should build up additional DB pension while I can even if it is more expensive. On the other hand, I’m aware I can take more risk given the time I have left to retirement. 

    DB pensions do not get any better than the CS scheme, so if you believe the scheme may not be available to you forever, either because it may be withdrawn (unlikely*) or you may not work for the CS long term (far higher risk IMHO), you could make a case for building up a good DB base now and focus on your DC pot later.

    So you could work backwards, imagine you are at retirement age now - how much pension income would you desire/require, and how would you like it to be split over DB and DC. Once you have a clearer idea of how much DB income you would like in retirement, you can start to plan how to achieve that goal given your views on how long you may stay in the CS.

    Thanks. This is helpful. If I work another 25 years (until 62) at my new, post-promotion salary, I'll have another £43k of alpha, on top of my existing £13k mix of alpha and LGPS (some of which has a 65 retirement age). So with the early payout deduction, I should have enough DB to live on not that meager of an existence even without any additional contributions.

    I think I'm now leaning towards splitting my additional contributions, maybe 25% added pension to keep building up some extra DB (slowly keep working towards offsetting the early payout deduction or in case I decide to start working part time before retirement) and 75% in AVC for the future flexibility that they provide. 
  • I've finally brought this to a conclusion today with an application now in for AVC's.  In the end the flexibility to change payments on the fly rather than rigidly annually, plus what I saw as the pretty poor (albeit guaranteed) return on Added Years, and the fact that I already have a reasonable chunk of 'safe' pension provision via my CS pension, some cash savings and state pension to come - so going for something with an element of risk for this extra bit feels reasonable in terms of overall balance.  Had the discount rate not reduced for Added Years, I might have gone that way, but as it is the return just didn't look very attractive.  Should have started this years ago really, but that's a pointless train of thought now!
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