Can someone please help me figure out if my defined benefit pension is any good?

Bostonerimus1

Andy_L said:

Bostonerimus1 said:

The US Federal Government has General Service levels ie GS. There are 15 levels and 10 steps within each level. Going up a level is a significant promotion where you will take on more responsibility, going up a step is relatively common and you get that for experience and good work. If you get to step 10 then you will go up a level if you keep working well. As a PhD I started at GS12-3. You get annual cost of living increases as well as the salary increases that go with a higher GS level/step.

https://www.opm.gov/policy-data-oversight/pay-leave/pay-systems/general-schedule/

Totally unlike the UK civil service then. 

I'm not familiar with the career paths of UK public employees and civil servants other than what I see and hear in the British media. My time as both a US federal and state employee was rewarding and I had managers who wanted to see their staff progress up the GS levels. So I get the feeling that being a "civil servant" in the US is preferable to being one in the UK, but the amount of holidays aren't as good in the US.

george_jetson

german_keeper said:

So final salary is not best for everybody..

Yes this does seem to be the case for me. I’m affected by the McCloud judgement and having done some very rough and ready calculations I’m far better off in Alpha for the relevant period - assuming I live beyond my early ‘70s. 

Odd as I’d assumed that the new scheme would be inferior. But is seems it’s not as simple as that. I suppose it’s because of years of any salary growth lagging behind inflation…

Andy_L

Bostonerimus1 said:

Andy_L said:

Bostonerimus1 said:

The US Federal Government has General Service levels ie GS. There are 15 levels and 10 steps within each level. Going up a level is a significant promotion where you will take on more responsibility, going up a step is relatively common and you get that for experience and good work. If you get to step 10 then you will go up a level if you keep working well. As a PhD I started at GS12-3. You get annual cost of living increases as well as the salary increases that go with a higher GS level/step.

https://www.opm.gov/policy-data-oversight/pay-leave/pay-systems/general-schedule/

Totally unlike the UK civil service then. 

I'm not familiar with the career paths of UK public employees and civil servants other than what I see and hear in the British media. My time as both a US federal and state employee was rewarding and I had managers who wanted to see their staff progress up the GS levels. So I get the feeling that being a "civil servant" in the US is preferable to being one in the UK, but the amount of holidays aren't as good in the US.

11 grades in the civil service
All on a spot rate (ie no annual pay progression within each grade, only the annual cost of living increases)
Promotion is by open competition for a vacancy. ie you can't be promoted within the same role just for being good at your job. Theoretically the job could be reevaluated as a higher grade but I've never seen it happen

https://www.instituteforgovernment.org.uk/explainer/grade-structures-civil-service

german_keeper

george_jetson said:

german_keeper said:

So final salary is not best for everybody..

Yes this does seem to be the case for me. I’m affected by the McCloud judgement and having done some very rough and ready calculations I’m far better off in Alpha for the relevant period - assuming I live beyond my early ‘70s. 

Odd as I’d assumed that the new scheme would be inferior. But is seems it’s not as simple as that. I suppose it’s because of years of any salary growth lagging behind inflation…

And the accrual rate in Alpha is almost double that in Classic.

If we assume salary "growth" remains the same I am thinking as the years go by more and more people, at the point of retirement, will see Alpha as better for 2015 - 2022 due to the CPI increases after 2022. Obviously any future promotion would be a tick in the Classic box. It will be interesting to hear from my old colleagues as they retire in years to come what decision they make. Assuming I am invited to the celebrations!

With hindsight I suspect Premium would have been better for me than Classic because as I understand it the reckonable earnings can go back up to 13 years with some sort of inflationary protection. Looking back to about 2002 I think it was when Premium was introduced, I don't think I can recall me or any of my colleagues spotting this inflation provision in Premium, despite lengthy study and discussion. But even if we had wages had always pretty much kept up with inflation so I don't think I would have made a different decision. Presumably because of this Premium will measure up better to Alpha than Classic will in future McCloud related decisions.

hugheskevi

german_keeper said:

If we assume salary "growth" remains the same I am thinking as the years go by more and more people, at the point of retirement, will see Alpha as better for 2015 - 2022 due to the CPI increases after 2022. Obviously any future promotion would be a tick in the Classic box. It will be interesting to hear from my old colleagues as they retire in years to come what decision they make. Assuming I am invited to the celebrations!

Remember that any promotion only affects the 2015-22 accrual for the comparison, and in particular whether a member chooses alpha or classic will not have any affect on pre-2015 accrual which remains linked to final salary. 

That means a member needs very high salary growth for classic to be superior to alpha, given it has to overcome the big accrual rate difference. A single promotion probably isn't sufficient, given the high real term pay cuts (usually a promotion just puts a member back into the real-terms position they were in 4-5 years earlier).

The main way in which classic can be superior to alpha is if a member decides to start from the position of their classic benefits and then tries to replicate them in alpha by commuting alpha pension for lump sum. Due to the terrible commutation rate of 12:1 this significantly reduces the value of alpha. But it is much easier to make a like-for-like comparison like that than it is to compare the classic lump sum and pension against just an alpha pension, so I expect many members will make this mistake.

german_keeper said:

With hindsight I suspect Premium would have been better for me than Classic because as I understand it the reckonable earnings can go back up to 13 years with some sort of inflationary protection. Looking back to about 2002 I think it was when Premium was introduced, I don't think I can recall me or any of my colleagues spotting this inflation provision in Premium, despite lengthy study and discussion. But even if we had wages had always pretty much kept up with inflation so I don't think I would have made a different decision. Presumably because of this Premium will measure up better to Alpha than Classic will in future McCloud related decisions.

In Premium you get the better of pensionable earnings in last year, highest inflation-adjusted pensionable earnings in any of the last 4 complete scheme years, or highest inflation-adjusted average pensionable earnings from any 3 consecutive years in the last 13 complete scheme years.

That in many cases means Premium is a final salary scheme with a CPI underpin. Although now the real-terms pay cuts have been in effect for more than 13 years that isn't necessarily the case for all members.

As you suggest, due to this Premium should be superior to alpha in most comparisons, and as neither Premium nor alpha have an automatic lump sum it is a straightforward comparison for members to make in most cases.

QrizB

We do seem to have got rather off the OPs topic here!

Bostonerimus1

Andy_L said:

Bostonerimus1 said:

Andy_L said:

Bostonerimus1 said:

The US Federal Government has General Service levels ie GS. There are 15 levels and 10 steps within each level. Going up a level is a significant promotion where you will take on more responsibility, going up a step is relatively common and you get that for experience and good work. If you get to step 10 then you will go up a level if you keep working well. As a PhD I started at GS12-3. You get annual cost of living increases as well as the salary increases that go with a higher GS level/step.

https://www.opm.gov/policy-data-oversight/pay-leave/pay-systems/general-schedule/

Totally unlike the UK civil service then. 

I'm not familiar with the career paths of UK public employees and civil servants other than what I see and hear in the British media. My time as both a US federal and state employee was rewarding and I had managers who wanted to see their staff progress up the GS levels. So I get the feeling that being a "civil servant" in the US is preferable to being one in the UK, but the amount of holidays aren't as good in the US.

11 grades in the civil service
All on a spot rate (ie no annual pay progression within each grade, only the annual cost of living increases)
Promotion is by open competition for a vacancy. ie you can't be promoted within the same role just for being good at your job. Theoretically the job could be reevaluated as a higher grade but I've never seen it happen

https://www.instituteforgovernment.org.uk/explainer/grade-structures-civil-service

In the US going from a GS12-3 to a GS12-4 wouldn't be seen as a promotion, more like natural job progression. If you went to a GS13-1 that would be a promotion.

Yorkie1

Can confirm many of the points made above.

Progression up the pay scale was abolished by the Government many years ago, so unless you achieve a promotion then your salary has gone up by less than inflation every year for well over 10 years, if it's gone up at all (a few years of 0%).  Owing to this, my salary has dropped by 24% in real terms value since 2010. Like the doctors, it would take an increase of well over 30% to reinstate it to actual terms value - but we got less than 5%.

Under those circumstances, Alpha with its inflation-proofing outweighs Classic when doing McCloud calculations for me.

But it will be different for others, obviously, and I do note the caveat from hugheskevi about not strictly comparing like for like.

Bostonerimus1

Yorkie1 said:

Can confirm many of the points made above.

Progression up the pay scale was abolished by the Government many years ago, so unless you achieve a promotion then your salary has gone up by less than inflation every year for well over 10 years, if it's gone up at all (a few years of 0%).  Owing to this, my salary has dropped by 24% in real terms value since 2010. Like the doctors, it would take an increase of well over 30% to reinstate it to actual terms value - but we got less than 5%.

Under those circumstances, Alpha with its inflation-proofing outweighs Classic when doing McCloud calculations for me.

But it will be different for others, obviously, and I do note the caveat from hugheskevi about not strictly comparing like for like.

This should make the OP think and look at the terms of their DB pension closely and consider what they might get given the nature of inflation and other wage increases...or stagnation. I'm ok with my DB pension being based on final salary as inflation raises were mandated each year and many years I got a 2% or 3% performance salary increase. But that was a while ago so things might have changed.

QrizB

Bostonerimus1 said:

Yorkie1 said:

Can confirm many of the points made above.

Progression up the pay scale was abolished by the Government many years ago, so unless you achieve a promotion then your salary has gone up by less than inflation every year for well over 10 years, if it's gone up at all (a few years of 0%).  Owing to this, my salary has dropped by 24% in real terms value since 2010. Like the doctors, it would take an increase of well over 30% to reinstate it to actual terms value - but we got less than 5%.

Under those circumstances, Alpha with its inflation-proofing outweighs Classic when doing McCloud calculations for me.

But it will be different for others, obviously, and I do note the caveat from hugheskevi about not strictly comparing like for like.

This should make the OP think and look at the terms of their DB pension closely

OP isn't in a UK civil servant, though. All this discussion of FS vs CA pensions has been a digression.