Civil service premium pension

mrmerlin

Dear all,

I am keen to understand the impact on my Premium and Alpha Civil service pensions of forfeiting a pensionable London allowance.  Of course, CS pensions have not been helpful - I think this is because it is not trivial analysis and there are too many parameters and possible scenarios.  But there appear to be amazing people on this site, such as pinkks, who understand these schemes.  

I am a 55 year old Civil servant who has accumulated a so called final salary Premium pension due when I am 60, and am currently contributing to the new Alpha scheme.  I have the option of working outside London but this would involve forfeiting the London allowance which is part of my pensionable basic salary.  So in a very simplistic view, my final salary falls and all the benefits to it from working in London is lost

From what I read on previous threads about Premium, it appears I may be largely protected from this effect, assuming I retire within 10 years.  This is because the final pensionable earnings on which premium pension is based may be determined by your best average three years in the last 13 before retirement, where, crucially, earnings are compared after uplift for CPI inflation.  

In the case, for example, where I give up the allowance now, retire in 10 years, during which my cash salary grows by an average of 1% p.a. and inflation by 2% p.a., my best three years would remain my current and last two years.    I think there are other implications that, from a pension perspective, I have limited incentive to seek promotion or indeed work again in London towards the end of my career.  AS the increase in cash salary will likely still not compare with my current salary uplifted by future heavy inflation 

Remarkably complex but I would welcome a 101 on how the premium and indeed alpha is calculated, which depends on understanding how pensionable final earnings are determined
n

Floss

Have asked for this to be moved to the Pensions board.

Katiehound

Just what i was going to do!

hugheskevi

mrmerlin said:

I am a 55 year old Civil servant who has accumulated a so called final salary Premium pension due when I am 60, and am currently contributing to the new Alpha scheme.  

Important to note that if you do not take your Premium pension at age 60, you simply forfeit the money due between age 60 and when you claim the pension. Hence if you plan to continue in the Civil Service beyond age 60 you have a strong incentive to partially retire and claim your Premium pension at age 60, setting your hours so as to avoid abatement.

mrmerlin said:

I have the option of working outside London but this would involve forfeiting the London allowance which is part of my pensionable basic salary.  So in a very simplistic view, my final salary falls and all the benefits to it from working in London is lost

I think most Departments now simply have London pay-scales, rather than an explicit London allowance? But it doesn't really matter, however it is calculated and whatever it is called, all that matters for pension purposes is your pensionable earnings.

mrmerlin said:

From what I read on previous threads about Premium, it appears I may be largely protected from this effect, assuming I retire within 10 years. 

Given the huge incentive to take your Premium pension at age 60, you may well not commence your Premium pension in 10 years, rather more like 5.

mrmerlin said:

Remarkably complex but I would welcome a 101 on how the premium and indeed alpha is calculated, which depends on understanding how pensionable final earnings are determined

Premium entitlement depends on your number of qualifying years - that will not change now you are in alpha, so is not a concern. It also depends on final salary at the date you leave the scheme, which is calculated in the following 3 ways, and you receive the highest one (sorry for another reminder german_keeper!)

(1) Pensionable earnings in last 12 months
(2) Best inflation-adjusted pensionable earnings from the last 4 complete scheme years (1 Apr - 31 Mar)
(3) Your highest average pensionable earnings in any period of three complete scheme years during the last 13 years ending on your last day of service

If your best measure is pensionable earnings over the last 12 months, then having a pay fall now doesn't really make any difference until after about 4 years - although be careful about the leaving date, due to the use of complete scheme years.

However, you may well find it helpful to calculate your entitlement under these 3 measures now, so that you know what your current final pensionable earnings are, and what period they relate to, given it is very likely that a higher figure from a past year (s) is higher in real terms than your current pensionable earnings. MyCSP should also be able to tell you this information which may be easier. At some point, you may wish to consider switching to Partnership, thus leaving both Premium and Alpha, in order to lock in a higher past final pensionable earnings figure for Premium when your deferred award is calculated if that would be advantageous.

Alpha entitlement is very simple, you receive 2.32% of your pensionable earnings in each scheme year, so if your pensionable earnings reduce, so does your alpha entitlement. There is no impact on past accrual from either a pensionable earnings rise or fall.

mrmerlin

Thank you very much.  Can I ask a few follow up questions;

1) What do you mean by 'partially retire at 60' and set 'hours to avoid abatement'.  I was anticipating taking my Premium pension at 60 (which I presumes sets the time of retirement for the purposes of establishing the Premium pension I am due).  But continuing to work and paying into ALPHA, until some time before 67 years old, then receiving the alpha pension on top

2) Yes, if I forfeit the London allowance, commencing Premium in about 5 years will probably mean my best is the the average of recent three years, assuming inflation keeps up above pay growth.  Are you aware of how the calculation is actually done. I was imagining I take the cash earnings in relevant years and uplift by an estimate of CPI to the date of retirement, so 50k now will be valued more highly in 2030 than 50k at that time?  Then what is the earnings they use to estimate final pensionable earnings - presumably the same - let's say the average of three recent years of 50k, each uplifted to 2030.  So the pension itself is a function of inflation adjusted salary data.

3) Keen to know more about Parntership

Thanks so much

xylophone

What do you mean by 'partially retire at 60' and set 'hours to avoid abatement'

https://www.civilservicepensionscheme.org.uk/planning-for-retirement/what-are-my-options/partial-retirement/abatement/

pinnks

While I am not up-to-speed with the change to Alpha as (subject to McCloud surprising me) I was Premium until I retired in 2019, but I was unaware of the loss of benefits after 60 point.  I actually retired about a month after my 60th and received a pension based on actual days, including those after my 60th. 

The other point to note is that unless things have changed since my long and drawn-out debacle from 2014 to 2018, MyCSP will be of no help on this issue and will refuse to engage or send you any helpful numbers.  The only way I could force any helpful information out of them was to threaten to start the process of early retirement.  They then acquiesced and provided some information that enabled me to understand the detail of how the rules work and to at least test my own projections...

Be that as it may, the calculation is a tad more complicated that you suggest/hope. 

Other than the final 12 months, which is what it says on the tin, you need to convert your pensionable earnings to the amount in a scheme year, i.e. 1 April to 31 March and need to be careful about which year's CPI you apply to index those earnings forward, otherwise you can be "out" by significant amounts. 

Your earnings for a particular scheme year are not indexed by the CPI for the previous September like your pension will be when in payment (which I originally thought) but by the CPI for the following September and then the relevant number of CPIs/years following that.

So, if your earliest year to calculate your best 3-year average in the final 13 complete scheme years is, say, 2008, then that year's earnings are indexed by CPI for September 2008, then 2009 and onwards until the use of the CPI for the September before the scheme year in which you claim your pension.  I retired in April 2019, so 2008 pensionable earnings were indexed by CPIs for 2008 through 2018.  2009 pensionable earnings were indexed by CPIs September 2009 through 2018 and so on.  It is these indexed amounts that are used for the 3-year averages and for the best of your last 4 scheme years figures.  I cobbled a spreadsheet together that worked for me as I am a March baby but from memory there was an issue with it for those born in other months (it's 5 years since I last looked at it and the maths is a tad complex).  Anyway, it projected my pension to within pence of what MyCSP calculated, so it must have been there, or there abouts, with the maths. 

So, if you move in and/or out of London, the position will be what it will be but without putting in the hours to do the maths it is virtually impossible to get a reasonable view.

Hope you are good with spreadsheets...

Goldenyears

I am surprised the London allowance is pensionable now.  It wasn't the last time I was a London based civil servant in 1992.  It wouldn't have made sense then, because it only related to increased transport costs assumed to vanish on retirement.  At the time there was a common misconception that it related to increased living costs in general, but it was only to compensate for living further out and travelling. What changed?

hugheskevi

mrmerlin said:

Thank you very much.  Can I ask a few follow up questions;

1) What do you mean by 'partially retire at 60' and set 'hours to avoid abatement'.  I was anticipating taking my Premium pension at 60 (which I presumes sets the time of retirement for the purposes of establishing the Premium pension I am due).  But continuing to work and paying into ALPHA, until some time before 67 years old, then receiving the alpha pension on top

You cannot simply claim your Premium pension at age 60 and continue working full-time.

To access your Premium pension and carry-on working, you must partially retire. This means reducing your salary by at least 20% - usually by moving to part-time work, but a reshaping of the job or downgrading would also be acceptable.

The abatement rules require that you do not receive more from your new part-time salary and Premium pension than the full-time salary you received prior to partial retirement. If you do receive more, the pension is abated (ie reduced) to ensure that you do only receive an a combined salary plus pension amount equal to your prior full time salary. Hence if abatement applies, you would literally be working for nothing other than alpha pension accrual for some of your hours, and so you have a strong incentive to set your part-time earnings such that you avoid abatement.

mrmerlin said:

Are you aware of how the calculation is actually done. 

pinnks gives a good description in the post above.

It may be helpful to see how it will look in a spreadsheet - the image below gives an example of how it would look after the end of 2023/24 scheme year, ie, as at 1 April 2024.


Note that the last complete scheme year - 2023/24 - is not revalued. The highlighted boxes show what the various 3 tests of final pensionable earnings would result in, if the person retired on exactly 1 April 2024 (note the highlighted figures show a big decline in pensionable earnings the last few years which is very unusual, this was just something I had to hand, the numbers themselves don't matter, it is the calculation approach that is important). Note also the average of previous 3 years looks back over the last 13 complete scheme years - I haven't shown earlier years just to keep it managable to display. Annual income here is pensionable earnings in cash terms, the inflation adjustment is the September CPI figure used for uprating public service pensions in payment, compounded over time.

3) Keen to know more about Parntership

This linked page is the starting point for that.

I was Premium until I retired in 2019, but I was unaware of the loss of benefits after 60 point.  I actually retired about a month after my 60th and received a pension based on actual days, including those after my 60th. 

If you carry on working after Normal Pension age, you still build up pension accrual (in your case in Premium, now that everyone has been moved to alpha it would be in alpha).

But the Premium pension is payable without reduction from age 60, the normal pension age. If you claim the pension after normal pension age in either the nuvos or alpha scheme you receive an actuarial uplift to the pension to reflect that it started to be paid after normal pension age. In very specific circumstances in the classic scheme you would receive arrears back to age 60 if you commence the pension after the normal pension age. But in Premium you receive neither arrears nor an actuarial uplift, the scheme simply keeps the pension that was payable between age 60 and the time when you claim the pension.

pinnks said:

The other point to note is that unless things have changed since my long and drawn-out debacle from 2014 to 2018, MyCSP will be of no help on this issue and will refuse to engage or send you any helpful numbers.  The only way I could force any helpful information out of them was to threaten to start the process of early retirement.  They then acquiesced and provided some information that enabled me to understand the detail of how the rules work and to at least test my own projections...

There is a reasonable chance that they can be persuaded to send out the calculations under the 3 measures of final pensionable earnings. It might take some persistence however.

pinnks

There is a reasonable chance that they can be persuaded to send out the calculations under the 3 measures of final pensionable earnings. It might take some persistence however.

Perhaps things have improved but they were totally intransigent during the period I mention and that was despite them accepting that the ABS was useless for those in Premium for whom the 3-years in the last 13 was appropriate.  All history for me now of course and I "look forward" to receiving my remedy letter, that I think changing from Premium for my remedy period would be beneficial!