Civil Service Alpha/Partnership Switch

Leew89

Afternoon,

I currently have just under 7 years of Alpha and I expect after April's inflation uprating it will be worth around £5, 800 p/a. I'm thinking of switching to Partnership to try and build a DC pot for early retirement, then perhaps move back to Alpha (or whatever the DB equivalent is then if any) in later years. A mix of the two feels like a good move potentially. I'm 37.

I know there have been a few Civil Service 'Alpha v Partnerhsip' threads but rather than the merit of one versus the other I'm specifically interested in two aspects.

Firstly, I've read posters on MSE say that Alpha is a much better deal the older you are but I'm not sure how that works as the accrual rate is the same for everyone?

Secondly, is there a death in service element to Partnership? I can't seem to find anything on the CSP website but I may just have missed it.

Thanks,

Lee

Marcon

Leew89 said:

Afternoon,

I currently have just under 7 years of Alpha and I expect after April's inflation uprating it will be worth around £5, 800 p/a. I'm thinking of switching to Partnership to try and build a DC pot for early retirement, then perhaps move back to Alpha (or whatever the DB equivalent is then if any) in later years. A mix of the two feels like a good move potentially. I'm 37.

I know there have been a few Civil Service 'Alpha v Partnerhsip' threads but rather than the merit of one versus the other I'm specifically interested in two aspects.

Firstly, I've read posters on MSE say that Alpha is a much better deal the older you are but I'm not sure how that works as the accrual rate is the same for everyone?

Secondly, is there a death in service element to Partnership? I can't seem to find anything on the CSP website but I may just have missed it.

Thanks,

Lee

Pensions cost more to provide as you get older because the funds invested have a shorter time to build up investment returns. Although Alpha is an unfunded scheme, so there is no actual fund as such, the same principle applies. I won't be the only person to urge you to think again about opting out of such a fantastic scheme...there may not always be the opportunity to opt back in.

With Partnership, there's a death in service benefit of 3 x pensionable earnings - information well hidden(!) on the website. See https://www.civilservicepensionscheme.org.uk/knowledge-centre/pension-schemes/partnership-pension-account/ and click on 'what happens if I die before I draw my pension'.

hugheskevi

I'm thinking of switching to Partnership to try and build a DC pot for early retirement, then perhaps move back to Alpha (or whatever the DB equivalent is then if any) in later years. A mix of the two feels like a good move potentially. I'm 37.

A mix of the two is excellent, but it may well be preferable to build both at the same time. If you are a higher rate taxpayer (either now or in the future) then putting all the higher rate into DC pension may be something to consider. Alternatively, who knows what the future may hold for you, but if working in the private sector is what it holds then you would almost certainly get a DC pot from that.

Firstly, I've read posters on MSE say that Alpha is a much better deal the older you are but I'm not sure how that works as the accrual rate is the same for everyone?

How much money would you invest to fund:

(a) A pension of £10,000 which increases each year by CPI for a 20 year old who will take their pension in 45 years time at age 65?
(b) A pension of £10,000 which increases each year by CPI for a 60 year old who will take their pension in 5 years time at age 65?

Hint: You can reasonably expect to return about CPI+3% or CPI+4% on your investment.

It isn't a difficult spreadsheet problem if you wish to try and you will probably be surprised by the vast difference - the cost for the 60 year old will be about 3 times the cost for the 20 year old - just don't feel too begrudging about the truly sensational pension those aged 60+ around you are getting compared to your pension!

For the 60 year old, you pretty much have set to aside the full amount - you get very little from investment returns. For the 20 year old you have to set aside far less, as you get CPI+3% or so compounded over 45 years.

is there a death in service element to Partnership?

3 times pensionable earnings, and the full pot is available for inheritance.

Alpha is 2 times pensionable earnings, but also enhances accrued pension before applying the 37.5% survivor benefit. Note that is you were to switch to Partnership and die, the death benefit from alpha would just be 5 years of the accrued pension with no enhancement.

Leew89

Marcon said:

Leew89 said:

Afternoon,

I currently have just under 7 years of Alpha and I expect after April's inflation uprating it will be worth around £5, 800 p/a. I'm thinking of switching to Partnership to try and build a DC pot for early retirement, then perhaps move back to Alpha (or whatever the DB equivalent is then if any) in later years. A mix of the two feels like a good move potentially. I'm 37.

I know there have been a few Civil Service 'Alpha v Partnerhsip' threads but rather than the merit of one versus the other I'm specifically interested in two aspects.

Firstly, I've read posters on MSE say that Alpha is a much better deal the older you are but I'm not sure how that works as the accrual rate is the same for everyone?

Secondly, is there a death in service element to Partnership? I can't seem to find anything on the CSP website but I may just have missed it.

Thanks,

Lee

Pensions cost more to provide as you get older because the funds invested have a shorter time to build up investment returns. Although Alpha is an unfunded scheme, so there is no actual fund as such, the same principle applies. I won't be the only person to urge you to think again about opting out of such a fantastic scheme...there may not always be the opportunity to opt back in.

With Partnership, there's a death in service benefit of 3 x pensionable earnings - information well hidden(!) on the website. See https://www.civilservicepensionscheme.org.uk/knowledge-centre/pension-schemes/partnership-pension-account/ and click on 'what happens if I die before I draw my pension'.

Many thanks!

Indeed, just weighing it up at this stage. The more I think the more I'm inclined to ditch the idea and just pile as much as I can into a SIPP/LISA as supplement.

Leew89

hugheskevi said:

I'm thinking of switching to Partnership to try and build a DC pot for early retirement, then perhaps move back to Alpha (or whatever the DB equivalent is then if any) in later years. A mix of the two feels like a good move potentially. I'm 37.

A mix of the two is excellent, but it may well be preferable to build both at the same time. If you are a higher rate taxpayer (either now or in the future) then putting all the higher rate into DC pension may be something to consider. Alternatively, who knows what the future may hold for you, but if working in the private sector is what it holds then you would almost certainly get a DC pot from that.

Firstly, I've read posters on MSE say that Alpha is a much better deal the older you are but I'm not sure how that works as the accrual rate is the same for everyone?

How much money would you invest to fund:

(a) A pension of £10,000 which increases each year by CPI for a 20 year old who will take their pension in 45 years time at age 65?
(b) A pension of £10,000 which increases each year by CPI for a 60 year old who will take their pension in 5 years time at age 65?

Hint: You can reasonably expect to return about CPI+3% or CPI+4% on your investment.

It isn't a difficult spreadsheet problem if you wish to try and you will probably be surprised by the vast difference - the cost for the 60 year old will be about 3 times the cost for the 20 year old - just don't feel too begrudging about the truly sensational pension those aged 60+ around you are getting compared to your pension!

For the 60 year old, you pretty much have set to aside the full amount - you get very little from investment returns. For the 20 year old you have to set aside far less, as you get CPI+3% or so compounded over 45 years.

is there a death in service element to Partnership?

3 times pensionable earnings, and the full pot is available for inheritance.

Alpha is 2 times pensionable earnings, but also enhances accrued pension before applying the 37.5% survivor benefit. Note that is you were to switch to Partnership and die, the death benefit from alpha would just be 5 years of the accrued pension with no enhancement.

Excellent, thank you!

Understood now I think. I thought there was something in the scheme rules (I wasn't aware of) that made Alpha more advantageous as you got older. But actually it's a DB v DC point, and the DC just wouldn't compete versus the DB over that shorter period?

Marcon

Leew89 said:

Understood now I think. I thought there was something in the scheme rules (I wasn't aware of) that made Alpha more advantageous as you got older. But actually it's a DB v DC point, and the DC just wouldn't compete versus the DB over that shorter period?

Got it in one!