Civil Service Pension advice

oldgrumpyscot

I've struggled to find an adviser who knows about Civil Service Pensions so I thought I'd try posting here to see if anyone could help.

Having turned 60 in March, I decided to apply for partial retirement. This was approved and I've now received my pension quote. My plan was to reduce my hours by 40% which would reduce my current salary of £54419 to £32652. My premium pension quote is £29972 so adding that to my new salary comes to £62624. Because of abatement, I would lose £8205 which isn't ideal. However, if I take a lump sum of £100K, that would reduce my pension by £8333 (on the £1 for every £12 formula) giving me a new pension of £21639. Adding that to my reduced salary of £32652 would give £54291 so only £128 less than my current salary pre-retirement. 

Am I missing anything here? Is there some hidden disadvantage to taking the lump sum? 

Any thoughts or comments gratefully received! 

Dazed_and_C0nfused

oldgrumpyscot said:

I've struggled to find an adviser who knows about Civil Service Pensions so I thought I'd try posting here to see if anyone could help.

Having turned 60 in March, I decided to apply for partial retirement. This was approved and I've now received my pension quote. My plan was to reduce my hours by 40% which would reduce my current salary of £54419 to £32652. My premium pension quote is £29972 so adding that to my new salary comes to £62624. Because of abatement, I would lose £8205 which isn't ideal. However, if I take a lump sum of £100K, that would reduce my pension by £8333 (on the £1 for every £12 formula) giving me a new pension of £21639. Adding that to my reduced salary of £32652 would give £54291 so only £128 less than my current salary pre-retirement. 

Am I missing anything here? Is there some hidden disadvantage to taking the lump sum? 

Any thoughts or comments gratefully received! 

Well you could be receiving that inflation protected £8,333 for 40+ years.

So even allowing for tax it seems an expensive way to get a one off £100,000.  Especially when you don't seen in desperate need of it.

Wasn't the time to do these calculations before you applied.

Is there scope to renegotiate the reduction in hours?

Are you certain that taking a non automatic lump sum will be factored in in the way you think it will?

Lindlou

As far as I am aware, abatement is calculated on the first pension  calculation.  Reducing the annual pension by increasing the lump sum will make no difference. @hugheskevi may know for certain (and probably give you a better explanation) 

oldgrumpyscot

Dazed_and_C0nfused I could in theory get it for 40 years but having it when I'm in my 80s and 90s isn't going to do me much good.  If I last that long. My health isn't the best. I could have done the calculations earlier but I wanted to see what the offer was and I don't have to choose whether or not to take the lump sum until I send back my acceptance of the offer. Yes, I can request a further reduction in hours but I suspect that reducing it to less than 60% may not be feasible.

Lindlou. That's helpful. I didn't know that. Seems a bit odd that they would calculate your abatement based on a theoretical pension but maybe not surprising!

Phoenix72

Lindlou said:

As far as I am aware, abatement is calculated on the first pension  calculation.  Reducing the annual pension by increasing the lump sum will make no difference. @hugheskevi may know for certain (and probably give you a better explanation) 

Correct,  assuming we are talking Classic here then you cannot reduce abatement by commuting pension.

As Alpha is not subject to abatement would opting for Alpha for the McCloud remedy period be beneficial?

hugheskevi

Lindlou said:

As far as I am aware, abatement is calculated on the first pension  calculation.  Reducing the annual pension by increasing the lump sum will make no difference. @hugheskevi may know for certain (and probably give you a better explanation) 

The amount of lump sum taken does not affect the abatement calculation. However, an allowance is made for lump sum whether a lump sum is taken or not.

There is an FAQ on this linked page which states:

What if I commuted some of my pension into a lump sum, or lump sum into pension?

If you were in classic plus, premium or nuvos, we’ll work out the abatement as if you had exchanged some of your pension to take a standard lump sum. We multiply your initial pension by 0.8125 (if you were in classic plus, we assume you took the standard lump sum for service before 1 October 2002; the post October 2002 pension is multiplied by 0.8125). This ensures abatement applies consistently regardless of how much lump sum you choose to take.

In the OP's case, this means their Premium pension of £29,972 is multiplied by 0.8125 which gives £24,352 which is the figure used for abatement, regardless of any amount of lump sum taken.

Adding £24,352 to the new salary of £32,652 gives £57,004. That salary of reference appears to be £54,419 or maybe a little lower (see the list of FAQs linked above for the definition of salary of reference) so a total of £2,585 or maybe a bit more of the pension will be abated.

The OP's new gross monthly salary is £2,721. As National Insurance is paid on earnings but not on pension income, the OP is paying for the privilege of working for the amount of time worked covered by abatement (so paying a bit of National Insurance to do a month of voluntary work each year - very public-spirited), but the OP at least accrues pension on those earnings.

There is a Partial Retirement and abatement calculator on the scheme website which is worth playing with.

oldgrumpyscot said:

Having turned 60 in March, I decided to apply for partial retirement. 

Why didn't you choose to take Premium at age 60, rather than foregoing the pension due? Or did you apply to have your Partial Retirement and pension commence at age 60 and everything has moved slowly? Are you expecting to lose the c£10,000 of pension which would have been due between March and now?

Phoenix72 said:

As Alpha is not subject to abatement would opting for Alpha for the McCloud remedy period be beneficial?

This is a good point - how did the 2015 Remedy Options compare? It is common for Premium to be better than alpha, although that won't always be the case, but if the difference is small then the difference in abatement treatment might make the alternative option preferable even if the total pension is slightly smaller.

oldgrumpyscot

 @hugheskevi Many thanks. This is exactly the kind of clear, helpful and detailed advice I've been looking for but have been unable to find. My pensionable earnings for my premium pension is £46599.00 based on year end 31 March 2021. For Option A (premium for the Remedy period?) that gives a pension of £29972.84. for Option B (alpha for the Remedy period) the pension is £23388.09.. For alpha, Option A gives me a pension of £2058.85, Option B gives a pension of £8573.48. So a difference of about £70 between the two options. I hadn't planned to take my alpha pension at this point but maybe I should. If I take option B then my total pension would be £31961.57, made up of £23388.09 from premium and £8573.48 from alpha. If alpha isn't subject to abatement, does that mean that abatement is only calculated on the premium part of my pension? (so £23388+£32652 = £56040). This total being multiplied by 0.8125. 

I didn't take my pension at 60 because I didn't know about partial retirement. My retirement planning amounted to thinking that I'd never be able to retire because I couldn't afford it. It was only a chance conversation with a colleague that opened my eyes. Interestingly, having spoken to other colleagues since, very few know anything about it either. I've now become an advocate of retirement planning

I did try the calculator but I found it very difficult to understand. I would have felt worse about that if the IFA I showed it to hadn't said he couldn't work it out either!

hugheskevi

oldgrumpyscot said:

If I take option B then my total pension would be £31961.57, made up of £23388.09 from premium and £8573.48 from alpha. If alpha isn't subject to abatement, does that mean that abatement is only calculated on the premium part of my pension? (so £23388+£32652 = £56040). This total being multiplied by 0.8125. 

It would be £23,388.09 x 0.8125=£19,003, to which salary of £32,652 is added for a total of £51,655. So that would hopefully be sufficient to avoid abatement, if it is below the salary of reference.

You could also take alpha if you liked, but then you would be paying higher rate tax on it all of it.

oldgrumpyscot said:

I didn't take my pension at 60 because I didn't know about partial retirement. My retirement planning amounted to thinking that I'd never be able to retire because I couldn't afford it. It was only a chance conversation with a colleague that opened my eyes. Interestingly, having spoken to other colleagues since, very few know anything about it either. I've now become an advocate of retirement planning

It has always amused me how so many staff get so vocal about the decimal points of an annual payrise, whilst unknowingly losing thousands or even tens of thousands of pounds in their pension through poor decisions

oldgrumpyscot said:

I did try the calculator but I found it very difficult to understand. I would have felt worse about that if the IFA I showed it to hadn't said he couldn't work it out either!

Aye, it isn't the most intuitive thing!

oldgrumpyscot said:

My pensionable earnings for my premium pension is £46599.00 based on year end 31 March 2021.

Presumably all the pension figures cited are taken from the MyCSP retirement quotation? I just wonder about the reference to 31 March 2021, hopefully that is just your best final pensionable earnings, based on the best of your inflation-adjusted pensionable earnings from the last 4 complete scheme years. If so, that is all fine.

If not, and there are some very meaty inflation uplifts yet to be applied, then the pension figures could be quite heavily underestimated.

oldgrumpyscot

Yes, all figures from my quotation. The March 21 reference is from the quote for premium. Both option A and B say that the £46599 is based on my pensionable earnings for that year. I assume that was the best final pensionable earnings for the last four years in the premium scheme as you say. 

I assume the salary of reference is my current salary so, if I take alpha for the remedy period and don't take that now, just taking my premium of £23388, the £51655 total would be £2764 less than I am currently getting in my salary but I would avoid abatement and when I fully retire, I could take my alpha pension.  

hugheskevi

oldgrumpyscot said:

I assume the salary of reference is my current salary so, if I take alpha for the remedy period and don't take that now, just taking my premium of £23388, the £51655 total would be £2764 less than I am currently getting in my salary but I would avoid abatement and when I fully retire, I could take my alpha pension.  

Your salary of reference is probably your pensionable earnings from the last 12 months before your retirement. So it should be a little lower than your current salary, unless you haven't had a pay increase in the last 12 months.

Universidad

hugheskevi said:

It has always amused me how so many staff get so vocal about the decimal points of an annual payrise, whilst unknowingly losing thousands or even tens of thousands of pounds in their pension through poor decisions

I wouldn't have known that I could take the FS portion of my USS pension unreduced at 63.5, except for reading these forums! Some of the stuff we don't know isn't particularly well publicised, is my experience of it.