Milestone achieved with Civil Service Alpha

Universidad

Short celebratory post from me - I have just got my Alpha ABS for 2024, and I cannot tell you the relief I feel at seeing my two year "gamble" pay off in black and white.

Just over two years ago I left the University sector when (and because of) the USS pension cuts being put into practice. It had become clear to me that I would not under the new scheme be able to afford to retire when, or in the way, that I had expected.

I found a job with the civil service, and the comparison of the Alpha scheme at that time was almost beyond comprehension, being around half the contributions for not far off twice the pension.

On top of this, I paid heavily into Additional Pension for a year, up until the discount rate change was put into effect.

But for someone as risk averse as I am, there was always the hovering doubt about moving to a new job without employment protections, and with no guarantee that my new Alpha pension would be vested for nearly two years.

Today I know not only that the pension has vested, but that the amount is what I expected when taking out the Added Pension contract, and embarking on the journey.

It's not an entirely fair comparison (as USS has a lump sum, and an earlier retirement age, and I didn't overpay) but it is still no exageration to say that I have made up in 18 months of paying into the civil service pension an amount that is well over half the amount I have deferred in my USS pension after 18 years.

But most importantly of all, if I didn't put another penny into a DB scheme, I would just about get by on my pension at this point.

The rest of my career is now a journey to having a better, earlier retirement. 

My thanks to the board - the knowledge on ready display here is literally not available in a novice-accessible form anywhere else on the internet.

michaels

SO I joined at a similar time but also did a big transfer in of DC to DB which reached in time for the 10.x% inflation uplift which was nice

The job itself has not gone so well - they have upped twice the number of days in the office, each one costs me £1000pa on extra commuting costs out of taxed income and an extra 2.5 hours per day so effectively a pretty big wage cut in terms of post expenses salary divided by hours of my time taken up by the job.  On top of that the annual increments have been of order 3% so basically on a pounds per hour basis probably a 20% pay cut!!!!

The only good news is that the pension is indexed linked as soon as it is accrued whereas had it been final salary it would also have suffered from the real terms pay cut.  You can't lose them all.

Now I just need to stick it out another 10 months.  A vol scheme would have been nice but sadly that is unlikely given the election result.

NedS

Congratulations on the move @Universidad.

I was a member of USS, back in my younger days, and am now a civil servant and member of Alpha. I had been paying heavily into Added Pension for Alpha over the last few years to build up my guaranteed DB pots ready for retirement. I left academia over 20 years ago due to job insecurity and lack of career progression, but back in a time where the USS scheme was still a good pension scheme (final salary with full RPI/CPI indexation, and a retirement age of 63.5). A lot has changed in our lifetimes, and I wouldn't want to advise young people today whether a career in academia is worth it's salt.

Happily I am nearing the end of my journey now, and am about ready to hang up my boots. Being able to avail myself of the earlier USS and latterly Alpha pension schemes has been a big part of enabling that to happen. Best wishes and success on your journey.

hugheskevi

It is interesting just how much easier having a decent amount of DB pension makes everything, and removes most of the concerns about DC.

Currently aged 46 and retiring next year, my retirement will consist of:

• Non-pension between age 47-55
• DB and DC pension between 55-68
• State Pension and DB pension from 68

Our non-pension savings are very defensive invested (63%), and increasingly cash-based (37%) as all new saving for this period is going into cash.

The DC pension is fairly cautiously invested, partly reflecting the short time to drawing, but more reflecting that we pretty much have as much as we need in there so there is no benefit from taking risk. But even without any DC we would have as much as we need from the DB alone. There are good arguments to take more risk than I am with it, so this is an indulgence, or perhaps an investment in sleeping well at night!

The presence of the DB pension removes all the key risk about how long will a DC pot have to last, as we end up reliant on DB and State Pension eventually.

It also hugely reduces the size of the DC pot required and consequently the difficulty of managing it. A couple relying only on DC will have a huge pot at retirement, and even minor fluctuations of, say, 5% will probably be more than a year's income. That is hard and stressful to manage. In comparison, our DC only totals £277,000 so fluctuations of that are managable.

michaels

hugheskevi said:

It is interesting just how much easier having a decent amount of DB pension makes everything, and removes most of the concerns about DC.

Currently aged 46 and retiring next year, my retirement will consist of:

• Non-pension between age 47-55
• DB and DC pension between 55-68
• State Pension and DB pension from 68

Our non-pension savings are very defensive invested (63%), and increasingly cash-based (37%) as all new saving for this period is going into cash.

The DC pension is fairly cautiously invested, partly reflecting the short time to drawing, but more reflecting that we pretty much have as much as we need in there so there is no benefit from taking risk. But even without any DC we would have as much as we need from the DB alone. There are good arguments to take more risk than I am with it, so this is an indulgence, or perhaps an investment in sleeping well at night!

The presence of the DB pension removes all the key risk about how long will a DC pot have to last, as we end up reliant on DB and State Pension eventually.

It also hugely reduces the size of the DC pot required and consequently the difficulty of managing it. A couple relying only on DC will have a huge pot at retirement, and even minor fluctuations of, say, 5% will probably be more than a year's income. That is hard and stressful to manage. In comparison, our DC only totals £277,000 so fluctuations of that are manageable.

Interesting you are using cash rather than an index lined bond ladder for the next 8/9 years, it leaves you at risk of another inflation shock?

Do you have any view on the pros and cons of taking DB earl your late - how does one work out whether the reductions/additions are worth it compared to using more/less DC?

hugheskevi

michaels said:

hugheskevi said:

It is interesting just how much easier having a decent amount of DB pension makes everything, and removes most of the concerns about DC.

Currently aged 46 and retiring next year, my retirement will consist of:

• Non-pension between age 47-55
• DB and DC pension between 55-68
• State Pension and DB pension from 68

Our non-pension savings are very defensive invested (63%), and increasingly cash-based (37%) as all new saving for this period is going into cash.

The DC pension is fairly cautiously invested, partly reflecting the short time to drawing, but more reflecting that we pretty much have as much as we need in there so there is no benefit from taking risk. But even without any DC we would have as much as we need from the DB alone. There are good arguments to take more risk than I am with it, so this is an indulgence, or perhaps an investment in sleeping well at night!

The presence of the DB pension removes all the key risk about how long will a DC pot have to last, as we end up reliant on DB and State Pension eventually.

It also hugely reduces the size of the DC pot required and consequently the difficulty of managing it. A couple relying only on DC will have a huge pot at retirement, and even minor fluctuations of, say, 5% will probably be more than a year's income. That is hard and stressful to manage. In comparison, our DC only totals £277,000 so fluctuations of that are manageable.

Interesting you are using cash rather than an index lined bond ladder for the next 8/9 years, it leaves you at risk of another inflation shock?

Do you have any view on the pros and cons of taking DB earl your late - how does one work out whether the reductions/additions are worth it compared to using more/less DC?

I've lost a lot of interest in planning now, I expect to end up with a retirement income of about double what we will spend, so there is a lot of headroom to deal with any shocks. So just keeping it all simple with our existing S+S ISA in a very cautious investment trust, and just saving cash beyond that for however much longer we continue to work (less than 18 months, at most). We will use the cash first, starting with unwrapped then moving on to Premium Bonds, and finally cash ISAs. We may well not get to the S+S ISA before we reach age 55, or at least not use much of it.

The DB timing for me is quite straightforward - if I take it before 55 I'd fall foul of some unusual rules around the calculation of final pensionable earnings which would impose a very large reduction. There is no benefit from me waiting until after the Normal Pension age of 60, so that is already a quite narrow window.

I will probably be a higher rate taxpayer once I receive my State Pension, so I am incentivised to take DB early with actuarial reduction and withdraw up to higher rate tax using DC to minimise income tax. Taking DB at age 55, I should be able to extract all my DC pot without running into higher rate tax, although it might be close. I will make a few Contingent Decision arguments under 2015 Remedy rules which should increase DB pension further though, so one way or another, higher rate tax is a threat.

I may well take a very part-time job in a few years (need 5 year gap to break salary link under Transfer Club rules, so not before 2027...) as a lollipop man or something similar for a school term or two, anything that gives me access to the LGPS and its integrated DC scheme to transfer into, that would save me around £30K in income tax as I would take all my DC pot tax-free.

My wife is a little more complex. She has the same 55-60 window, but she has far less DC than I do. She also has slightly less DB but is still at a bit of risk of facing higher rate tax after State Pension age. She could slightly delay taking DB a bit after age 55 just to balance everything up, so that survivor income would be the same regardless of which of us dies first. She also will probably only draw her DC up to Personal Allowance if we delay DB past 55, and keep most of the DC intact given she will be able to draw it at basic rate so there is no hurry. Just from our DB pensions alone and my DC we should be able to go a fair way toward filling ISAs each year.

I do slightly despair at how significant the role of tax has been in our pension saving - initially, it was about saving all higher rate tax into a SIPP back in our early to mid 30s, then it became saving up to the Annual Allowance in late 30s, then the Lifetime Allowance became a slight threat in our early to mid 40s, and now it is fiscal drag and the threat of higher rate tax as we head into late 40s. The rewards are huge, but it can't be optimal to so heavily reward those willing to jump through ever-changing tax hoops.

Universidad

michaels said:

The only good news is that the pension is indexed linked as soon as it is accrued whereas had it been final salary it would also have suffered from the real terms pay cut.  You can't lose them all.

You may recall that a few months back I took a look at how my expected pension with USS had changed from when I started to when I left. One of the most significant things for me was just how much wage supression had masked the impact of the early closure of the final salary scheme.

NedS said:

A lot has changed in our lifetimes, and I wouldn't want to advise young people today whether a career in academia is worth it's salt.

Diplomatically put.

There seems to have been a shift in perception of staff from "skilled and respected professional" to "fungible service worker", both inside and outside the sector. That, for me, is the thing people looking to enter the sector right now probably don't realise. They can see the low pay and long hours, and may be willing to pay the passion tax, so to speak. But I don't think they would necessarily realise how thankless it is.

hugheskevi said:

There are good arguments to take more risk than I am with it, so this is an indulgence, or perhaps an investment in sleeping well at night!

The way I look at this is that there are two ways to approach pensions. The first is as an investment opportunity. Certainly for DC pensions, it's your money, it can go anywhere you like, and a pension just happens to have some tax advantages. And there's really good advice on this forum about where there are some clear lines in the sand (such as with the higher rate tax band, or with the HICBC).

But the second approach to pensions is as an insurance product. When you buy insurance, you're not making an investment. You don't expect to get ahead, financially. The product you are really buying is peace of mind. And I really don't think that can be underestimated.

Ultimately the thing that gives me the greatest value from my pensions today is no longer worrying about what I will do for money in old age. That problem is already solved: there's a day in the future where I can just stop working, and it is already sorted. Every extra contribution from now just brings that day closer. That means that, more than at any time since I started work, I can live for today.

michaels

hugheskevi said:

michaels said:

hugheskevi said:

It is interesting just how much easier having a decent amount of DB pension makes everything, and removes most of the concerns about DC.

Currently aged 46 and retiring next year, my retirement will consist of:

• Non-pension between age 47-55
• DB and DC pension between 55-68
• State Pension and DB pension from 68

Our non-pension savings are very defensive invested (63%), and increasingly cash-based (37%) as all new saving for this period is going into cash.

The DC pension is fairly cautiously invested, partly reflecting the short time to drawing, but more reflecting that we pretty much have as much as we need in there so there is no benefit from taking risk. But even without any DC we would have as much as we need from the DB alone. There are good arguments to take more risk than I am with it, so this is an indulgence, or perhaps an investment in sleeping well at night!

The presence of the DB pension removes all the key risk about how long will a DC pot have to last, as we end up reliant on DB and State Pension eventually.

It also hugely reduces the size of the DC pot required and consequently the difficulty of managing it. A couple relying only on DC will have a huge pot at retirement, and even minor fluctuations of, say, 5% will probably be more than a year's income. That is hard and stressful to manage. In comparison, our DC only totals £277,000 so fluctuations of that are manageable.

Interesting you are using cash rather than an index lined bond ladder for the next 8/9 years, it leaves you at risk of another inflation shock?

Do you have any view on the pros and cons of taking DB earl your late - how does one work out whether the reductions/additions are worth it compared to using more/less DC?

I've lost a lot of interest in planning now, I expect to end up with a retirement income of about double what we will spend, so there is a lot of headroom to deal with any shocks. So just keeping it all simple with our existing S+S ISA in a very cautious investment trust, and just saving cash beyond that for however much longer we continue to work (less than 18 months, at most). We will use the cash first, starting with unwrapped then moving on to Premium Bonds, and finally cash ISAs. We may well not get to the S+S ISA before we reach age 55, or at least not use much of it.

The DB timing for me is quite straightforward - if I take it before 55 I'd fall foul of some unusual rules around the calculation of final pensionable earnings which would impose a very large reduction. There is no benefit from me waiting until after the Normal Pension age of 60, so that is already a quite narrow window.

I will probably be a higher rate taxpayer once I receive my State Pension, so I am incentivised to take DB early with actuarial reduction and withdraw up to higher rate tax using DC to minimise income tax. Taking DB at age 55, I should be able to extract all my DC pot without running into higher rate tax, although it might be close. I will make a few Contingent Decision arguments under 2015 Remedy rules which should increase DB pension further though, so one way or another, higher rate tax is a threat.

I may well take a very part-time job in a few years (need 5 year gap to break salary link under Transfer Club rules, so not before 2027...) as a lollipop man or something similar for a school term or two, anything that gives me access to the LGPS and its integrated DC scheme to transfer into, that would save me around £30K in income tax as I would take all my DC pot tax-free.

My wife is a little more complex. She has the same 55-60 window, but she has far less DC than I do. She also has slightly less DB but is still at a bit of risk of facing higher rate tax after State Pension age. She could slightly delay taking DB a bit after age 55 just to balance everything up, so that survivor income would be the same regardless of which of us dies first. She also will probably only draw her DC up to Personal Allowance if we delay DB past 55, and keep most of the DC intact given she will be able to draw it at basic rate so there is no hurry. Just from our DB pensions alone and my DC we should be able to go a fair way toward filling ISAs each year.

I do slightly despair at how significant the role of tax has been in our pension saving - initially, it was about saving all higher rate tax into a SIPP back in our early to mid 30s, then it became saving up to the Annual Allowance in late 30s, then the Lifetime Allowance became a slight threat in our early to mid 40s, and now it is fiscal drag and the threat of higher rate tax as we head into late 40s. The rewards are huge, but it can't be optimal to so heavily reward those willing to jump through ever-changing tax hoops.

Really helpful and having both partners being at risk of higher rate tax is a nice problem to have

I wonder if the LGPS and my CS alpha are entirely equivalent i terms of benefits and surety as being CARM  I could in theory do that 6 months as a crossing patrol or exam invigilator immediately on retiring from the CS to get the TFLS benefit which would be worth a similar amount to me as yours would be.

hugheskevi

Universidad said:

NedS said:

A lot has changed in our lifetimes, and I wouldn't want to advise young people today whether a career in academia is worth it's salt.

Diplomatically put.

There seems to have been a shift in perception of staff from "skilled and respected professional" to "fungible service worker", both inside and outside the sector. That, for me, is the thing people looking to enter the sector right now probably don't realise. They can see the low pay and long hours, and may be willing to pay the passion tax, so to speak. But I don't think they would necessarily realise how thankless it is.

From my perspective as someone not in academia, but having friends who are and having worked professionally with academics over the years, there is very little attraction and hasn't been for about 20 years or so now.

There is huge job uncertainty in the early years, with a succession of short term contracts. That really prevents things like buying a house, etc, as you need to be mobile. And there is job insecurity too of course which would probably limit mortgage options.

There is the constant competition between private sector, public sector, charities and academia. Academia became uncompetitive with both private and public sector a long time ago, and even probably the charity sector.

michaels said:

I wonder if the LGPS and my CS alpha are entirely equivalent i terms of benefits and surety as being CARM  I could in theory do that 6 months as a crossing patrol or exam invigilator immediately on retiring from the CS to get the TFLS benefit which would be worth a similar amount to me as yours would be.

They should be entirely equivalent, as the transfer values are derived from the same discount rates. There might be small differences arising from scheme-specific assumptions and slight differences in benefit structure, but for a 50 year old deferred member (which is what I would be) I doubt they would be significant.

NedS

hugheskevi said:

Universidad said:

NedS said:

A lot has changed in our lifetimes, and I wouldn't want to advise young people today whether a career in academia is worth it's salt.

Diplomatically put.

There seems to have been a shift in perception of staff from "skilled and respected professional" to "fungible service worker", both inside and outside the sector. That, for me, is the thing people looking to enter the sector right now probably don't realise. They can see the low pay and long hours, and may be willing to pay the passion tax, so to speak. But I don't think they would necessarily realise how thankless it is.

From my perspective as someone not in academia, but having friends who are and having worked professionally with academics over the years, there is very little attraction and hasn't been for about 20 years or so now.

I agree with both. Growing up in the 70's, I remember a neighbour who was a "lecturer" at the local town college and was held in very high regard by my parent - certainly more so than a teacher, for example.

Fast forward 20 years, I have a degree and PhD, and am working at a good University and my parents want to know when I'm going to leave college and get a proper job!

hugheskevi said:

There is huge job uncertainty in the early years, with a succession of short term contracts. That really prevents things like buying a house, etc, as you need to be mobile. And there is job insecurity too of course which would probably limit mortgage options.

That was us - moving all around the country chasing the latest short term contracts and unable to contemplate buying a property and settling down. Eventually I landed a 5 year contract which gave us just enough security to look for and buy a house, which we sold 3 years later when the contract ended. We paid down the mortgage heavily during those 3 years, and luckily for us we bought well in a rising market, making enough on the deal to buy our next house outright. I got out of academia shortly after and haven't regretted it. It's amazing how much freedom being mortgage free gives you, especially in your 30's.

barnstar2077

NedS said:

hugheskevi said:

Universidad said:

NedS said:

A lot has changed in our lifetimes, and I wouldn't want to advise young people today whether a career in academia is worth it's salt.

Diplomatically put.

There seems to have been a shift in perception of staff from "skilled and respected professional" to "fungible service worker", both inside and outside the sector. That, for me, is the thing people looking to enter the sector right now probably don't realise. They can see the low pay and long hours, and may be willing to pay the passion tax, so to speak. But I don't think they would necessarily realise how thankless it is.

From my perspective as someone not in academia, but having friends who are and having worked professionally with academics over the years, there is very little attraction and hasn't been for about 20 years or so now.

I agree with both. Growing up in the 70's, I remember a neighbour who was a "lecturer" at the local town college and was held in very high regard by my parent - certainly more so than a teacher, for example.

Fast forward 20 years, I have a degree and PhD, and am working at a good University and my parents want to know when I'm going to leave college and get a proper job!

hugheskevi said:

There is huge job uncertainty in the early years, with a succession of short term contracts. That really prevents things like buying a house, etc, as you need to be mobile. And there is job insecurity too of course which would probably limit mortgage options.

That was us - moving all around the country chasing the latest short term contracts and unable to contemplate buying a property and settling down. Eventually I landed a 5 year contract which gave us just enough security to look for and buy a house, which we sold 3 years later when the contract ended. We paid down the mortgage heavily during those 3 years, and luckily for us we bought well in a rising market, making enough on the deal to buy our next house outright. I got out of academia shortly after and haven't regretted it. It's amazing how much freedom being mortgage free gives you, especially in your 30's.

Mortgage free in your thirties, without an inheritance, is very impressive.  It is good to hear that hard work does pay off sometimes!