Civil service- Premium Alpha pension advice for my Dad!

hdot94

Hi all,

Long story short I'm helping my dad manage his pension as he's not clued up on pensions and is close to the retirement age. I've done lots of reading on his pension (Civil service- alpha & premium) but still have a number of questions. Looking for your expert advice as know there's lot of knowledgeable folk here.

Dad's situation:

Currently aged 65

Premium pension 

• Joined the premium pension in July 2005
• Annual premium pension is - £10987
• Premium survivor's annual pension- £4120
• Preserved premium survivors' annual pension- £4120
• Death in service - £54k

Alpha Pension

• Joined in 2022
• Annual premium pension is - £10987
• Lump sump- 
• Annual alpha pension is - £1982
• Death in service - £84k
• Premium survivors annual pension- £1921
• Preserved award death benefit lump sump- £9911
• Preserved alpha srurivors annual pension - £743 pa

1.  From reading it looks like since his premium pension pot is a defined benefit scheme it seems like it would have been beneficial to start drawing this down from age 60 and reducing his hours. From my understanding, since this is a defined benefit scheme there has been "no benefit" for delaying taking down this pension as it's guaranteed until death once taken. Is this correct? I also read that since I began contributing before 2006, I could have taken this from 55 instead of 60? Is this true? Has this meant my dad has effectively lost out on £10997 approx for last 5 years? 
2.   If the above is correct, would drawing on the premium pension and reducing working hours so total income is 20% less, how would this impact the alpha pension? I know that his total contributions to Alpha would be lower as his pensionable earnings would be at least 20% lower.
3. I can't find the lump sump for the premium pension on my annual statement. When I go to the retirement modeller it says:
4. 
5. Does this mean the lump sump for my premium pension is £66k? If so why does the retirement age show 65, if I can start taking this from 60 for premium? Or is this the combined lump sump for both alpha and premium, i.e I can't take it  if deciding to take out my premium pension?
6. I have two different death in services for alpha and premium- would they combined in the event of death in service? 
7. Under the alpha scheme the death benefits are different vs the preserved death benefits- what is the difference here? 

Thanks in advance!

hugheskevi

Long story short I'm helping my dad manage his pension as he's not clued up on pensions and is close to the retirement age. 

There is no retirement age. He is approaching State Pension age, which is also the Normal Pension age for alpha.

It looks like it would have been beneficial to start drawing this down from age 60 and reducing his hours. From my understanding, there has been "no benefit" for delaying taking down this pension as it's guaranteed until death once taken. Is this correct?

Yes

 I also read that since I began contributing before 2006, I could have taken this from 55 instead of 60? Is this true? 

It could have been taken at any age from 50. If taken before age 60 an actuarial reduction would have been applied.

Has this meant my dad has effectively lost out on £10997 approx for last 5 years? 

Subject to McCloud options and what he chooses, yes.

would drawing on the premium pension and reducing working hours so total income is 20% less, how would this impact the alpha pension?

His past accrual would be unaffected. His future accrual would accumulate at 80% of the rate it is currently accumulating. 

I know that his total contributions to Alpha would be lower as his pensionable earnings would be at least 20% lower.

He may move into a lower contribution band as well, as contributions are based on actual income. Hence the contributions may reduce by more than 20%.

I can't find the lump sum for the premium pension on my annual statement. 

Premium does not have an automatic lump sum. Pension can be commuted into lump sum at a rate of £1 pension=£12 lump sum.

Does this mean the lump sum for my premium pension is £66k? If so why does the retirement age show 65, if I can start taking this from 60 for premium? Or is this the combined lump sump for both alpha and premium, i.e I can't take it  if deciding to take out my premium pension

It means that if chooses alpha membership from 1st April 2015, the maximum lump sum available from commuting Premium and Alpha pension is £66,474. The retirement age shows 65 as that is his age. He cannot start to take it from age 60 as he did not claim it at age 60.

If taking partial retirement, any combination of benefits can be taken, so it would be possible to take only Premium and choose whatever lump sum is desired and leave the alpha benefits untouched. The modeller does not show partial retirement.

I have two different death in services for alpha and premium- would they combined in the event of death in service? 

I am not 100% certain, but think the premium pension reflects 5 years of premium pension annual payments. The alpha figure reflects 2 x salary. He would receive both of these.

Under the alpha scheme the death benefits are different vs the preserved death benefits- what is the difference here? 

If preserved then 5*pension is paid. If active then 2* salary is paid (possibly other options in some circumstances, but those are the main ones).

hdot94

Firstly thank you so much for the response! Looks like I've got some work to do after been late to start drawing down the premium pension. 

In order to kick start this would I call the company and inform them of my desire to take this? 

It means that if chooses alpha membership from 1st April 2015, the maximum lump sum available from commuting Premium and Alpha pension is £66,474. The retirement age shows 65 as that is his age. He cannot start to take it from age 60 as he did not claim it at age 60.

If taking partial retirement, any combination of benefits can be taken, so it would be possible to take only Premium and choose whatever lump sum is desired and leave the alpha benefits untouched. The modeller does not show partial retirement.

So does that mean the retirement model is showing the lump sump is currently showing both Alpha and premium? How would I find out what amount I could take as 25% for my premium pot only? Assuming I'd have to call in to find out?

If preserved then 5*pension is paid. If active then 2* salary is paid (possibly other options in some circumstances, but those are the main ones).

I mean under my annual statement it shows the following: 

• Premium survivors annual pension- £1921
• Preserved award death benefit lump sump- £9911
• Preserved alpha srurivors annual pension - £743 pa

Why is the annual pension and the preserved annual pension different? Presumably, if you die in service, the death survivor's annual pension and the preserved one would be the same? Similarly, the death in service is £84k but then the preserved is only £9911?

hugheskevi

hdot94 said:

In order to kick start this would I call the company and inform them of my desire to take this? 

Everything starts with requesting a retirement quote if you want accuracy and clarity.

All others things (Annual Benefit Statements, modeller, etc) are just approximations of entitlement and may well contain errors. Those errors might arise from the record itself, which is scrutinised as part of putting benefits into payment, but many have also reported oddities with the modeller.

hdot94 said:

It means that if chooses alpha membership from 1st April 2015, the maximum lump sum available from commuting Premium and Alpha pension is £66,474. The retirement age shows 65 as that is his age. He cannot start to take it from age 60 as he did not claim it at age 60.

If taking partial retirement, any combination of benefits can be taken, so it would be possible to take only Premium and choose whatever lump sum is desired and leave the alpha benefits untouched. The modeller does not show partial retirement.

So does that mean the retirement model is showing the lump sump is currently showing both Alpha and premium? How would I find out what amount I could take as 25% for my premium pot only? Assuming I'd have to call in to find out?

The modeller is a very simple tool to give a broad illustration of accrued pension as well as pension yet to be accrued. It has very few customisation tools, so wanting to see breakdowns by pension type, the effect of leaving employment but not claiming pension, the impact of buying Added Pension or EPA, and so forth, is all not possible.

There is a lump sum calculator on the calculators page.

I doubt calling would result in anything useful, and will not be as good as doing your own research, but you never know. 

hdot94 said:

I mean under my annual statement it shows the following: 

• Premium survivors annual pension- £1921
• Preserved award death benefit lump sump- £9911
• Preserved alpha srurivors annual pension - £743 pa

Why is the annual pension and the preserved annual pension different? Presumably, if you die in service, the death survivor's annual pension and the preserved one would be the same? Similarly, the death in service is £84k but then the preserved is only £9911?

A survivor pension of £4,120 based on a member Premium pension of £10,987 is consistent (survivor pension is 37.5% of member pension). Who knows what that £1,921 figure is. Are you sure you have typed it correctly? I would expect it be to the alpha survivor pension with an enhancement arising from death in service.

If you die in service the service used to calculate your pension is enhanced, which in turn increases the 37.5% survivor benefit. Dying in service gives 2x salary, akin to life insurance, this does not apply for death in deferment.

The preserved award death benefit lump sum is the accrued alpha member pension x5 and appears correct.

The preserved alpha survivors annual pension is 37.5% of the member alpha pension and appears correct.

You may find it helpful to read the alpha scheme guide, rather than presuming anything.

hdot94

Thank you once again for your help!

Having a play with he lump sump calculator with the following assumptions if you live at least 10 years from now, then in most cases it seems the better option is maximizing the annual pension rather than taking out a lump sump. I'll continue to have a play around.

I doubt calling would result in anything useful, and will not be as good as doing your own research, but you never know. 

I've read the alpha scheme guide a few times, but some bits were clear so apologies, this is all the first time I'm reading some of this as I'm not part of civil service and simply trying to help my dad!

If you have any other useful links or considerations please let me know. I've read the guide a few times you've linked and also searched the forum for similar threads- anything that would be useful please let me know!

Just checked and the annual premium survivors' annual pension and £1921 is correct- I will call about this.

hdot94

Sorry read the guide again and had a few more follows ups:

Partial retirement

• You can partially retire and draw on a pension so long as you meet the criteria they set out . Does this mean that I could have my father partially retire, draw on premium (reduce pay by at least 20%)  then when he reaches state retirement age he could do the same and again reduce pay by 20% and continue working while drawing on alpha too?

• It mentions if you take partial retirement, and don't claim your tax free lump sump when you do when you fully retire, the tax lump sump will be based on the extra pension you receive at this time, not on your total pension. 

The example given on the page is:

Mo takes partial retirement when he’s 65 and his initial nuvos pension entitlement is £14,000 per year. He could take a cash lump sum of anything up to £60,000 but he decides to maximise his income and take no lump sum at all.
Mo decides to retire at 72, with a remaining nuvos pension entitlement of £7,000 a year. He now has the option to take a lump sum of anything up to £30,000. He cannot opt to use the lump sum entitlement he had when he took partial retirement.

I don't quite understand this- does this mean that the 25% tax free lump sump can't be carried across at full retirement? I.e if you decide not to take 15k at retirement with the above example, and then at retirement the new lump sump is based on the extra earnings you've made in between 65 and 72, you can only take 25% of this new amount and not of the original full lump sum?

Or is it saying if you don't take your annual lump sump initially at partially retirement then you can't take this when you fully retire as the new lump sump available is based on earnings earned between partial retirement and full retirement i.e you've lost 30k of your lump sump based on above example?

Death after taking pension

It mentions that lump sumps would be payable to dependent if you start taking your pension and 5 years have passed nothing will be paid out.

Is this referring to the lump sump of the value of the pension rather than the death in service benefit? 

If so would it make sense that after 5 years after drawing the pension, that any lump sump amount is drawn even if there is a tax implication- this way you benefit from the full amount. Otherwise if there is a death after this point, the money would be lost? Understand this will likely reduce the annual pension but still seems like a prudent decision?

hugheskevi

hdot94 said:

You can partially retire and draw on a pension so long as you meet the criteria they set out . Does this mean that I could have my father partially retire, draw on premium (reduce pay by at least 20%)  then when he reaches state retirement age he could do the same and again reduce pay by 20% and continue working while drawing on alpha too?

Yes, but be aware of abatement (applies to Premium, not to alpha).

hdot94 said:

I don't quite understand this- does this mean that the 25% tax free lump sump can't be carried across at full retirement? I.e if you decide not to take 15k at retirement with the above example, and then at retirement the new lump sump is based on the extra earnings you've made in between 65 and 72, you can only take 25% of this new amount and not of the original full lump sum?

Or is it saying if you don't take your annual lump sump initially at partially retirement then you can't take this when you fully retire as the new lump sump available is based on earnings earned between partial retirement and full retirement i.e you've lost 30k of your lump sump based on above example?

At partial retirement you take a proportion of the pension and make a lump sum decision about that portion. At full retirement you receive the remaining proportion of pension (plus new accrual after partial retirement) and make a lump sum decision about that portion. There is no carrying-over, they are separate lump sum decisions.

hdot94 said:

Death after taking pension

It mentions that lump sumps would be payable to dependent if you start taking your pension and 5 years have passed nothing will be paid out.

Is this referring to the lump sump of the value of the pension rather than the death in service benefit? 

If so would it make sense that after 5 years after drawing the pension, that any lump sump amount is drawn even if there is a tax implication- this way you benefit from the full amount. Otherwise if there is a death after this point, the money would be lost? Understand this will likely reduce the annual pension but still seems like a prudent decision?

There is no lump sum value of a pension in payment, there is no pension commencement lump sum, and there is no death in service benefit for a member who has fully retired. This is referring to a 5 year death benefit guarantee.

All lump sum decisions are taken when the pension is commenced.

hdot94

Yes, but be aware of abatement (applies to Premium, not to alpha).

Isn't this the point of the 20% salary reduction? If I take this and the new reduced pay+ pension amount is greater than the old pensionable earnings abatement would apply? Could you not adjust your pay reduction so the new amount is less than your old pensioanable earnings? 

If this is correct then it seems my dad has potentially lost out on 5 years of similar wage whilst working less if he took out the premium pension at 60- annoying!!

At partial retirement you take a proportion of the pension and make a lump sum decision about that portion. At full retirement you receive the remaining proportion of pension (plus new accrual after partial retirement) and make a lump sum decision about that portion. There is no carrying-over, they are separate lump sum decisions.

So the decision is about the tax-free lump sump rather than the lump sum in general?  If you take no lump sum initially at partial retirement , then can you take the full amount at retirement as the remaining proportion would be the same? 

Hopefully that makes sense.

There is no lump sum value of a pension in payment, there is no pension commencement lump sum, and there is no death in service benefit for a member who has fully retired. This is referring to a 5 year death benefit guarantee.

All lump sum decisions are taken when the pension is commenced.

Sorry was referring to the lump sump portion of pension. If you take premium pension now with no lump sum. Then 5 years pass and you die, your dependents will only receive the annual alpha pension. So effectively if you didn't take any lump payment and then you don't die within 5 years, and then die you lose out on this lump sump amount since it can no longer be passed to dependents. Based on this then would it make sense to draw lump say 4 years into the scheme that way if anything does happen at least you have drawn on the lump sump amount? It also means he first 4 years you'll be paid a higher annual pension as you've taken any lump sump?

hugheskevi

Yes, but be aware of abatement (applies to Premium, not to alpha).

Isn't this the point of the 20% salary reduction? If I take this and the new reduced pay+ pension amount is greater than the old pensionable earnings abatement would apply? Could you not adjust your pay reduction so the new amount is less than your old pensioanable earnings? 

The 20% reduction is the minimum required to access Partial Retirement. Subject to employer agreement, part-time hours can be set so as to avoid abatement.

hdot94 said:
If this is correct then it seems my dad has potentially lost out on 5 years of similar wage whilst working less if he took out the premium pension at 60- annoying!!

Many public sectors workers over the age of 60 are selflessly volunteering to pay to work (as their earnings are subject to National Insurance but the pension is not) for a decent chunk of each week. Commendable. They do at least accrue pension on their full earnings though.

At partial retirement you take a proportion of the pension and make a lump sum decision about that portion. At full retirement you receive the remaining proportion of pension (plus new accrual after partial retirement) and make a lump sum decision about that portion. There is no carrying-over, they are separate lump sum decisions.

So the decision is about the tax-free lump sump rather than the lump sum in general?  If you take no lump sum initially at partial retirement , then can you take the full amount at retirement as the remaining proportion would be the same? 

You consistently refer to a lump sump, which I had assumed was a typo, but perhaps not. Can you clarify? Do you think there is both a lump sum and a 'lump sump' involved?

There is a Pension Commencement Lump Sum (PCLS) which is colloquially referred to as a 25% tax free lump sum. Then there are various lump sum payments that arise due to death (eg death in service, death in deferment, or death within 5 years of pension commencement). The only decision a member makes is about their PCLS. There is no 'lump sum in general'.

At partial retirement a member chooses to take lump sum in relation to the amount of pension they have chosen to put into payment. That is a final decision with no carrying forward of any type. At full retirement they make a separate lump sum decision in relation to the remaining amount of pension that is being put into payment.

There is no lump sum value of a pension in payment, there is no pension commencement lump sum, and there is no death in service benefit for a member who has fully retired. This is referring to a 5 year death benefit guarantee.

All lump sum decisions are taken when the pension is commenced.

Sorry was referring to the lump sump portion of pension. If you take premium pension now with no lump sum. Then 5 years pass and you die, your dependents will only receive the annual alpha pension. So effectively if you didn't take any lump payment and then you don't die within 5 years, and then die you lose out on this lump sump amount since it can no longer be passed to dependents. Based on this then would it make sense to draw lump say 4 years into the scheme that way if anything does happen at least you have drawn on the lump sump amount? It also means he first 4 years you'll be paid a higher annual pension as you've taken any lump sump?

I think you are totally misunderstanding the basic principles and need to reread the scheme guides.

A member takes their decision about the amount of lump sum to take, if any, when they commence their pension. There is no subsequent option to revise this decision.

To take a lump sum requires commutation of Premium or alpha pension at the rate of £1 of annual pension for £12 of tax free lump sum. Ignoring inflation uplifts and investment returns, a basic rate taxpayer would need to survive for 15 years from commencing pension to be better off from choosing pension instead of lump sum.

hdot94

Thank you so much for all your wisdom and patience! I've begun the process for partial retirement for my father with the hope to adjust earnings to avoid abatement.

Many public sectors workers over the age of 60 are selflessly volunteering to pay to work (as their earnings are subject to National Insurance but the pension is not) for a decent chunk of each week. Commendable. They do at least accrue pension on their full earnings though.

Interestingly when I called the civil service pension they informed me you can backtrack payments from age 60 and they will pay these out however I don't think that's right seems too good to be true.

I think you are totally misunderstanding the basic principles and need to reread the scheme guides.

A member takes their decision about the amount of lump sum to take, if any, when they commence their pension. There is no subsequent option to revise this decision.

To take a lump sum requires commutation of Premium or alpha pension at the rate of £1 of annual pension for £12 of tax free lump sum. Ignoring inflation uplifts and investment returns, a basic rate taxpayer would need to survive for 15 years from commencing pension to be better off from choosing pension instead of lump sum..

Thanks, they also confirmed this. Sorry, I meant lump sum*. 

I came to the same conclusion that taking this was beneficial and will opt to take the full tax-free 25% on partial retirement. 

Dazed_and_C0nfused

Interestingly when I called the civil service pension they informed me you can backtrack payments from age 60 and they will pay these out however I don't think that's right seems too good to be true.

I could be missing something but if that is true it would appear to mean you could completely avoid abatement and essentially have your cake and eat it.

Active, full time, member of Alpha reaches 60 and chooses not to take their Classic pension.  Paid full time salary for a few years until they decide to retire.

They accrue extra (compared to having part time hours from being partially retired) Alpha pension and can then ask for all the Classic pension to be paid for the previous few years.  

I thought if you were an active member and you didn't take Classic at age 60 you basically lost the pension for the period from 60 until you eventually decided to take it.