Civil service- Premium Alpha pension advice for my Dad!

hugheskevi

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..

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

A 65 year old male in the Civil Service pension scheme is expected to live to age 86-87 (slide 22 at this link). So about 21 years of pension receipt.

For such an individual, taking no lump sum would likely be the best financial choice. After 20% income tax, they should get inflation-linked annual pension equal to about 17 times the gross annual pension (21 years * 80% post tax income) compared to 12 years if commuted into lump sum.

hdot94

hugheskevi said:

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..

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

A 65 year old male in the Civil Service pension scheme is expected to live to age 86-87 (slide 22 ). So about 21 years of pension receipt.

For such an individual, taking no lump sum would likely be the best financial choice. After 20% income tax, they should get inflation-linked annual pension equal to about 17 times the gross annual pension (21 years * 80% post tax income) compared to 12 years if commuted into lump sum.

I think there are other considerations such as if you don't take the lump sump initially and pass away then that money is effectively lost. Yes, your dependents will get a spousal pension but this would be a lot lower.

Also, it doesn't take into account that you the lump sum would grow if you for example invested it.

Also with partial retirement and pension you could 

QrizB

hdot94 said:

I think there are other considerations such as if you don't take the lump sump initially and pass away then that money is effectively lost.

The chance of dying before average life expectancy is the same as the chance of exceeding it. That's how maths works.

hdot94 said:

Also, it doesn't take into account that you the lump sum would grow if you for example invested it.

You'd need to beat CPI, since that's what the pension grows by.

hugheskevi

hdot94 said:

hugheskevi said:

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..

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

A 65 year old male in the Civil Service pension scheme is expected to live to age 86-87 (slide 22 ). So about 21 years of pension receipt.

For such an individual, taking no lump sum would likely be the best financial choice. After 20% income tax, they should get inflation-linked annual pension equal to about 17 times the gross annual pension (21 years * 80% post tax income) compared to 12 years if commuted into lump sum.

I think there are other considerations such as if you don't take the lump sump initially and pass away then that money is effectively lost. Yes, your dependents will get a spousal pension but this would be a lot lower.

Also, it doesn't take into account that you the lump sum would grow if you for example invested it.

Spousal pension is unaffected by choice of whether or not to take a lump sum. There is also a 5 year guarantee which means a minimum of 5 years of pension will be paid in the event of dying shortly after commencing pension. The people inheriting the estate would still be worse off than if the member had taken a lump sum, but the risk is somewhat mitigated by the guarantee.

The longevity risk is symmetrical, ie, there is a risk of dying early which would favour lump sum, but there is also a risk of living longer which favours the pension.

A 65 year old male would need investment returns net of fees of slightly over 4% above inflation for the lump sum to generate more than taking the pension and investing the pension received each year over a period of 21 years (assuming basic rate taxpayer in all future years, 2% inflation, and investments are free of tax, eg, invested in ISA). That is not implausible, but it will require a decent amount of investment risk.

Nonetheless, commutation of pension into lump sum is popular, with about 80% of total possible commutation across the whole scheme being selected by members (typically maximum commutation by the majority, and no commutation by a minority).

Universidad

QrizB said:

The chance of dying before average life expectancy is the same as the chance of exceeding it. That's how maths works.

On average. Life expectancy figures can be about smaller groups, but they are never about individuals. We may all be, individually, privy to some information that indicates to us whether it is likely we will live longer or shorter than the average for our group.

Suzycoll

hdot94 said:

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!

hi
i have skimmed through the replies on here and some very knowledge people with good advice . 
I ill not pretend I have any financial advise on CS pension

However, I have a total different take on it - why doesn't  Dad just fully retire now - what is he wating for ? 
he has only got 2 years left until he claims his state pension I assume ?

OberstSteinerTEHL

So if you have some pension in Premium and you don't take this at 60 (normal retirement age) will it continue to grow or does it just freeze at that point. If so the obvious choice is to take it at 60?
Thanks

hdot94

OberstSteinerTEHL said:

So if you have some pension in Premium and you don't take this at 60 (normal retirement age) will it continue to grow or does it just freeze at that point. If so the obvious choice is to take it at 60?
Thanks

From my understanding it grows only at inflation rates but doesn't grow like a defined contribution pension would so yeah makes sense to take it at 60 as you lose out otherwise with minimal/no benefit (inflation increases)

Suzycoll said:

hdot94 said:

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!

hi
i have skimmed through the replies on here and some very knowledge people with good advice . 
I ill not pretend I have any financial advise on CS pension

However, I have a total different take on it - why doesn't  Dad just fully retire now - what is he wating for ? 
he has only got 2 years left until he claims his state pension I assume ?

Two reasons, he still enjoys working and the money is needed as state pension and or private is not enough

hdot94

Just bumping this thread as need some further advice

hugheskevi hopefully  to the rescue again

I've spoke to my LM about taking partial retirement and have been told reducing hours or wage is not possible so the only option is full retirement. Do you know they are allowed to deny partial retirement? What are my options here as it seems that for a 20% reduction in wage, I'm loosing out on my alpha pension as it's not accruing any further by me not taking it and I'm already 66!

hugheskevi

Do you know they are allowed to deny partial retirement?

Yes, although they are not denying partial retirement directly, just effectively denying it.

You are seeking to vary your contractual arrangements, your employer is not amenable to this, which is their right.

What are my options here as it seems that for a 20% reduction in wage, I'm loosing out on my alpha pension as it's not accruing any further by me not taking it and I'm already 66!

Alpha isn't a concern. You can accrue it until any age, and if you accrue it, or decide to receive it after Normal Pension age, it will benefit from an actuarial enhancement.

It is the legacy schemes of classic, classic plus and premium where care has to be taken.