Best remedy with early Classic, deferred Alpha

swisscheese3

Can Alpha in remedy still be better when taking Classic around 57 (NPA 60) and  Alpha (NPA 67) at 60? I get the feeling that the lower Classic figure will be generally evened out by Alpha when Alpha’s taken at 60. The higher Classic figure with Classic in remedy is tempting but the Alpha element starts off from a low base (compared to Alpha equivalent in Alpha remedy) even with projected CPI and there will be actuarial reduction at 60 on top.

Of course we can’t predict CPI and have crunched numbers with so many caveats and assumptions until my brain has melted so not looking for exact figures. I am a straightforward case with linear career so no breaks in service, changes between schemes etc.

Classic in remedy is generally better for those with promotions towards the end but I won’t be in that category. I am prioritising maximising pension over lump sum.

hugheskevi

Can Alpha in remedy still be better when taking Classic around 57 (NPA 60) and  Alpha (NPA 67) at 60?

Yes, commonly.

I think you are overcomplicating everything. When you apply to take your pension, you will be shown the pension values as at your date of retirement. Based on your lump sum choices, you will presumably just choose the higher pension amount, and there is unlikely to be much difference. Even if you want to leave alpha deferred for a further 3 years, that won't affect which the better Remedy choice will be.

Due to the terrible lump sum commutation rate, classic is going to do better if you want to take maximum lump sum but even then may be outperformed by alpha, depending on individual past salary.

Classic in remedy is generally better for those with promotions towards the end but I won’t be in that category. I am prioritising maximising pension over lump sum.

You actually need quite a lot of salary increase for classic to outperform alpha when not taking maximum lump sum, so from what you have said it may well be that alpha is the better choice, although there probably is not a great deal in it.

One useful way of comparing is to look at the pension and standard lump sum difference. Classic for 2015-22 will have a higher lump sum but a lower pension. If the ratio of that difference is lower than 12, then you presumably would prefer the alpha option, as you could do better by commuting alpha pension for lump sum even at the poor rate of 12:1. If the ratio exceeds 12 then there is more thinking to be done.

swisscheese3

Thanks hugheskevi, that is very helpful.

The drawback of requesting a quote is that you’re then committed to making a decision. So if the comparison values deviate a bit more than expected and assuming Capita are correct, then there is no option to withdraw from the pension application and re-submit at a later date after more thinking with say different retirement dates.

I was just going to accept the Classic lump sum accompanying the highest pension/remedy option; to be honest, I have never considered commutation as the pension income was always my main priority. I think though with the ratio thing in your last paragraph, it’s about 15 between Alpha pension and Classic lump sum with Classic in remedy, as there is about £53k difference. So I’m confused even more!

I think after deciding the rough amount of pension income needed over the medium and long term e.g. frontload in earlier years, I am looking at Alpha in remedy, and take Alpha at the same time as Classic. If Classic was in remedy then early Classic could be ok for me, deferring Alpha in order to build up with CPI and mitigate actuarials.

Thanks again.

george_jetson

I am looking at Alpha in remedy, and take Alpha at the same time as Classic

I’m a deferred member and FWIW after playing with excel and using helpful advice from hugheskevi this is also what I’ve decided to do…

swisscheese3

Thanks george_jetson, I am not deferred but always good to hear others doing the same as I seem to buck the trend within my circle as far as taking both pensions early.

CorseyEdge

I've run similar modelling on my CS pension. Mine isn't overly complex like yours (Classic & Alpha), so it has been simple enough to run my own spreadsheet modelling using known data - qualifying service, historic annual pensionable pay, CPI data, scheme rules, etc. Over the years this has really helped me assure the accuracy of both ABS and PSS statements, but has also illuminated potential retirement dates.

I'm now just under 3 years from 60, where I plan to 'resign with pension' taking both the Classic and Alpha. My reasoning for taking Alpha is the current Alpha ERF tables are fairly actuarially neutral. Taking Alpha at 60 rather than the scheme NPA of 67, produces a breakeven of 83yrs and 4 months. Living past 83.33yrs we'd be worse off with this choice, and 'better off' if we died prior (albeit sadly not here to revel in the glow of that choice).

I also have a SIPP & ISA so could use some of this in drawdown to attempt to bridge delaying taking Alpha, but had discounted that apprioach. This was prior to the SIPP IHT changes though so may take another look at this decision.

One useful way of comparing is to look at the pension and standard lump sum difference. Classic for 2015-22 will have a higher lump sum but a lower pension. If the ratio of that difference is lower than 12, then you presumably would prefer the alpha option, as you could do better by commuting alpha pension for lump sum even at the poor rate of 12:1. If the ratio exceeds 12 then there is more thinking to be done.

Thanks @hugheskevi this helps support my observation. In my case taking Classic with no additional lump sum through the Remedy period (15-22), generates £1.4k less Annual Pension but £27k more standard Lump Sum, a ratio of over 19:1, this ratio increases to nearly 24:1 when the WPS refund is added in, to total £34.5k more Lump Sum. [Running some sensitivity analysis on my data, shows that the next three annual Pay Rises would each have to lag CPI by -3% to generate a ratio approaching 12:1]

So I'm planning on drawing Alpha at 60 with taking the Classic in the Remedy option, even though the overall annual pension payment will be £1.4k lower - my reasoning (which may be flawed) is that I will still have enough pension to cover all my needs (plus CPI will do its thing), I'll be a HRT payer, I can maintain the tax free status of the extra £35k lump sum, investing it long term in ISA and finally the survivor benefits for Classic in remedy are improved (although this was less of a driver for me at the moment).

horsewithnoname

I went partial at 58 and because I was on the maximum of my pay grade and my pay was static for several years, but alpha gets a CPI adjustment, even with equalising the lump sum and the greater actuarial reduction, alpha will still be better.
If I ever get the choice before I die 🙄