The SCAPE rate and deciding when to take govt DB

StewedApple

When the pension freedoms came in there was a restriction applied to stop those in unfunded public sector schemes transferring them elsewhere. Had they not done that that a civil servant might have transferred their pension to a DC pension with a private pension provider. The government would then have needed to create base money (the transfer value) out of nowhere and the DC scheme in spending those transfers to buy assets (the seller on the other side of the transaction would have new money in their bank account as a result of this chain of events) would push more spending power into the private economy. That spending power of all those combined transfer values might exceed the resources of the economy and inflation would result.

My recollection's a little hazy on this one, but I recall that it required a change to the initially proposed policy as the cost implication sunk in - i.e. a large upfront cost to the taxpayer with no upside longer term.

Public sector pensions are often seen as a stick to beat people with - particularly because of the decline in quality of private sector pension provision since the 1990s.

In reality, the pensions paid out to public sector workers are often quite small individually, and mostly spent within their local economy - I'd be curious to know the multiplier effect of this money as it does seem to be missing from the Tufton Street-framed debate about "affordability".

SnowMan

https://forums.moneysavingexpert.com/discussion/comment/82151233#Comment_82151233

I can only vaguely remember it coming in and should really have said I was giving a reason why a ban on transfers out is reasonable. The reason actually given seems to have been as follows.

https://researchbriefings.files.parliament.uk/documents/CBP-8382/CBP-8382.pdf

3.1 Pay as you go schemes
The Government decided to legislate to prevent members of unfunded public service schemes transferring their pension rights to a DC scheme, except in very limited circumstances. This was because of concerns about costs being brought forward if more public servants requested the transfer value of their pension rights:

5.6 Initial government estimates suggest that the net cost of 1% of public service workers transferring out of public service schemes each year would be £200 million. This burden would be borne by the Exchequer, which would need to fund the additional costs by placing the burden onto taxpayers or onto current scheme members by imposing higher contributions. The government believes that continuing to allow people to transfer from a public service defined benefit scheme to a defined contribution scheme to take advantage of the new system would therefore be unfair on both the taxpayer and remaining scheme members.

StewedApple

https://forums.moneysavingexpert.com/discussion/comment/82151317#Comment_82151317

Thank you for that Snowman, my recollection of it was along similar lines. At the time it struck me that public sector employees who wanted to take advantage of the then more favourable Inheritance regulations for DC schemes would have been cheesed off - whether a transfer was financially beneficial for an individual or not is another matter.

I don't disagree with the view that the process would have damaged both the Exchequer and the remaining scheme members - an example of where individual interest and the wider public interest diverge.

michaels

The TLDR is that the govt have changed the rules making drawing a civil service pension taken early pay out less than before the change and that this may impact on a decision to take a dB early or use a DC to bridge.

LHW99

They then make an electronic accounting entry showing the loan as an
asset and create a matching deposit out of thin air when they pay the
loan into the borrowers account.

I knew I never understood double entry book-keeping 😖

SnowMan

https://forums.moneysavingexpert.com/discussion/comment/82151362#Comment_82151362

It depends on what the size of the change in the reduction is at different years early.

A 0.5% change in reduction factor (e.g. 30.5% vs 30% reduction) applied to a 10Kpa pension for example is about £50pa. Is that really going to majorly change someone's decision?

Given this is important to you perhaps you can research what the changes are likely to be numerically in terms of the early retirement reduction figures and report back to us. If the new factors aren't available yet, what are the changes for other public sector schemes who have already changed their factors?

michaels

https://forums.moneysavingexpert.com/discussion/comment/82151409#Comment_82151409

Sounds like a simple question but for cs alpha the 1.7% was never applied because they never got around to updating the factor tables and apparently it is the factor tables that matter not the underlying rules.

QrizB

Sounds like a simple question but for cs alpha the 1.7% was never applied because they never got around to updating the factor tables and apparently it is the factor tables that matter not the underlying rules.

I'm not sure where you got that from? Hugheskevi referred specifically to the Alpha actuarial factors in his post on the first page of this thread:

For example, when the discount rate changed from CPI+2.4% to CPI+1.7% the alpha early retirement factor applied to retire at age 60 for someone with a Normal Pension age of 67 changed from a 31.3% reduction to a 30% reduction.

michaels

https://forums.moneysavingexpert.com/discussion/comment/82151611#Comment_82151611

Google AI was very authoritative under repeated questionning - and very wrong - apologies.