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  • FIRST POST
    Luis
    Civil Service Pension - no more lump sum, what to do?
    • #1
    • 11th Feb 05, 11:49 AM
    Civil Service Pension - no more lump sum, what to do? 11th Feb 05 at 11:49 AM
    Official MSE Insert:

    If you've arrived from Google, our fully researched Pensions guide may be helpful.

    Back to the original post...

    Hello,

    I am 28 yrs old, female and have just joined the Civil Service 'Premium' pension scheme, which no longer offers a lump sum on completion, and works on 1/60 contributions. I have about 5yrs worth of my old NHS pension scheme stored. I have the following questions:

    :confused: Should I transfer my NHS contributions in to my new civil service pension, which I understand I can do as part of the Public Sector Transfer Club (I am tempted to do this as I feel that the benefits of leaving a 5yr pension are few...?)

    :confused: What can I do to save / plan to get a lump sum for retirement - what are the best schemes or plans in order to achieve a little nest egg for retirement - which to be honest I was looking forward to from when I was in the NHS - drat the Civil Service for moving the goal posts!

    :confused: What can I do to top up my Civil Sevice Pension - as I have no intention of working until I am 60 (or even 65 as it looks like it is going to be, yuk), and want a decent pension on which to retire.

    Any advice would be most gratefully received,

    Luis.
    Last edited by Former MSE Zorica; 20-01-2014 at 5:48 PM.
Page 7
  • laurel7172
    This is LGPS, not civil service, but most of my accrued benefits are on the 1/60 system (no lump sum) and I've just had a letter encouraging me to pay AVCs which includes the following:

    When you retire you can take the whole of your AVC fund as a tax free lump sum (including any income earned) subject to the total lump sum being no more than 25% of the value of your benefits.

    So am I right in my interpretation that if I make AVCs, this could be the best of all possible worlds? Tax relief, tax free growth AND the whole of it back when I retire?

    Thank you
    • Debt_Free_Chick
    • By Debt_Free_Chick 21st May 12, 8:32 PM
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    Debt_Free_Chick
    So am I right in my interpretation that if I make AVCs, this could be the best of all possible worlds? Tax relief, tax free growth AND the whole of it back when I retire?

    Thank you
    Originally posted by laurel7172
    Well, yes - but part of the total lump sum would have been provided by swapping some of your 1/60th pension anyway. The actual increase in the lump sum will be 25% of the value of the AVCs at retirement - the rest of the lump sum you could have had, anyway.

    Having said that, it could be that you are still better off overall as the pension you give up (by taking your AVCs as cash, rather than using them to buy an annuity) could well be less that the 1/60th pension you would have swapped for the lump sum. Whether this is the case depends on the pension/cash exchange rate used by LGPS.
    Last edited by Debt_Free_Chick; 21-05-2012 at 8:38 PM.
    Warning ..... I'm a peri-menopausal axe-wielding maniac
    • BobQ
    • By BobQ 21st May 12, 8:38 PM
    • 10,707 Posts
    • 14,102 Thanks
    BobQ
    This is LGPS, not civil service, but most of my accrued benefits are on the 1/60 system (no lump sum) and I've just had a letter encouraging me to pay AVCs which includes the following:

    When you retire you can take the whole of your AVC fund as a tax free lump sum (including any income earned) subject to the total lump sum being no more than 25% of the value of your benefits.

    So am I right in my interpretation that if I make AVCs, this could be the best of all possible worlds? Tax relief, tax free growth AND the whole of it back when I retire?

    Thank you
    Originally posted by laurel7172
    Schemes that used to be based on 1/80ths usually had a lump sum, the later variants used 1/60ths without lump sum but they were almost similar in value. You will probably be able to commute some of your 1/60ths pension to have a lump sum, in the same way that those with a 1/80th pension can usually convert the lump sum into more pension within limits.

    Obviously if you take out AVCs you will get more benefits however they allow you to take them. But they are based on investments unlike your main pension. So "whole of it" will depend on the investment.
    Last edited by BobQ; 21-05-2012 at 8:41 PM.
  • laurel7172
    Thanks, debt free chick. But what it seems to be saying is that, because I don't get any lump sum on the current LGPS scheme, I can effectively exploit a technicality, using the 25% allowance that my scheme doesn't utilise to get *all* my AVCs as a lump sum when I retire. (Assuming LGPS doesn't offer me an unmissable annuity rate to keep it in there)?
  • laurel7172
    Thanks, Bob. As a late entrant on a low salary, I don't expect to be able to afford to commute any pension-certainly not at the rates they seem to be offering at the moment. I'm aware that the two pensions are actuarily similar. But...subject to investment risk..which also exists outside a pension...am I right that I could, potentially, use an AVC like a long term S&S ISA, with the added benefit of tax relief on the initial investment? Thank you.
    • Debt_Free_Chick
    • By Debt_Free_Chick 21st May 12, 8:52 PM
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    • 9,492 Thanks
    Debt_Free_Chick
    Thanks, debt free chick. But what it seems to be saying is that, because I don't get any lump sum on the current LGPS scheme
    Originally posted by laurel7172
    Are you sure about that? Can't you swap (commute/exchange) some of your 1/60th pension at retirement for a lump sum?
    Warning ..... I'm a peri-menopausal axe-wielding maniac
  • laurel7172
    Yes. But I understand I'd be insane to take them up on their offer at current rates . I do take your point about the flexibility, though...if I did decide to commute some pension, that would definitely throw off my maths.
    • Andy L
    • By Andy L 22nd May 12, 9:17 AM
    • 10,186 Posts
    • 9,368 Thanks
    Andy L
    Thanks, debt free chick. But what it seems to be saying is that, because I don't get any lump sum on the current LGPS scheme, I can effectively exploit a technicality, using the 25% allowance that my scheme doesn't utilise to get *all* my AVCs as a lump sum when I retire. (Assuming LGPS doesn't offer me an unmissable annuity rate to keep it in there)?
    Originally posted by laurel7172
    The LGPS, uniquely(?), among the public sector schemes allows you to "merge" the FS pension and AVC pots , work out the 25% lump sum based on the total value (using a nominal calculation for the pot size of the FS bit) and then take all the lump sum from the AVC
    • Debt_Free_Chick
    • By Debt_Free_Chick 22nd May 12, 9:43 AM
    • 13,149 Posts
    • 9,492 Thanks
    Debt_Free_Chick
    Yes. But I understand I'd be insane to take them up on their offer at current rates . I do take your point about the flexibility, though...if I did decide to commute some pension, that would definitely throw off my maths.
    Originally posted by laurel7172
    Agreed that using the AVC funds to provide the cash that would otherwise have been available by swapping some of the 1/60th pension is probably the best option. (But you'd need to compare the LGPS pension/cash exchange rate with a current annuity rate and remember that both vary over time).

    But it was this point ...

    So am I right in my interpretation that if I make AVCs, this could be the best of all possible worlds? Tax relief, tax free growth AND the whole of it back when I retire?
    Where you say you get all of it back (as a lump sum) when you retire. My point was that you would have got some of it as a lump sum anyway.

    Let's say that LGPS would have provided a lump sum of 100K. You then accumulate AVCs of 100k. Your total lump sum would be 125k (100k that LGPS would have provided plus 25% of the AVC fund). So, your total AVCs would be paid to you as a lump sum - but only because your using it to fund a payment which LGPS was originally going to pay to you.

    There's nothing wrong with your analysis but I wanted to be sure that you understood that the actual increase in cash is not simply the AVC fund. The increase is only 25% of the AVCs at retirement. Yes, you could get the whole AVC fund as a lump sum and, yes, that could well improve your retirement income - but the amount of cash you get is only increased, marginally.
    Warning ..... I'm a peri-menopausal axe-wielding maniac
  • jvh100
    Voluntary exits/compulsary redundancy pensions
    For those being offered voluntary exits be careful. The bumpf generally given out says you can take an unreduced pension early if you are 50 or over if you use some or all of your lump sum to buy out the reduction.

    There are pages of this and they all imply you will get a full pension - NOT SO!

    There is a single sentence in the bumpf somewhere that states it is base on accrued service. This means if made redundant you will only get a pension based on how many years service you have behind you at the time of leaving and not what you would get if you had retired at 60.

    I have just found this out the hard way. I was facing voluntary exit and if I didn't take it I was to be made compulsary redundant for which for me would have made no difference but for some people it would make a big difference.

    I had a bombshell dropped on me after using my lump sum to buy out the reduction and found my pension is less than 4300 pa which is only just over jobseeekers allowance.

    At least I won't have the humiliation of having to sign on as unemployed every fortnight but neither will I have enough to live on until my other pensions kick in in 10 years time and my state pension kicks in when I reach retirement age.


    Also be aware that having a civil service pension might affect your state pension. I wasn't aware of this either but there is a single sentance in the pension guides which is available on the civil service pension website at:
    civilservice.gov....uk/pensions/scheme-guides (Remove the extra dots - I can't post links as a new user).

    check your guides VERY carefully.

    for example for the classic plus scheme:

    Page 3.......

    is contracted out of the State
    Second Pension Scheme (S2P).
    This means that both you and your
    employer pay National Insurance
    Contributions at a lower rate. You
    may not build up any rights to S2P
    while you are a member of the
    classic plus scheme although
    you will still get the basic State
    pension if you have paid enough
    National Insurance Contributions.

    So you will get the basic pension but probably not the S2P
    (old serps) part.

    page 15......
    Changes at State pension age
    When you reach State pension age,
    some or all of the pensions increase
    relating to your guaranteed minimum
    pension is paid with your State
    pension. Also at State pension age,
    National Insurance modification will
    take effect for people with service
    before 1 April 1980.

    so after state pension age, it looks like only your state pension is increased in line with CPI. I don't know what the reference to NI means yet.

    page 21....
    The pension payable from the State
    is made up of two parts the basic
    pension and the additional earningsrelated pension, S2P. The State
    pension is paid from State pension
    age and increases each year in line
    with inflation.
    Your membership of classic plus
    does not affect your entitlement to the
    State basic pension. You will not be
    entitled to the earnings-related element
    as classic plus is contracted out of S2P.
    To find out more about the State
    pension and S2P, contact the
    Department for Work & Pensions.


    I hope this helps someone else.

    • xylophone
    • By xylophone 23rd Jun 12, 12:20 AM
    • 31,628 Posts
    • 19,617 Thanks
    xylophone
    so after state pension age, it looks like only your state pension is increased in line with CPI. I don't know what the reference to NI means yet.
    See http://www.civilservice.gov.uk/wp-content/uploads/2012/04/CapitaNewsletter2012.pdf
  • princeperch
    I still havent been given a proper statement of the pension I've build up in my 3 years in the CS thus far - the last one I got had the wrong salary and starting date on it.

    anyway am I right in thinking that if I stay on my current grade/salaryfor the next 27 years (thus having 30 years service) it should go something like this:

    47000 x 30 / 80?

    I think I'm on the neuvos (sp?) scheme?
    • Goldenyears
    • By Goldenyears 15th Oct 12, 11:00 PM
    • 290 Posts
    • 125 Thanks
    Goldenyears
    I still havent been given a proper statement of the pension I've build up in my 3 years in the CS thus far - the last one I got had the wrong salary and starting date on it.

    anyway am I right in thinking that if I stay on my current grade/salaryfor the next 27 years (thus having 30 years service) it should go something like this:

    47000 x 30 / 80?

    I think I'm on the neuvos (sp?) scheme?
    Originally posted by princeperch
    The 1/80 ths calculation you refer to is the old Classic scheme. Nuvos is a career average scheme where (at present) you are accumulatiing 2.3% of salary per year. If you stay at the same grade for 32 years (unusually young Principal I assume) your pension would be capped at 75% of earnings!! This is so generous that it can't be sustained and of course it won't be. There are new arrangements coming, which is perhaps why you are not getting annual statements, although you should have some explanation I would have thought.

    Sorry to be blunt but you should have all the Nuvos benefits in your induction pack.

    Edit: On second thoughts, CPI Indexation of past years contributions may make the 75% pension an unlikely target (management hopes!).
    Last edited by Goldenyears; 15-10-2012 at 11:08 PM. Reason: allowance for indexation
  • princeperch
    The 1/80 ths calculation you refer to is the old Classic scheme. Nuvos is a career average scheme where (at present) you are accumulatiing 2.3% of salary per year. If you stay at the same grade for 32 years (unusually young Principal I assume) your pension would be capped at 75% of earnings!! This is so generous that it can't be sustained and of course it won't be. There are new arrangements coming, which is perhaps why you are not getting annual statements, although you should have some explanation I would have thought.

    Sorry to be blunt but you should have all the Nuvos benefits in your induction pack.

    Edit: On second thoughts, CPI Indexation of past years contributions may make the 75% pension an unlikely target (management hopes!).
    Originally posted by Goldenyears
    thanks - afaik I didnt receive any bumph when I joined the scheme but will have to check. I'm a G7 and was made one when 25 and am not really interested in promotion above this so yes I guess it is quite unusual.

    What annoys me is that they cant even be bothered to send me a pension statement which is accurate...
  • princeperch
    has anyone had experience over the past years of buying added pension? I'm playing with the numbers and cant work out if its worth it or not - particularly given the increase we will have to pay from april 13 onwards.

    I intend to invest in property as the main pension but given the tax relief putting a little bit extra into the pension is tempting. That said it seems they cant even get an accurate pension statement sent out within a year so that doesnt fill me with confidence...
  • Prof Ligate
    Hi

    I have read through all this and am still a little confused about my Civil Service Pension. I left back in 2005 and (I think) was moved onto the premium scheme a couple of years previous.

    My last statement from Capita showed my preserved annual pension at about 5000 and my lump sum at about 15,000.

    If had stayed in the classic would I have got both of those at 60 but because I moved to premium I will only get the annual pension and not the lump sum as it says (for those who left after 30/9/2002) that "members of the premium scheme are not entitled to an additional lump sum. The tax free lump sum is optional and a member must elect to give up pension in exchange for cash". However, the front of the statement says that on leaving "I became entitled to a preserved pension AND lump sum".

    In terms of figures, what does that mean?

    Thanks in advance for any clarification.
  • Prof Ligate
    Hi

    I have read through all this and am still a little confused about my Civil Service Pension. I left back in 2005 and (I think) was moved onto the premium scheme a couple of years previous.

    My last statement from Capita showed my preserved annual pension at about 5000 and my lump sum at about 15,000.

    If had stayed in the classic would I have got both of those at 60 but because I moved to premium I will only get the annual pension and not the lump sum as it says (for those who left after 30/9/2002) that "members of the premium scheme are not entitled to an additional lump sum. The tax free lump sum is optional and a member must elect to give up pension in exchange for cash". However, the front of the statement says that on leaving "I became entitled to a preserved pension AND lump sum".

    In terms of figures, what does that mean?

    Thanks in advance for any clarification.
    Originally posted by Prof Ligate
    Maybe I should ask my question in a more understandable manner ...do premium members who left after Sept 2002 get both the lump sum and the annual pension that is listed on the statements? If so, what does the 'not enitled to an additonal lump sum' bit mean?
    • alastairq
    • By alastairq 24th Feb 13, 12:12 PM
    • 4,987 Posts
    • 4,090 Thanks
    alastairq
    Hi Peeps..... having quickly scanned through this stickie.....and being a [un?]civil servant, I'd like to make some observations...certainly regarding the two distinct types of CS pension [Classic, and NUvos {??}]

    Further back down the thread, I noted comments concerning how long folk remain as Civil Servants.....no doubt despite best intentions?

    I recall the time when the pension changes were imposed on us....and the choices we had to make.

    Whilst I currently have approaching 16 years of service....and expect to add at least another four or ten......depending on health....[I am over 61, to be fair]....at the time of the change-over, I was at a stage where I had some real choices to make.

    For me, it was 'either', 'or', or both.

    The sums confuzzled me exceedingly [not being a 'desk-jockey.....I collect my emails about once every 6 weeks, and get told off for clogging up the servers with unopened bumph!].....the Union were helpful to a degree [PCS...bless 'em]....but, in the end, one particular aspect totally swayed my decision...regardless!

    The 'conditions' for taking pension on medical grounds.

    Fine.. the Classic had but one option...if one could no longer do one's job, for a medical reason, one could retire on medical grounds...and receive a pension....and this was a single stated amount [dependant on personal criteria, of course].


    For the N[uvos]ew pension, there were two options...and these were dependant on ..really, what was wrong with you.

    The first option paid significantly more than the medical pension under Classic rules.

    The second, considerably less than the Classic .

    To a younger person in their twenty's or thirties, the Nuvos scheme looked heaps better.

    Until the criteria were read..in very very small print indeed.


    As I mentioned earlier, for the Classic scheme, the criteria for retirement on medial grounds were, one could no longer do one's job.

    for the new scheme...one could claim the first, higher medical pension, only if one could actually no longer do any sort of work at all.

    The lower medical pension was paid .....if they could demonstrate you were capable of doing some sort of work...regardless of what it entailed.

    this means [AFAIK] that for medical retirement one is subjected to the closest of scrutiny.

    I suspect very very few folk who take medical retirement from the CS are incapable of doing some sort of work...whether it involves sitting at a computer, or sweeping a park.


    On the classic scheme....it didn't matter what one was capable of...if one simply couldn't do the CS job one was employed to do, for medical reasons....then one could retire on medical grounds.....with a pension that fell neatly half-way between the two amounts under Nuvos!

    A very neat, back-door way of cost savings?

    And something younger people may not appreciate?

    Not that they have a choice now, of course.......
    No, I don't think all other drivers are idiots......but some are determined to change my mind.......
    • Goldenyears
    • By Goldenyears 24th Feb 13, 3:58 PM
    • 290 Posts
    • 125 Thanks
    Goldenyears
    Maybe I should ask my question in a more understandable manner ...do premium members who left after Sept 2002 get both the lump sum and the annual pension that is listed on the statements? If so, what does the 'not enitled to an additonal lump sum' bit mean?
    Originally posted by Prof Ligate
    Sorry for late reply. I rarely look in here. You are entitled to benefits previously built up in Classic, including automatic lump sum (that is if you did not convert previous years of service to Premium using factor of x0.92). After opting for Premium and the 1/60 accrual rate there is no automatic lump sum element for subsequent years. The lost benefit of the lump sum is supposed to be included in the increased accrual rate. Hence the statement you are not entitled to additional lump sum
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