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  • FIRST POST
    • SallyAnneBooth
    • By SallyAnneBooth 17th Jun 19, 1:59 PM
    • 44Posts
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    SallyAnneBooth
    HELP! Understanding the Alpha Pension Scheme
    • #1
    • 17th Jun 19, 1:59 PM
    HELP! Understanding the Alpha Pension Scheme 17th Jun 19 at 1:59 PM
    Dear All,

    I would be forever grateful if you could give me some advice in terms of what my pension actually means once I retire.

    I am 30 years old on the Civil Service Alpha scheme.
    Salary: 40k/year.
    My monthly contribution: 203/month
    Employers monthly contribution: 1013/month.

    However I am struggling to see what this will mean once I retire (say 55)? Will I get a lump sum or a monthly payment?

    I have currently got a mortgage so I'm debating whether to reduce my pension contribution to pay off the house faster. Apologies for my ignorance!

    Thank you.

    Sally-Anne
Page 1
    • hugheskevi
    • By hugheskevi 17th Jun 19, 2:35 PM
    • 2,289 Posts
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    hugheskevi
    • #2
    • 17th Jun 19, 2:35 PM
    • #2
    • 17th Jun 19, 2:35 PM
    My monthly contribution: 203/month
    This is just the cost of being in the scheme, it does not affect the benefits you accrue so is not of much relevance.

    Employers monthly contribution: 1013/month.
    Ignore the employers monthly contribution, it is of no relevance to you.

    However I am struggling to see what this will mean once I retire (say 55)? Will I get a lump sum or a monthly payment?
    You are entitled to an annual pension payable without reduction from your Normal Pension age (which is your State Pension age). You can choose to commute some of the pension into a lump sum. You can also choose to take it earlier than your Normal Pension age. Full details are in the scheme guide, available at this link.

    You can use the retirement modeler, available at this link.

    I have currently got a mortgage so I'm debating whether to reduce my pension contribution to pay off the house faster. Apologies for my ignorance!
    You cannot reduce your contribution, it is a set amount. Your only choices which will reduce the contribution are to opt-out or switch to the Partnership pension alternative. These are very unlikely to be better than remaining in alpha.
    • SallyAnneBooth
    • By SallyAnneBooth 17th Jun 19, 2:47 PM
    • 44 Posts
    • 8 Thanks
    SallyAnneBooth
    • #3
    • 17th Jun 19, 2:47 PM
    • #3
    • 17th Jun 19, 2:47 PM
    Hi Hugheskevi,

    Many thanks for your reply and clarification.

    And there was me naively thinking ~1200 is going into my pension pot every month :/

    I just used the calculator you posted in the link. If I retire at 55 it says I will have ~15k.

    To understand what this 15k actually means, is it okay to ask myself "Can I live on 15k/year right now?" .........the answer to this would probably be yes if I was mortgage free as I don't spend much money on things.

    Is it okay for me to assume this 15k will be adjusted for inflation?

    Thank you.
    • hugheskevi
    • By hugheskevi 17th Jun 19, 3:12 PM
    • 2,289 Posts
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    hugheskevi
    • #4
    • 17th Jun 19, 3:12 PM
    • #4
    • 17th Jun 19, 3:12 PM
    And there was me naively thinking ~1200 is going into my pension pot every month :/
    You are building up an entitlement to a future income. The cost of it does not matter, that is the problem of the Exchequer. All that matters is what you have to pay to be in the scheme and the income you accrue from being in the scheme.

    Is it okay for me to assume this 15k will be adjusted for inflation?
    Yes, the figures are in today's price terms. Accrued pension increases each year in line with the change in prices, currently measured by CPI.

    To understand what this 15k actually means, is it okay to ask myself "Can I live on 15k/year right now?" .........the answer to this would probably be yes if I was mortgage free as I don't spend much money on things.
    The 15K is pre-tax, so after income tax would be 14,500 net.

    The expectation is that minimum pension age will increase to be State Pension age minus 10 years. Your State Pension age is currently 68 and is likely to increase further. Hence you may well not be able to access your alpha pension until at least age 58.

    You need to plan across all of your alpha, State and other pensions. Otherwise you would have a (relatively) big increase in income when you reach State Pension age. So, for example, you may wish to purchase alpha EPA or make Defined Contribution pension contributions to smooth income over the period after retirement.

    Note that as earnings growth is typically higher than inflation, a figure of 15K in today's price terms will decline relative to earnings over time. Currently a full time worker earning minimum wage would take home around 15K per year. In 25 years time you would expect a full time minimum wage worker to be earning a lot more than 15K in today's terms.
    • SallyAnneBooth
    • By SallyAnneBooth 17th Jun 19, 4:03 PM
    • 44 Posts
    • 8 Thanks
    SallyAnneBooth
    • #5
    • 17th Jun 19, 4:03 PM
    • #5
    • 17th Jun 19, 4:03 PM
    Really grateful for the explanation provided, this makes much more sense in my head now and has put me at ease.

    In comparison to some of my older colleagues who are on older schemes, this deal is far worse. But at the same time its a very good deal compared to whats out there now.

    What is the Alpha EPA in laymans terms?
    • sammyjammy
    • By sammyjammy 17th Jun 19, 5:36 PM
    • 4,608 Posts
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    sammyjammy
    • #6
    • 17th Jun 19, 5:36 PM
    • #6
    • 17th Jun 19, 5:36 PM
    In comparison to some of my older colleagues who are on older schemes, this deal is far worse. But at the same time its a very good deal compared to whats out there now.
    Originally posted by SallyAnneBooth
    It's really not far worse, its just not as good and gold plated as it was, but it is fairer in that its career average.
    "You've been reading SOS when it's just your clock reading 5:05 "
    • hugheskevi
    • By hugheskevi 17th Jun 19, 5:42 PM
    • 2,289 Posts
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    hugheskevi
    • #7
    • 17th Jun 19, 5:42 PM
    • #7
    • 17th Jun 19, 5:42 PM
    In comparison to some of my older colleagues who are on older schemes, this deal is far worse. But at the same time its a very good deal compared to whats out there now.
    Given your age, it is a less good deal. But alpha is actually better than the previous schemes for older workers (those over about age 50, and especially those over age 60).

    What is the Alpha EPA in laymans terms?
    It is covered in the scheme booklet. EPA reduces the age at which an unreduced pension is payable by up to 3 years, from Normal Pension age. So rather than getting an unreduced pension at age 68 you can choose to purchase a 3 year EPA and receive an unreduced pension at age 65.
    • SallyAnneBooth
    • By SallyAnneBooth 18th Jun 19, 7:44 AM
    • 44 Posts
    • 8 Thanks
    SallyAnneBooth
    • #8
    • 18th Jun 19, 7:44 AM
    • #8
    • 18th Jun 19, 7:44 AM
    Thanks for the replies.

    Yes alot of my colleagues are on some Final Salary Scheme where I'm told their annual pension will be their final salary + some sort of lump sum.

    I will definitely look into the EPA for sure as I want to retire as soon as reasonably possible.

    If I understand correctly, other Civil Service Schemes such as the Partnership one is contributions based in the sense that you build up a pot which is invested in stocks/shares and when you come to retire your pension is the overall value of the pot. Is this correct?
    • hugheskevi
    • By hugheskevi 18th Jun 19, 8:12 AM
    • 2,289 Posts
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    hugheskevi
    • #9
    • 18th Jun 19, 8:12 AM
    • #9
    • 18th Jun 19, 8:12 AM
    If I understand correctly, other Civil Service Schemes such as the Partnership one is contributions based in the sense that you build up a pot which is invested in stocks/shares and when you come to retire your pension is the overall value of the pot. Is this correct?
    That's right.

    Partnership is the only alternative scheme to alpha.

    Yes alot of my colleagues are on some Final Salary Scheme where I'm told their annual pension will be their final salary + some sort of lump sum.
    There have been a number of previous Civil Service schemes, years stated refer to year of joining:

    Classic - pre 2002, Normal Pension age 60
    Classic plus - pre 2002, Normal Pension age 60
    Premium - 2002-2007, Normal Pension age 60
    Nuvos -2007-2015, Normal Pension age 65
    Alpha - 2015 onwards, Normal Pension age=State Pension age with minimum of 65

    Of these, Classic, Classic Plus and Premium are final salary. Only Classic and Classic Plus have an automatic lump sum, in all the other schemes income has to be exchanged for lump sum at the very unattractive rate of 12:1.

    Members who were within 13.5 years of Normal Pension age as at 31st March 2012 could remain in their pension scheme for a period beyond 2015, and if within 10 years remained in their pension scheme permanently. All other members moved to alpha from 1 April 2015, but any final salary pension they had remained linked to their final salary at the point they left. For example, a member leaving in 2022 would have their pension calculated with reference to their final pay in 2022, not the amount in 2015 when they moved to alpha.
    • marlot
    • By marlot 18th Jun 19, 10:40 AM
    • 3,947 Posts
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    marlot
    ...And there was me naively thinking ~1200 is going into my pension pot every month :/...
    Originally posted by SallyAnneBooth
    Alpha doesn't have a pot as such.

    What you get is a promise. And a very valuable one it is too.

    For each year that you work, the civil service promises you 2.32% of your salary, every year in retirement.

    So if you work there the whole of 2019, on 40k salary, you'll get 928 each year of retirement *
    If you work there for the whole of 2020, still on 40k, you'll get anther 928. And so on.

    Eaach 928 slice is uprated in line with inflation each year (CPI) until your retirement age. And then it continues to be uprated in line with CPI once you're retired.


    * Assuming you retire at the scheme retirement age. If you take it (say) from age 55, it'll be reduced to reflect the fact that you'll be taking it for longer.
    Last edited by marlot; 18-06-2019 at 10:48 AM.
    • marlot
    • By marlot 18th Jun 19, 10:43 AM
    • 3,947 Posts
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    marlot
    ...
    If I understand correctly, other Civil Service Schemes such as the Partnership one is contributions based in the sense that you build up a pot which is invested in stocks/shares and when you come to retire your pension is the overall value of the pot. Is this correct?
    Originally posted by SallyAnneBooth
    Yes, that's right. It's also a generous scheme.
    • poorchester
    • By poorchester 18th Jun 19, 11:02 AM
    • 19 Posts
    • 13 Thanks
    poorchester
    It seems amazingly generous. Would someone staying in the scheme for 45 years - and not getting any promotions - get a larger pension than their final salary?
    • hugheskevi
    • By hugheskevi 18th Jun 19, 11:20 AM
    • 2,289 Posts
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    hugheskevi
    It seems amazingly generous. Would someone staying in the scheme for 45 years - and not getting any promotions - get a larger pension than their final salary?
    Originally posted by poorchester
    Assuming:
    • Inflation of 2% in all years
    • The end of the 45 years coincides with Normal Pension age
    • Salary growth of 2.3% each year
    Then the pension would be about the same as final salary.

    Such an individual would have had a very unsuccessful career, entering the workforce at a fairly young age (no older than 23) and only managing to keep their pay increasing slightly above the rate of inflation over their entire career.
    • GunJack
    • By GunJack 18th Jun 19, 1:26 PM
    • 10,691 Posts
    • 8,025 Thanks
    GunJack
    and only managing to keep their pay increasing slightly above the rate of inflation over their entire career.
    Originally posted by hugheskevi
    ..and if the 1% cap on Civil Servants cost of living rises continues, both the salary and the pension will be worth much less than they should....
    ......Gettin' There, Wherever There is......

    I have a dodgy "i" key, so ignore spelling errors due to "i" issues, ...I blame Apple
    • sammyjammy
    • By sammyjammy 18th Jun 19, 3:39 PM
    • 4,608 Posts
    • 5,062 Thanks
    sammyjammy
    ..and if the 1% cap on Civil Servants cost of living rises continues, both the salary and the pension will be worth much less than they should....
    Originally posted by GunJack
    which it looks like it will for the foreseeable future, we have been advised cap is 1% this year or 2% if they can find efficiencies to match it.
    "You've been reading SOS when it's just your clock reading 5:05 "
    • Zanderman
    • By Zanderman 18th Jun 19, 5:08 PM
    • 2,316 Posts
    • 5,166 Thanks
    Zanderman
    ....To understand what this 15k actually means, is it okay to ask myself "Can I live on 15k/year right now?" .........the answer to this would probably be yes if I was mortgage free as I don't spend much money on things.....
    Originally posted by SallyAnneBooth
    Don't forget that once you get to SP Age you'll have SP on top, currently about 8k pa, so your total would be more like 23k. But only after you get SP, which may be a few years after you start taking the Alpha pension.
    • SallyAnneBooth
    • By SallyAnneBooth 18th Jun 19, 6:25 PM
    • 44 Posts
    • 8 Thanks
    SallyAnneBooth
    Thanks for all the brilliant responses here!

    What are peoples thoughts on Alpha vs Partnership? I appreciate it comes down to personal preference but would like to get your opinions.

    And yes we're capped at 1% atm as well, no decent pay rise for the forseeable future. It's frustrating as our London weighting always remains constant and they don't adjust for inflation or CPI
    • Dazed and confused
    • By Dazed and confused 18th Jun 19, 8:00 PM
    • 5,091 Posts
    • 2,663 Thanks
    Dazed and confused
    Yes alot of my colleagues are on some Final Salary Scheme where I'm told their annual pension will be their final salary + some sort of lump sum.
    I think you've misunderstood this. The annual pension will be based on their final salary but isn't equal to the final years salary. Unless they have worked a very long time!

    It is more likely to be 40/60ths of their final salary or possibly 40/80ths. 40/60ths schemes may not have an automatic lump sum either.
    • marlot
    • By marlot 19th Jun 19, 4:56 AM
    • 3,947 Posts
    • 3,085 Thanks
    marlot
    ..
    What are peoples thoughts on Alpha vs Partnership? I appreciate it comes down to personal preference but would like to get your opinions....
    Originally posted by SallyAnneBooth
    One of my apprentices was set to opt out of the pension altogether. He said he didn't trust the government to honour its promises on pensions, even for past service.



    Partnership suited him better, as he was able to see a pot of money growing with his name on it. But even then, he didn't quite trust that the government would snatch it from him.
    • GunJack
    • By GunJack 19th Jun 19, 6:50 AM
    • 10,691 Posts
    • 8,025 Thanks
    GunJack
    One of my apprentices was set to opt out of the pension altogether. He said he didn't trust the government to honour its promises on pensions, even for past service.



    Partnership suited him better, as he was able to see a pot of money growing with his name on it. But even then, he didn't quite trust that the government would snatch it from him.
    Originally posted by marlot
    I hope for his sake you put him well and truly right ???
    ......Gettin' There, Wherever There is......

    I have a dodgy "i" key, so ignore spelling errors due to "i" issues, ...I blame Apple
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