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Post by bernythedolt on Jul 27, 2021 10:55:26 GMT
18 is much better than the crummy 12 that my Civil Service scheme was offering in 2013 when I left. In fact, they were so heavily promoting the "benefits" of commuting some pension into additional lump sum at that crummy rate of 12-to-1 that it made me suspicious.... yet plenty of people were taking them up! I decided that if my Civil Service employer was that keen to promote it, it must be a rubbish deal, so I did the exact opposite and "inversely commuted" my entire lump sum into additional pension. That was a great decision, because my lump sum would right now be languishing somewhere in a cash account, losing value by earning 1%, instead of which I'm getting an extra pension which goes up with CPI every year, plus widow's benefit of 50% when I croak it. The idea of inverse commutation - cashing in some lump sum in exchange for additional pension - is so little known about that I had to educate my pension provider (outsourced to Capita at the time) all about it. It was a provision in my scheme rules, but so little used that my pension administrators weren't even aware of it. I mention it here in case it's an option you may wish to explore. I believe commutation rates in the public sector are always 'cr*p'. I assume this is to offset the fact that the pensions themselves are big and juicy. Don't be taken in by the media* agenda which loves to clobber the public sector at every opportunity, especially the Civil Service. A 1/80th accrual rate, when many are 1/60th, and annual CPI increases rather than the RPI still enjoyed by many private sector pensions, are nothing to crow about. When Lord Hutton was commissioned a few years ago to report on the Civil Service pension scheme, he concluded it certainly was not gold-plated and not even particularly generous compared to private sector schemes. You have just highlighted an example - a commutation rate of 18, compared to the 12 I was offered in the public sector. *For 37 years of my 40 year CS career, my pension contract promised an RPI pension at the end. Then the Tories pulled the plug on that and reduced me to CPI. Do you think that was fair? The media loved it of course.
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littleoldlady
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Post by littleoldlady on Jul 27, 2021 12:40:51 GMT
In fact, they were so heavily promoting the "benefits" of commuting some pension into additional lump sum at that crummy rate of 12-to-1 that it made me suspicious.... yet plenty of people were taking them up! I decided that if my Civil Service employer was that keen to promote it, it must be a rubbish deal, so I did the exact opposite and "inversely commuted" my entire lump sum into additional pension. That was a great decision, because my lump sum would right now be languishing somewhere in a cash account, losing value by earning 1%, instead of which I'm getting an extra pension which goes up with CPI every year, plus widow's benefit of 50% when I croak it. The idea of inverse commutation - cashing in some lump sum in exchange for additional pension - is so little known about that I had to educate my pension provider (outsourced to Capita at the time) all about it. It was a provision in my scheme rules, but so little used that my pension administrators weren't even aware of it. I mention it here in case it's an option you may wish to explore. For most defined benefit schemes (I don't know about the CS) if you don't need the lump sum the best plan used to be to take it anyway and then purchase a voluntary annuity with it. This is because unlike the compulsory annuity HMRC regards most of the payment as a return of capital and so is not taxed. Nowadays annuity rates are very low and this may no longer be such a good idea, and it may depend on your tax rates when working and retired, but there is no harm in checking the figures before making a decision. In my experience pension administrators aren't aware of this wrinkle either so you might have to work hard to get those figures. BTW if you also have made AVC's then taking a lump sum equal to the AVC pot and buying an annuity is always best unless you will be a non taxpayer in retirement.
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keitha
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Post by keitha on Jul 27, 2021 12:55:22 GMT
*For 37 years of my 40 year CS career, my pension contract promised an RPI pension at the end. Then the Tories pulled the plug on that and reduced me to CPI. Do you think that was fair? The media loved it of course. And in the last few years they have increased the number of years you pay in to get the same pension with little ( practically no ) protection of accrued rights under the old scheme,many over 50's expected to get a full pension at 60 that was changed to 65 and now 66 with no negotiation. Like the WASPI women many are furious in fact some are of course affected by both but this gets very little coverage
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registerme
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Post by registerme on Jul 27, 2021 16:12:44 GMT
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agent69
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Post by agent69 on Jul 27, 2021 19:15:47 GMT
I believe commutation rates in the public sector are always 'cr*p'. I assume this is to offset the fact that the pensions themselves are big and juicy. Don't be taken in by the media* agenda which loves to clobber the public sector at every opportunity, especially the Civil Service. A 1/80th accrual rate, when many are 1/60th, and annual CPI increases rather than the RPI still enjoyed by many private sector pensions, are nothing to crow about. When Lord Hutton was commissioned a few years ago to report on the Civil Service pension scheme, he concluded it certainly was not gold-plated and not even particularly generous compared to private sector schemes. You have just highlighted an example - a commutation rate of 18, compared to the 12 I was offered in the public sector. *For 37 years of my 40 year CS career, my pension contract promised an RPI pension at the end. Then the Tories pulled the plug on that and reduced me to CPI. Do you think that was fair? The media loved it of course. The private sector DB scheme that I was a member of closed to new members in 2003, and to existing members in 2005. Unlike many in the public sector we didn't threaten strike action because we appreciated that our employer couldn't afford the ludicrous cost of maintaining the plan.
Regarding your question, I would take a public sector DB pension linked to CPI over a private sector money purchase scheme all day, every day, and twice on Sundays.
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hazellend
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Post by hazellend on Jul 27, 2021 20:03:37 GMT
Don't be taken in by the media* agenda which loves to clobber the public sector at every opportunity, especially the Civil Service. A 1/80th accrual rate, when many are 1/60th, and annual CPI increases rather than the RPI still enjoyed by many private sector pensions, are nothing to crow about. When Lord Hutton was commissioned a few years ago to report on the Civil Service pension scheme, he concluded it certainly was not gold-plated and not even particularly generous compared to private sector schemes. You have just highlighted an example - a commutation rate of 18, compared to the 12 I was offered in the public sector. *For 37 years of my 40 year CS career, my pension contract promised an RPI pension at the end. Then the Tories pulled the plug on that and reduced me to CPI. Do you think that was fair? The media loved it of course. The private sector DB scheme that I was a member of closed to new members in 2003, and to existing members in 2005. Unlike many in the public sector we didn't threaten strike action because we appreciated that our employer couldn't afford the ludicrous cost of maintaining the plan.
Regarding your question, I would take a public sector DB pension linked to CPI over a private sector money purchase scheme all day, every day, and twice on Sundays.
If you have a public sector DB scheme you don’t get a choice. Cant opt out and get paid the employer contribution as taxable salary. Cant leave your SIPP tax free to your kids outside your estate. DB pensions used to be “gold plated” but these days they are just a decent salary sacrifice option. The main advantage is that I feel very relaxed maintaining 100% equities with the rest of my savings, so have benefited many 100s of thousand pounds from taking more “risk” than I would have without the scheme.
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Post by bracknellboy on Jul 27, 2021 21:10:06 GMT
The private sector DB scheme that I was a member of closed to new members in 2003, and to existing members in 2005. Unlike many in the public sector we didn't threaten strike action because we appreciated that our employer couldn't afford the ludicrous cost of maintaining the plan.
Regarding your question, I would take a public sector DB pension linked to CPI over a private sector money purchase scheme all day, every day, and twice on Sundays.
If you have a public sector DB scheme you don’t get a choice. Cant opt out and get paid the employer contribution as taxable salary. Cant leave your SIPP tax free to your kids outside your estate. DB pensions used to be “gold plated” but these days they are just a decent salary sacrifice option. The main advantage is that I feel very relaxed maintaining 100% equities with the rest of my savings, so have benefited many 100s of thousand pounds from taking more “risk” than I would have without the scheme. To my knowledge and experience, the same is true for the vast majority of private sector DC schemes, so I'm not sure there is a meaningful comparative point to be made in this case.
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hazellend
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Post by hazellend on Jul 27, 2021 21:14:18 GMT
If you have a public sector DB scheme you don’t get a choice. Cant opt out and get paid the employer contribution as taxable salary. Cant leave your SIPP tax free to your kids outside your estate. DB pensions used to be “gold plated” but these days they are just a decent salary sacrifice option. The main advantage is that I feel very relaxed maintaining 100% equities with the rest of my savings, so have benefited many 100s of thousand pounds from taking more “risk” than I would have without the scheme. To my knowledge and experience, the same is true for the vast majority of private sector DC schemes, so I'm not sure there is a meaningful comparative point to be made in this case. It’s not an issue in DC schemes for higher earners. The tax situation for higher earners with a DB scheme is a complicated nightmare almost impossible to plan for. The reason is that your annual allowance is based on your pension input amount which has no relation to what you and your employer pay in. I would like to opt out of the scheme and use a SIPP instead, but can’t do it without sacrificing a huge chunk of my rumeneration.
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agent69
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Post by agent69 on Jul 28, 2021 9:43:09 GMT
To my knowledge and experience, the same is true for the vast majority of private sector DC schemes, so I'm not sure there is a meaningful comparative point to be made in this case. It’s not an issue in DC schemes for higher earners. The tax situation for higher earners with a DB scheme is a complicated nightmare almost impossible to plan for. The reason is that your annual allowance is based on your pension input amount which has no relation to what you and your employer pay in. I would like to opt out of the scheme and use a SIPP instead, but can’t do it without sacrificing a huge chunk of my rumeneration. Being a higher earner and having a DB pension is a nightmare that the average man in the street would love to have.
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hazellend
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Post by hazellend on Jul 28, 2021 10:17:36 GMT
It’s not an issue in DC schemes for higher earners. The tax situation for higher earners with a DB scheme is a complicated nightmare almost impossible to plan for. The reason is that your annual allowance is based on your pension input amount which has no relation to what you and your employer pay in. I would like to opt out of the scheme and use a SIPP instead, but can’t do it without sacrificing a huge chunk of my rumeneration. Being a higher earner and having a DB pension is a nightmare that the average man in the street would love to have. As I said before, it’s not a race to the bottom. You can’t improve the wealth/life of the average person by bringing down the top.
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keitha
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Post by keitha on Jul 28, 2021 11:28:04 GMT
One of the more peculiar things about actuarial valuations for Annuities etc is that some of the factors taken into account can be tweaked.
I know one person who deliberately over ate for a few months and started to smoke a few cigarettes a day before applying for his annuity, Why you ask because as an overweight person who smokes he gets a larger amount as they expect him to have a shorter life. as soon as the annuity was agreed the smoking stopped and the diet started.
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registerme
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Post by registerme on Jul 28, 2021 12:05:41 GMT
One of the more peculiar things about actuarial valuations for Annuities etc is that some of the factors taken into account can be tweaked. I know one person who deliberately over ate for a few months and started to smoke a few cigarettes a day before applying for his annuity, Why you ask because as an overweight person who smokes he gets a larger amount as they expect him to have a shorter life. as soon as the annuity was agreed the smoking stopped and the diet started. Cute .
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agent69
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Post by agent69 on Jul 28, 2021 12:34:35 GMT
One of the more peculiar things about actuarial valuations for Annuities etc is that some of the factors taken into account can be tweaked. I know one person who deliberately over ate for a few months and started to smoke a few cigarettes a day before applying for his annuity, Why you ask because as an overweight person who smokes he gets a larger amount as they expect him to have a shorter life. as soon as the annuity was agreed the smoking stopped and the diet started. Cute . Or more likely fraud
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keitha
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Post by keitha on Jul 28, 2021 13:07:59 GMT
Cute . Or more likely fraud they'd have to prove that you could say I was talking to X and realised that by stopping smoking and losing a few pounds I would be likely to live longer. on a similar point I remember over 30 years ago my Grandfather who was over 80 at the time being told by a nurse that if he wanted to live a longer life he should give up smoking, His reply was he'd "smoked since the age of 10, been wounded twice in the great war and that no chit of a thing should be telling him to give up his one pleasure in life"
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Post by bracknellboy on Jul 28, 2021 13:15:34 GMT
To my knowledge and experience, the same is true for the vast majority of private sector DC schemes, so I'm not sure there is a meaningful comparative point to be made in this case. It’s not an issue in DC schemes for higher earners. The tax situation for higher earners with a DB scheme is a complicated nightmare almost impossible to plan for. The reason is that your annual allowance is based on your pension input amount which has no relation to what you and your employer pay in. I would like to opt out of the scheme and use a SIPP instead, but can’t do it without sacrificing a huge chunk of my rumeneration. Aware of that issue: did not realise it was that you were alluding to as the reason for wanting to 'opt out' and take cash alternative.
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