ISU Membership Update – Pension Special
No matter how long or short your service it is always the right time to think about your pension provision. The ISU cannot provide individual financial advice; but members can access discounted financial service through Simpson Millar LLP.
There have been several changes to pensions in recent years. Here are one or two things you may not know…..
A bit of history….
Just a little! Once upon a time all Civil servants had the same Civil Service pension; a fairly generous final salary scheme. In the mid 90’s this split into 3 options; classic, classic plus and premium. All were still final salary but recognised the fact that not everyone was in a heterosexual marriage with children and offered benefit options accordingly. (This was before the Civil Partnership Act.) In 2007 the old final salary schemes were closed to new members and a career average scheme was introduced for new recruits called, imaginatively, Nuvos. In 2013 this all changed again; Nuvos closed and Alpha was introduced for new recruits. In 2015 all civil servants (other than those in the reserved rights or options groups) were switched on to Alpha. Experts have estimated that the value of your pension has dropped from 28% to 17% for Classic et al and from 22% to 18% for Nuvos. This is quite a loss.
Alongside the switch to Alpha with its career average base, higher employee contributions and later pension age there are other less familiar changes.
Contracted out National Insurance
If you started your pension before this year you will have paid a lower rate of national insurance contributions under a provision called contracting out.
You may have noticed that your NI rate went up in April 2016; we mentioned this in a circular at the time. But did you also know that the fact that you paid lower NI rates means that you will receive a proportionately lower state pension? Also if you have a break in your contribution record, because of a career break, maternity leave or overseas service, you will not receive the full state pension.
You can check your NI record for gaps, and find out what you can do about it, by going to the Government website here https://www.gov.uk/voluntary-national-insurance-contributions/why-pay-voluntary-contributions
You might also like to read what the Guardian had to say on this topic recently. https://www.theguardian.com/money/2016/oct/08/how-to-boost-state-pension
The threshold below which pension contributions are tax free has also been reduced. Several members have recently received a pension saving statement from Capita if they are close to, or have exceeded, the tax threshold.
As members can I’m sure imagine this is a highly technical and complex area subject to much individual variation. As such it would not be responsible of us to provide further comment as it might not apply to everyone. It you received a tax liability letter there should be a list of dedicated phone lines to call if you have any queries, split alphabetically. You can also find out more about the tax implications for pensions here.
We are aware that some members received tax statements suggesting they had made no contributions at all in the 2013/2014 tax year. We are currently making enquiries as to why this might be.
When pension services provision was outsourced by the Cabinet Office in 2014 there were – to put it mildly – some teething problems. We had not received annual statements for some time; what statements that were sent out were not always correct. On Audit the NAO estimated that more than 75% of pension records were in fact incorrect.
In December 2015 annual statements were sent out for the first time in years. Members were asked to make any corrections manually and return the statement. However those corrections were not acknowledged in any way. When the ISU enquired we were told that returned corrections were simply held in the individual’s personal file and would not be actioned until the pension was actually needed.
Obtaining a pension statement
As many members will know to their frustration it is all but impossible to obtain a pension statement unless you are about to retire or one is needed as part of an ongoing legal process; normally divorce settlement.
Sadly we don’t see that changing any time soon. But both the Home Office and the Cabinet Office (who are ultimately responsible) are aware of the gaps in service provision and are working to address them.
Planning to retire?
It takes Capita at least 3 months to process a request to draw your pension; more if there are errors to be corrected. You can retire anytime you like. But if you want to draw your pension then you need to give Capita notice not more than 6 months and not less than 3 months ahead.
You are not actually obliged to be part of the Civil Service Scheme. Your national insurance contributions (if a complete record – see above) will give you a state pension which is currently £155 per week from age 65; although this will change.
Despite the changes the Civil Service pension is actually still relatively good. If you do choose to opt out you should get independent financial advice and you would be well advised to make alternate provision. But it is your right to do so if you want. You can find out more about opting out here
If you have already chosen to opt out just be aware that the Civil Service will automatically re-enrol you every 3 years so you will have to keep an eye on it and keep opting out!
When you leave your pension is frozen at your last contribution and becomes payable at the scheme pension age in the normal way. This is the same no matter why you leave. Even if you are dismissed for gross misconduct your pension is safe (other than in specific circumstances involving financial fraud.). If you have less than 2 years contributions you can apply for the contributions to be returned; but this will remove any pension rights. If you have more than 2 years contributions you can either leave the scheme as it is or you can transfer the contributions to another scheme. You should take independent financial advice before making a decision.