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Police pension or invest in my own?

Including Financial Independence and Retiring Early (FIRE)
Howard
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Re: Police pension or invest in my own?

#434060

Postby Howard » August 11th, 2021, 1:39 pm

Like others, I can’t offer advice but I can recount my experience.

I started a SIPP in my forties and put in any spare cash.

I did consider transferring a small public sector type of pension into the SIPP as a cash sum but was advised against this by an IFA during a free introductory interview. He said he didn’t have to do any significant research to tell me that the public sector pension should be kept. From memory, mainly because it was inflation proofed and offered some other benefits.

Twenty years later, that pension is paying out reliably and will transfer to my wife if I die before her.

The SIPP has also done very well, but has suffered from volatility so has dropped up to 30% in value in 2000 and 2008 when markets crashed. The benefit of the SIPP is that although I take some income, it will transfer, tax free, to one of my children (the other will gain in a different way).

My conclusion is that, if you are lucky to live into your seventies or eighties or more, given that the economic situation of the UK is similar to today, your Police pension will be valuable in predictably paying out every month. A SIPP or possibly an ISA which you have contributed to may also be valuable, but it may have suffered from volatility. So if it were me, I’d go for both, accepting that the SIPP/ISA will be smaller than if you put all your cash into it now.

So I wouldn’t have opted out of a Police pension. I see that this matches much of the advice given above.

As a society I guess that the majority of us value our Police service highly and so governments will have to ensure that retirees are looked after.

Good luck in whatever you decide. :)

Howard

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Re: Police pension or invest in my own?

#434066

Postby Scott1234 » August 11th, 2021, 1:51 pm

Alaric wrote:
Scott1234 wrote:It’s now a career contribution average.


How do they word it? Is it a double accrual of perhaps 1/80th of salary for each year of service plus an accrual of a lump sum at retirement? Or perhaps they now copy the private sector in offering 1/60th for each year with a commutation option? Or have they ditched 60ths and 80ths entirely, instead expressing the accrual as a percentage of salary?


The 2015 Scheme is a Career Average Revalued Earnings (CARE) pension scheme. This means that for each year you are an Active Member you will earn a fraction of your Pensionable Earnings (1/55.3) for that year as earned pension and this will be revalued for each subsequent year until you retire.

My pensionable earnings will be 41K +/- the 2% a year increase although we’re unlikely to get that most years and we’ll probably lag behind inflation.
I assume this is still a good pension? I might have to re evaluate and do as suggested in opting for both. I think the kicker has been realising the figure the calculator is giving me is in today’s money. ( I still need to clarify this)

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Re: Police pension or invest in my own?

#434072

Postby Alaric » August 11th, 2021, 2:13 pm

Scott1234 wrote:
Alaric wrote:
Scott1234 wrote:It’s now a career contribution average.


The 2015 Scheme is a Career Average Revalued Earnings (CARE) pension scheme. This means that for each year you are an Active Member you will earn a fraction of your Pensionable Earnings (1/55.3) for that year as earned pension and this will be revalued for each subsequent year until you retire.

My pensionable earnings will be 41K +/- the 2% a year increase although we’re unlikely to get that most years and we’ll probably lag behind inflation.


Regardless of how pensionable earnings will change in the future, there's also a question of the revaluation method. They might use CPI, RPI (probably higher), movement in NAE (National Average Earnings) or some measure of their own design. It makes a difference to the final outcome.

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Re: Police pension or invest in my own?

#434082

Postby mc2fool » August 11th, 2021, 2:35 pm

Scott1234 wrote:
mc2fool wrote:No, the figures are not directly comparable. The £22K the police pension would give you is in today's money, and I would expect that the police pension has some kind of increases or another in deferment for inflation.

You need to find out the details of that in order to make a sensible comparison, and, of course, there will be an element of unknowns, as neither they nor you know what inflation will be in future. But just as an example, if we use your assumption of 2%pa inflation and assume the pension tracks inflation, then your £22K quote now will be £39,850 in 30 years.

You may be right here. It’s worded thus:

‘your projected benefits in current money terms (after adjusting for assumed inflation)’ the assumed inflation is 2%.
From reading that it looks like you are correct. Although I’ve put the correct year in to equate with my retirement it has produced the figure in today’s money, not the future one with inflation included?

Ummm ... clear as mud! Well, almost. It sounds like what they are saying is that (if there is the assumed 2%pa inflation each year) what you'll get is an amount (the £39,850 by my calculation) that will buy you the same as £22K will today.

The "assumed inflation is 2%" bit is a little concerning. What you'd really like to hear is that what you'll get is an amount that will buy you the same as £22K will today irrespective of the level of inflation between now and then.

So, what you need to look into is what happens if inflation is 5%pa instead? Or 10% or 0%, etc. (This will very likely be tied into the revaluation method question raised by Alaric).

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Re: Police pension or invest in my own?

#434088

Postby Scott1234 » August 11th, 2021, 2:48 pm

mc2fool wrote:
Scott1234 wrote:
mc2fool wrote:No, the figures are not directly comparable. The £22K the police pension would give you is in today's money, and I would expect that the police pension has some kind of increases or another in deferment for inflation.

You need to find out the details of that in order to make a sensible comparison, and, of course, there will be an element of unknowns, as neither they nor you know what inflation will be in future. But just as an example, if we use your assumption of 2%pa inflation and assume the pension tracks inflation, then your £22K quote now will be £39,850 in 30 years.

You may be right here. It’s worded thus:

‘your projected benefits in current money terms (after adjusting for assumed inflation)’ the assumed inflation is 2%.
From reading that it looks like you are correct. Although I’ve put the correct year in to equate with my retirement it has produced the figure in today’s money, not the future one with inflation included?

Ummm ... clear as mud! Well, almost. It sounds like what they are saying is that (if there is the assumed 2%pa inflation each year) what you'll get is an amount (the £39,850 by my calculation) that will buy you the same as £22K will today.

The "assumed inflation is 2%" bit is a little concerning. What you'd really like to hear is that what you'll get is an amount that will buy you the same as £22K will today irrespective of the level of inflation between now and then.

So, what you need to look into is what happens if inflation is 5%pa instead? Or 10% or 0%, etc. (This will very likely be tied into the revaluation method question raised by Alaric).


It does reference CPI (consumer price index?). It’s al a bit over my head if I’m honest and it’s making me realise I’m very glad I came here for advice from you sages!

Here’s what it says about CPI. Hopefully it sheds a bit more light on the figure it’s giving me.

 While you are an Active Member, the rate of revaluation applied at the end of each Scheme Year (31 March) to the earned pension accrued for that year is the movement in the Consumer Price Index (CPI) + 1.25%. The revalued amount forms the opening balance of your pension for the next Scheme Year.
 For each Scheme Year that you are an Active Member of the 2015 Scheme, your earned pension is 1/55.3th of the value of your Pensionable Earnings for that Scheme Year (uprated by CPI + 1.25%).
 Pensions in payment to members are increased every year in line with CPI under the Pensions (Increase) Act 1971


The CPI bit, I’m interpreting this as the pension will track this even if my salary increases don’t. Is this correct?

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Re: Police pension or invest in my own?

#434091

Postby Scott1234 » August 11th, 2021, 2:54 pm

This is how the calculator result is displayed. The bit that is a stretch to me is the lowest assumed salary increase is 2% per year. With the low increases and pay freezes the final figure is actually going to be lower than what’s quoted.

Image

https://ibb.co/xJmxy48
Not sure if the coded link above worked correctly

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Re: Police pension or invest in my own?

#434099

Postby monabri » August 11th, 2021, 3:18 pm

"If it went into the police pension today for 30 years (which would take me to 63) I’d pay approx £450 a month and the pension would be 22k a year"

I doubt it....in 30 years time I would be extremely confident that the pension would be significantly higher than 22k per annum.

It's good to think about your pension now at your age.

What about the other benefits of a police pension.....is there any provision for inflation when you reach retirement? What about your pension to any spouse (50% if you die).

What is the 'hit" if you want to retire say 5 years early ( maybe 4% per year so a 20% reduction).

Are you in with a chance of a promotion...that would bump up any final pension?

Maths....your calcs are misleading you....unless you think you will get no wage increase for 30 years...hence my opening comment.

Where are YOU going to invest ...it will be down to you ( bluntly....Good luck!).

What contribution is the police pension....15% ....will they give you thus sum to invest in your chosen scheme ( " no comment" ).
Last edited by monabri on August 11th, 2021, 3:25 pm, edited 1 time in total.

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Re: Police pension or invest in my own?

#434101

Postby airbus330 » August 11th, 2021, 3:23 pm

Scott1234 wrote:
airbus330 wrote:As someone who has retired recently without the benefit of a DB pension, but knowing quite a few ex-officers who do have them, I'd be very reluctant to give up the secure benefits that it offers. One of my best friends retired with 33yr service and his pension I believe is about 28k (retired as Sgt), index linked. Another friend retired Chief Super and is on a heck of a lot more plus he took a sizable commutation which bought him a Buy-to-let outright. My point is that your predictions are based on current rank which will most likely change upwards and you have a partner also in the same scheme. It would seem to me that, all things being equal, you'll likely have a comfortable and secure retirement. That said, it is satisfying to have other strings to your bow. Since you are most unlikely to escape taxation post retirement, building as big a fund as possible in both your ISA which at retirement can be tailored to generate tax free income, will give you access to lump sum cash should it be needed and will likely be able to be passed down the generations. After quite a few chats about finance with my ex service friends, they all have done much the same, with the service pension paying the basics and another income stream for the luxuries.


The ‘final salary’ pension where you could just go up the ranks in the last few years to inflate your pension is long gone. It’s now a career contribution average.

If we were both in the pension we would certainly be more than comfortable. It’s certainly a lot more secure.


Yes, that is true. My wife experienced the same downgrade as a Uni lecturer a few years back. However, looking at her pension, even degraded, it is a lot better than the vast majority of DC schemes, and (as has been mentioned above) likely better than most folk can achieve self investing. And the killer fact is that you don't need to worry what the markets do, unless the UK collapses into anarchy, your pension is rock solid secure. As I said before, I'm retired on a self invested basis from 20yrs subscription to my employers DC scheme. The only reason I can do this is because I earnt about 6 times the national average salary and squirreled as much as I could into the pot. My older colleagues on a closed DB scheme have a retirement income about 30% higher than I can achieve with acceptable risk. Assuming you don't make Chief Constable, If you can career average yourself into a DB pension of 30k/yr in todays money over your remaining service, I'd be very happy about that. Funnily enough, perhaps your biggest risk is whether you can stand doing 30yrs in the Police. Judging my the common assertion that officers are leaving in droves, perhaps it is in the back of your mind that you may leave early? If that's the case a look at how to maximise pension savings outside the DB world might be a good idea.

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Re: Police pension or invest in my own?

#434102

Postby TUK020 » August 11th, 2021, 3:25 pm

mc2fool wrote:
Scott1234 wrote:
mc2fool wrote:No, the figures are not directly comparable. The £22K the police pension would give you is in today's money, and I would expect that the police pension has some kind of increases or another in deferment for inflation.

You need to find out the details of that in order to make a sensible comparison, and, of course, there will be an element of unknowns, as neither they nor you know what inflation will be in future. But just as an example, if we use your assumption of 2%pa inflation and assume the pension tracks inflation, then your £22K quote now will be £39,850 in 30 years.

You may be right here. It’s worded thus:

‘your projected benefits in current money terms (after adjusting for assumed inflation)’ the assumed inflation is 2%.
From reading that it looks like you are correct. Although I’ve put the correct year in to equate with my retirement it has produced the figure in today’s money, not the future one with inflation included?

Ummm ... clear as mud! Well, almost. It sounds like what they are saying is that (if there is the assumed 2%pa inflation each year) what you'll get is an amount (the £39,850 by my calculation) that will buy you the same as £22K will today.

The "assumed inflation is 2%" bit is a little concerning. What you'd really like to hear is that what you'll get is an amount that will buy you the same as £22K will today irrespective of the level of inflation between now and then.

So, what you need to look into is what happens if inflation is 5%pa instead? Or 10% or 0%, etc. (This will very likely be tied into the revaluation method question raised by Alaric).

This is the nub of the matter. The inflation assumptions and protections make a hug difference. One group who will have a very good grasp of the details of the Police pension scheme and the implications are the Police Federation. Check our what advice they offer.
I suspect that you will find once you have taken into account the inflation assumptions, the pension scheme on offer is rather attractive.

If you are looking to set up a second pension scheme privately, one thing you may want to consider depends on your property ownership status. A LISA enables you to save 4k/year with the government adding 1k. There are significant penalties if you withdraw it for purposes other than first house purchase, or for pension.

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Re: Police pension or invest in my own?

#434105

Postby monabri » August 11th, 2021, 3:33 pm

In 30 years time, would it be unreasonable to assume your salary has increased by 50%? So, do the sums again and then consult ( freely available) annuity tables to see what pension pot you would need to have accrued to match the police pension.....you will not like the conclusion!

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Re: Police pension or invest in my own?

#434108

Postby monabri » August 11th, 2021, 3:38 pm

If you do decide to jack it in early, you don't have to take your pension until the normal date. Let's say you retire early, by 5 years. Maybe you can put in place a separate scheme in a SIPP or ISA to fund the 5 years gap?

Also, if you decide to leave the police, you keep whatever pension entitlement until you take it at retirement.

Separately, what if your efforts to build a pot fail miserably....what do you do....carry on working till 70?

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Re: Police pension or invest in my own?

#434114

Postby Scott1234 » August 11th, 2021, 4:12 pm

airbus330 wrote:
Scott1234 wrote:
airbus330 wrote:As someone who has retired recently without the benefit of a DB pension, but knowing quite a few ex-officers who do have them, I'd be very reluctant to give up the secure benefits that it offers. One of my best friends retired with 33yr service and his pension I believe is about 28k (retired as Sgt), index linked. Another friend retired Chief Super and is on a heck of a lot more plus he took a sizable commutation which bought him a Buy-to-let outright. My point is that your predictions are based on current rank which will most likely change upwards and you have a partner also in the same scheme. It would seem to me that, all things being equal, you'll likely have a comfortable and secure retirement. That said, it is satisfying to have other strings to your bow. Since you are most unlikely to escape taxation post retirement, building as big a fund as possible in both your ISA which at retirement can be tailored to generate tax free income, will give you access to lump sum cash should it be needed and will likely be able to be passed down the generations. After quite a few chats about finance with my ex service friends, they all have done much the same, with the service pension paying the basics and another income stream for the luxuries.


The ‘final salary’ pension where you could just go up the ranks in the last few years to inflate your pension is long gone. It’s now a career contribution average.

If we were both in the pension we would certainly be more than comfortable. It’s certainly a lot more secure.


Yes, that is true. My wife experienced the same downgrade as a Uni lecturer a few years back. However, looking at her pension, even degraded, it is a lot better than the vast majority of DC schemes, and (as has been mentioned above) likely better than most folk can achieve self investing. And the killer fact is that you don't need to worry what the markets do, unless the UK collapses into anarchy, your pension is rock solid secure. As I said before, I'm retired on a self invested basis from 20yrs subscription to my employers DC scheme. The only reason I can do this is because I earnt about 6 times the national average salary and squirreled as much as I could into the pot. My older colleagues on a closed DB scheme have a retirement income about 30% higher than I can achieve with acceptable risk. Assuming you don't make Chief Constable, If you can career average yourself into a DB pension of 30k/yr in todays money over your remaining service, I'd be very happy about that. Funnily enough, perhaps your biggest risk is whether you can stand doing 30yrs in the Police. Judging my the common assertion that officers are leaving in droves, perhaps it is in the back of your mind that you may leave early? If that's the case a look at how to maximise pension savings outside the DB world might be a good idea.


I’m quite certain that I won’t progress and that I won’t leave. Both due to the fact that I’m a PC on a specialist unit doing something I love. If it was response work people burn out quickly from that and working until even 60 would be hard.

I’ve just had another good look at the pension. If I work another 30 years I’ll have 30/55ths of my final pension. If I get 2% increase a year that would be 30/55ths of 74k = 40k
At 4% return I’d need a million to live off just the interest and reaching that would be out of the question. I think it’s decided I’ll be joining the pension thanks for everyone’s help. When I came on I was wondering if there was something I was overlooking and it turns out there is

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Re: Police pension or invest in my own?

#434117

Postby monabri » August 11th, 2021, 4:28 pm

Does the Police pension allow you to buy "added years"... that is, you pay a little bit more into your pension but instead of earning 1 year of pension for every year, you earn a little bit more?

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Re: Police pension or invest in my own?

#434123

Postby Scott1234 » August 11th, 2021, 4:59 pm

monabri wrote:Does the Police pension allow you to buy "added years"... that is, you pay a little bit more into your pension but instead of earning 1 year of pension for every year, you earn a little bit more?


Yes but I’ve just looked at the formula and it’s very complicated

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Re: Police pension or invest in my own?

#434126

Postby monabri » August 11th, 2021, 5:16 pm

Scott1234 wrote:
monabri wrote:Does the Police pension allow you to buy "added years"... that is, you pay a little bit more into your pension but instead of earning 1 year of pension for every year, you earn a little bit more?


Yes but I’ve just looked at the formula and it’s very complicated


I'd encourage you to look into and find out if it is advantageous. Maybe your pension advisors can help ?

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Re: Police pension or invest in my own?

#434129

Postby mc2fool » August 11th, 2021, 5:25 pm

Scott1234 wrote:I’ve just had another good look at the pension. If I work another 30 years I’ll have 30/55ths of my final pension. If I get 2% increase a year that would be 30/55ths of 74k = 40k

Well, I take it you mean "30/55ths of my final salary", not pension, but in any case, I thought you said this was a Career Average Revalued Earnings scheme?

If so then the formula is likely to be something like: each year you earn 1/55.3 of your Pensionable Earnings* and that amount gets added to your total to date. That total is (going from what you posted earlier) revalued by CPI+1.25% each year. When you come to retire the total will be divided by the number of years you worked to calculate the average, which is what you'll get.

* Do check what actually counts as "Pensionable Earnings". Is it just plain 100% of salary? Check, don't assume!

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Re: Police pension or invest in my own?

#434130

Postby mc2fool » August 11th, 2021, 5:30 pm

Scott1234 wrote:https://ibb.co/xJmxy48
Not sure if the coded link above worked correctly

Yes, but not usefully so. A couple of columns of numbers without the leftmost column that tells us what the number in each row is, isn't very helpful!

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Re: Police pension or invest in my own?

#434135

Postby Scott1234 » August 11th, 2021, 5:52 pm

mc2fool wrote:
Scott1234 wrote:I’ve just had another good look at the pension. If I work another 30 years I’ll have 30/55ths of my final pension. If I get 2% increase a year that would be 30/55ths of 74k = 40k

Well, I take it you mean "30/55ths of my final salary", not pension, but in any case, I thought you said this was a Career Average Revalued Earnings scheme?

If so then the formula is likely to be something like: each year you earn 1/55.3 of your Pensionable Earnings* and that amount gets added to your total to date. That total is (going from what you posted earlier) revalued by CPI+1.25% each year. When you come to retire the total will be divided by the number of years you worked to calculate the average, which is what you'll get.

* Do check what actually counts as "Pensionable Earnings". Is it just plain 100% of salary? Check, don't assume!


It calls itself a career average scheme.
https://assets.publishing.service.gov.u ... _Guide.pdf
Each 55th is calculated from what you earn that year I believe. Not all portions are necessarily equal across the ranks/pay scales.

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Re: Police pension or invest in my own?

#434138

Postby Scott1234 » August 11th, 2021, 6:00 pm

mc2fool wrote:
Scott1234 wrote:https://ibb.co/xJmxy48
Not sure if the coded link above worked correctly

Yes, but not usefully so. A couple of columns of numbers without the leftmost column that tells us what the number in each row is, isn't very helpful!


I can’t get back on it from my personal phone. The important numbers are from the left column, the 14Kpa + 96K commutation is if I take 25% commutation. The 22.5kpa + 2.9k as a forced commutation, the calculator will only work this way. In reality I’d get 30/55ths of my final salary which they’re basing as 41k in today’s money with 2% rises year on year which we haven’t received recently

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Re: Police pension or invest in my own?

#434141

Postby jonesa1 » August 11th, 2021, 6:07 pm

One final thought, is the police pension like many other public sector pensions and paid out of current revenues, rather than actually having a fund? If so, these public sector pensions have a generic issue of fairness (basically taxpayers, most of whom have much worse pension arrangement, paying for pensions in payment out of their taxes) and one of long-term affordability (ever increasing liabilities with a projected decline in the taxable working population). Either or both of these could result in future governments reneging on promises at some point (my private sector employer did just that and the appeal court decided it was OK) and you have mentioned that the scheme rules allow them to make changes, so it's important to make sure all your eggs aren't in the pubic sector pensions basket, especially as your wife will also have similar pension arrangements. On that basis, I'd think seriously about investing additional money outside the scheme, even if there is a really attractive option for buying additional service.


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