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Police pension or invest in my own?

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

#434145

Postby Alaric » August 11th, 2021, 6:16 pm

Scott1234 wrote: 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


Except you won't. Take each year at a time. The contribution of that year to your retirement income is pensionable salary divided by 55. This will be increased by (CPI + 1.25%) as indicated above. That isn't affected by how large or small your salary is at retirement. In pensions "final salary" has a specific meaning, usually being the last year or an average of the last three years.

As it's a defined benefit scheme, if you interpret the definitions correctly you can do your own forecasts making the critical assumption as to at what rate your own salary increases and what CPI is for the revaluation.

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Re: Police pension or invest in my own?

#434150

Postby mc2fool » August 11th, 2021, 6:21 pm

Scott1234 wrote: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.

Well look I'm not going to plough through a 90 page document for you. :D

But if it's a career average scheme, and you'll get a 55th of what you earn each year for your pension (cumulated and revalued), then you won't be getting 30/55ths of your final salary -- unless by the unfortunate coincidence that your final salary is the same as it is now 'cos you don't get any pay rises for the next 30 years!

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Re: Police pension or invest in my own?

#434161

Postby SalvorHardin » August 11th, 2021, 7:08 pm

ReallyVeryFoolish wrote:A SIPP isn't going to come close to providing a risk free, guaranteed paid for life with spouse benefit as available from the police pension fund. And a life insurance lump sum benefit thrown in for free. Far better to stay in the police pension plan and invest elsewhere to provide extra retirement income as well.

Though I should think the local tax payers would absolutely delighted if a police officer doesn't join the scheme. From their point of view, the more the merrier.

RVF

As RVF said. You can't buy anything like the Police pension scheme in the market.

I'm speaking with my admittedly rusty Actuarial skills, having spent several years in the early 2000s dealing with missold personal pension compensation claims for people who were advised to not join their final salary scheme.

Back then the police scheme tended to be the third most generous scheme that we came across. The Coal Miners scheme was second best, though much of that was because so many miners had left the scheme (badly advised by ex-miners turned pension salesmen), that the benefits to those who remained had been increased to well beyond what they would otherwise have received.

The Firemens' scheme was the best, mostly because of retirement at 55

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Re: Police pension or invest in my own?

#434166

Postby Scott1234 » August 11th, 2021, 7:37 pm

mc2fool wrote:
Scott1234 wrote: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.

Well look I'm not going to plough through a 90 page document for you. :D

But if it's a career average scheme, and you'll get a 55th of what you earn each year for your pension (cumulated and revalued), then you won't be getting 30/55ths of your final salary -- unless by the unfortunate coincidence that your final salary is the same as it is now 'cos you don't get any pay rises for the next 30 years!



You’re right. I’m getting myself confused. It was a final salary but is no longer.

I think you’re all correct. I guess I’m thinking the grass is greener when really it’s still pretty good. The aim is to have the pension and I should have enough to create either a SIPP or S+S isa also. Then live as long as possible to milk it and make up for all the broken bones etc suffered over the career!

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Re: Police pension or invest in my own?

#434167

Postby JohnB » August 11th, 2021, 7:42 pm

The OP and his partner do have a lot of eggs in the Police basket. You'd hope a police pension raid is unlikely, but I'd not rule it out. Even if you are both are plodders, there is still a fair chance one of you will leave before retirement and find a way of getting a valuable SIPP.

My 10 year civil service pension is handy, but it is dwarfed by the SIPP I built up as a contractor doing the same work.

I'd stay in for a decade, and then see how the wind is blowing.

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Re: Police pension or invest in my own?

#434168

Postby Scott1234 » August 11th, 2021, 7:45 pm

JohnB wrote:The OP and his partner do have a lot of eggs in the Police basket. You'd hope a police pension raid is unlikely, but I'd not rule it out. Even if you are both are plodders, there is still a fair chance one of you will leave before retirement and find a way of getting a valuable SIPP.

My 10 year civil service pension is handy, but it is dwarfed by the SIPP I built up as a contractor doing the same work.

I'd stay in for a decade, and then see how the wind is blowing.


The problem with that is if you leave you cannot take the pension until 67. If you’re in, you can go at 55 if you wish and will accept your portion of the pension.

It’s as another poster mentioned. They’ve already moved the goalposts once. I’ve no doubt that over the next 30 years they’ll do it again.

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Re: Police pension or invest in my own?

#434171

Postby Alaric » August 11th, 2021, 7:54 pm

Scott1234 wrote:The problem with that is if you leave you cannot take the pension until 67.


You might want to get that confirmed in triplicate as it's well contrary to usual pension practice. In particular would it still apply to someone deemed to be in ill health?
Usually you would just not get the full amount if you asked for payment to start at an earlier age.

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Re: Police pension or invest in my own?

#434173

Postby Scott1234 » August 11th, 2021, 8:01 pm

Alaric wrote:
Scott1234 wrote:The problem with that is if you leave you cannot take the pension until 67.


You might want to get that confirmed in triplicate as it's well contrary to usual pension practice. In particular would it still apply to someone deemed to be in ill health?
Usually you would just not get the full amount if you asked for payment to start at an earlier age.



Just had a look, it’s actually 65, rising to 67 in line with national pension age. It’s quite a hefty penalty to pay.
You can get retired early with an ill health pension at any point without penalty.

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Re: Police pension or invest in my own?

#434175

Postby airbus330 » August 11th, 2021, 8:05 pm

Scott1234 wrote:
airbus330 wrote:
Scott1234 wrote:
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


Lots of thought provoking posts which you have clearly found useful. An interesting comment above about the fate of Welsh miners and more recently Welsh steel workers who have been poorly served with advice to leave their schemes by less than scrupulous advisors. Personally, if you do your 30 yrs you've more than earnt your pension doing a job most of us would find too difficult. So, thanks for your service.

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Re: Police pension or invest in my own?

#434179

Postby Midsmartin » August 11th, 2021, 8:29 pm

I honestly can't think of any circumstances in which I'd give up the security your police pension offers.
As it stands, if the investments in the fund fail to perform, it will likely be topped up by the employer/government. If your SIPP performs badly (eg in 20-30 years we are really worried about an ecological catastrophe) then there is nobody who will top it up for you.

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Re: Police pension or invest in my own?

#434182

Postby Alaric » August 11th, 2021, 8:38 pm

Scott1234 wrote:Just had a look, it’s actually 65, rising to 67 in line with national pension age. It’s quite a hefty penalty to pay.


I'm not sure I see the penalty. If you leave at 57 with an accrued pension of £ 20,000 a year then ten years later you get a pension in payment of £ 20,000 revalued at cpi + 1.25%. You'd need another job or accrued savings to live off in the mean time admittedly.

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Re: Police pension or invest in my own?

#434191

Postby Sobraon » August 11th, 2021, 9:16 pm

@Scott1234

Slightly different take on things. SWMBO retired as a police officer and the certainty of the value of the pension paid into her account every month allows her (and me) to sleep soundly. I am certain if she had a DC pension rather than the DB pension we would be over cautious in spending (natural yield only provided capital kept up with inflation).

Her local federation branch had a relationship with an IFA, we had a couple of meetings prior to her retirement. Might be worth giving your fed office a ring to see if you can get an hour or so?

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Re: Police pension or invest in my own?

#434192

Postby Midsmartin » August 11th, 2021, 9:18 pm

I would go further. I would stick with the police pension, and in a few years see what the terms are for purchasing extra years credit. For a school pension, it's remarkably attractive as far as I recall.

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Re: Police pension or invest in my own?

#434195

Postby Gostevie » August 11th, 2021, 9:26 pm

Apropos of nothing, and off-topic, I just want to say that I have nothing but respect for police officers. Anybody who can do that for 30 years deserves the most generous pension possible.

Gostevie

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Re: Police pension or invest in my own?

#434204

Postby Spet0789 » August 11th, 2021, 9:46 pm

Midsmartin wrote:I honestly can't think of any circumstances in which I'd give up the security your police pension offers.
As it stands, if the investments in the fund fail to perform, it will likely be topped up by the employer/government. If your SIPP performs badly (eg in 20-30 years we are really worried about an ecological catastrophe) then there is nobody who will top it up for you.


I would expect that there are no “investments in the fund”. Most public sector pensions are just a promise from today’s government that future private sector workers are will pay the pensions accrued by today’s public sector workers. If that sounds unfair, that’s because it is!

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Re: Police pension or invest in my own?

#434232

Postby ursaminortaur » August 11th, 2021, 11:46 pm

Spet0789 wrote:
Midsmartin wrote:I honestly can't think of any circumstances in which I'd give up the security your police pension offers.
As it stands, if the investments in the fund fail to perform, it will likely be topped up by the employer/government. If your SIPP performs badly (eg in 20-30 years we are really worried about an ecological catastrophe) then there is nobody who will top it up for you.


I would expect that there are no “investments in the fund”. Most public sector pensions are just a promise from today’s government that future private sector workers are will pay the pensions accrued by today’s public sector workers. If that sounds unfair, that’s because it is!


I agree that it is unfair that the government steals the employee contributions and doesn't really make an employer contribution and it would be really really unfair if the government were then to not honour the promises it had made in exchange.

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Re: Police pension or invest in my own?

#434256

Postby jonesa1 » August 12th, 2021, 8:12 am

ursaminortaur wrote:I agree that it is unfair that the government steals the employee contributions and doesn't really make an employer contribution and it would be really really unfair if the government were then to not honour the promises it had made in exchange.


Governments break promises and unilaterally change conditions without even pausing for breath. Just ask WASPI. Deferring today's public sector pension costs for future generations is simply irresponsible, but the state is in so deep now it's become "too hard" to fix and gets largely ignored. Unlike other forms of national debt, mild inflation doesn't help either.

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Re: Police pension or invest in my own?

#434262

Postby Lootman » August 12th, 2021, 8:57 am

ursaminortaur wrote:
Spet0789 wrote:
Midsmartin wrote:I honestly can't think of any circumstances in which I'd give up the security your police pension offers.

As it stands, if the investments in the fund fail to perform, it will likely be topped up by the employer/government. If your SIPP performs badly (eg in 20-30 years we are really worried about an ecological catastrophe) then there is nobody who will top it up for you.

I would expect that there are no “investments in the fund”. Most public sector pensions are just a promise from today’s government that future private sector workers are will pay the pensions accrued by today’s public sector workers. If that sounds unfair, that’s because it is!

I agree that it is unfair that the government steals the employee contributions and doesn't really make an employer contribution and it would be really really unfair if the government were then to not honour the promises it had made in exchange.

But it is also "really unfair" that the rest of us have to pay for our own pensions and for public sector workers as well. And whilst steps have been taken to whittle down the enormous black hole of those unfunded pensions liabilities, the really tough decisions have inevitably been deferred by politicians who of course benefit from the same pensions.

In the US you now have municipalities declaring bankruptcy because of the pension liabilities. States technically cannot declare bankruptcy but there a couple that are in really bad shape for the same reason.

At some point these pensions are going to have to be crammed down. They are still far too generous compared with what the rest of us get.

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Re: Police pension or invest in my own?

#434279

Postby AF62 » August 12th, 2021, 10:03 am

Scott1234 wrote: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?


Not quite. It isn't tracking CPI whilst you are 'paying into' the scheme, it is tracking CPI PLUS increasing by 1.25%.

So year 1 then 1/55.3 of your £41k salary goes into the amount of pension that will be paid when you retire, so £741.41.

At the end of year 1 then the £741.41 is increased by CPI plus 1.25%, so if CPI was say 3% then it would be increased by 4.25%, so £31.51 and it would stand at £772.92.

Year 2 if you got say a 2% pay rise so salary is now £41,820 then £756.24 goes into your pension taking it to £1529.16 and then increased again at the end of the year by CPI plus 1.25%.

And so on.

Scott1234 wrote:The problem with that is if you leave you cannot take the pension until 67. If you’re in, you can go at 55 if you wish and will accept your portion of the pension.


You can take it before 67, it is just that it is actuarially reduced if you take it before 67 -
https://assets.publishing.service.gov.u ... ay2015.pdf

Yes the 2015 pension isn't as good as the previous pension, but that doesn't mean it isn't a good pension.

Scott1234 wrote:It’s as another poster mentioned. They’ve already moved the goalposts once. I’ve no doubt that over the next 30 years they’ll do it again.


Quite possibly, although in the 2015 changes the government claimed they would not need to change the scheme for 20 years, but then we know how politicians behave.

However the previous changes to government worker pensions have only impacted pensions accrued after the change and not pensions accrued before the change, so whatever you accrue before any change will be safe.

Also have you been in the service long enough to benefit from the McCloud judgement which may benefit you for the period from 2015 when the new scheme was introduced to 2022 when they will have to introduce the new scheme again.

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Re: Police pension or invest in my own?

#434302

Postby ursaminortaur » August 12th, 2021, 11:22 am

Lootman wrote:
ursaminortaur wrote:
Spet0789 wrote:I would expect that there are no “investments in the fund”. Most public sector pensions are just a promise from today’s government that future private sector workers are will pay the pensions accrued by today’s public sector workers. If that sounds unfair, that’s because it is!

I agree that it is unfair that the government steals the employee contributions and doesn't really make an employer contribution and it would be really really unfair if the government were then to not honour the promises it had made in exchange.

But it is also "really unfair" that the rest of us have to pay for our own pensions and for public sector workers as well.


Sorry that is nonsense - It is as stupid as saying that it is unfair that customers who are paying for their own pensions are also having to pay for private sector pensions. Unless you are suggesting that employees should not have any occupational pensions then any pension they had would have to be funded by the employer and that would come from whatever source the employer obtained their money. In the private sector from their customers and in the public sector from taxpayers (who are in effect the government's customers buying a full package of services - the only difference being that the taxpayer doesn't have much choice but to buy those services and to buy them from the government).

If these pay as you go schemes were instead fully funded schemes then the Government would still have to pay into the pension as the employer and those payments would "come" from taxes the difference is the timing. That would be the case even if the public sector pensions were DC pensions.

Switching to DC pensions from the current pay-as-you go systems though isn't likely to happen since it would increase taxes as the government would no longer be able to steal contributions etc and would instead have to pay them into a fund whilst still having to fund payments to current and future retirees who had accrued benefits in the current schemes. Going the other way and switching the few funded public sector schemes such as the LGPS to pay as you go schemes is probably more likely as it would allow the government to raid the funds those schemes have - that option was considered by Hutton in the last public sector pension inquiry but was rejected at that time.

This is getting rather far from the OPs original question. So it is probably best to leave it there rather than repeating this public sector/private sector argument that has been had numerous times before.


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