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Police pension or invest in my own?

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

#434303

Postby Lootman » August 12th, 2021, 11:27 am

ursaminortaur wrote:
Lootman wrote:
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.

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.

Disagree. Those pensions could be funded by employee contributions, just like mine was.

But given their generosity there is probably no level of employee contributions that could sustain them, so instead it is just dumped onto the lap of the taxpayers.

We will end up like Oakland, California which had to lay off cops in order to continue paying the pensions of the retired cops.

ursaminortaur
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Re: Police pension or invest in my own?

#434307

Postby ursaminortaur » August 12th, 2021, 11:39 am

Lootman wrote:
ursaminortaur wrote:
Lootman wrote: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.

Disagree. Those pensions could be funded by employee contributions, just like mine was.

But given their generosity there is probably no level of employee contributions that could sustain them, so instead it is just dumped onto the lap of the taxpayers.

We will end up like Oakland, California which had to lay off cops in order to continue paying the pensions of the retired cops.


It is a perfectly valid argument to suggest getting rid of all occupational pensions and just have people saving in their own personal pensions/Sipps with no employer contribution. However if you want to do that it should be for all occupational pensions rather than just for the public sector. I'd suspect such a proposal though wouldn't go down well with most voters though it would probably be welcomed by a large number of business owners (It would save them an awful lot of time, effort and money if they didn't need to deal with their employee's pensions).

I'd also suspect though that the employers wouldn't be in any rush to raise wages and that most employees wouldn't make much larger contributions to their pensions to compensate for the loss of the employer contribution. Hence down the road the government would probably find itself having to provide support to more pensioners through the benefits system.

We have already seen this with the switch from DB to DC schemes where most employers took the opportunity to not only move the risk onto employees but also to drastically cut their employer contribution. Most employees have not compensated for that fall in employer contribution by increasing their own employee contributions in either the occupational scheme or by setting up their own personal pension/SIPP to run alongside the occupational scheme.

AF62
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Re: Police pension or invest in my own?

#434317

Postby AF62 » August 12th, 2021, 12:22 pm

Scott1234 wrote:I’m a 33 year old police officer earning circa £41k a year. I’m now at the top of the pay scale
...
-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


If you didn't get any pay rises and were still on £41k at 63 the pension earned up to then but taken at 67 would be £26,786 a year not £22k. If taken at 63 it would reduce to £21,053, although you would receive if for an additional four years.

Scott1234 wrote:-Alternatively if I put £500 a month (increasingly yearly with inflation assumed at 2%) into investments for that same 30 years and could earn 5% a year off it I’d have £512K. 6% would make it £623K.


It seems unlikely not to have any pay rises if you are increasing the amount you invest to take account of inflation.

So if your pay rises matched inflation at 2% (yes they haven't historically but for ease), that would mean your pay would be £72,810 at 63 and your pension £47,391 if taken at 67 and reducing to £37,249 if taken at 63.

Obviously those numbers don't take account of pension you have accrued so far.

Scott1234 wrote:Assuming I could live off a 4% a year return on that £512K that would give £20.5k. The pension would win out narrowly. The other massive benefit of course is that I’d have £512K to pass on to my children (minus any inheritance tax etc) whereas with the police pension I’d have nothing to pass on.
...
Is there a major flaw in my maths? Something unforeseen I’m missing out on? Are my percentages unrealistic? I just can’t see why more aren’t doing it.


Yes; as above.

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Re: Police pension or invest in my own?

#434353

Postby Scott1234 » August 12th, 2021, 1:59 pm

AF62 wrote:
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.



Some great insights there thank you.

With regards to the service I joined in 2014, entered the pension then decided to take my money back the next year when they changed the law so they could change it. I didn’t like the shady nature of it so came out. Since then the money and my personal financial situation wasn’t right to go back in but now I have a decent amount to invest.

I’ll have a look at the McCloud judgment now but I think that may apply to those who were ‘tapered in’ to the new scheme of which I never qualified.

EDIT: after looking again at the McCloud judgement it appears to be the firefighter case I have heard about. It seems the police version of this challenge is ramping up and it does appear that they’re taking into account those who decided not to opt into the new pension if they can provide proof that the decision based upon age discrimination was a direct part of this. Not being entered into the tapering due to age and the fact I pulled my money out would be as good an example of this as any.
I shall have to wait and see what the police end up doing about this.

You seem to have a lot of knowledge on the public pensions, are you in the financial sector?

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Re: Police pension or invest in my own?

#434359

Postby Kantwebefriends » August 12th, 2021, 2:41 pm

In addition to the ruddy obvious step of joining the police pension scheme and using salary sacrifice, you might consider saving like mad into a LISA. Ditto, I dare say, your wife. For every £100 you contribute HMRC adds another £25. You are under 40 so you can open one, contribute until you are 50, and take the lot out at 60 tax-free. If you need to take a bit out before 60 you can do so: the penalty will sting but no worse.

If you are still working at 60 a neat trick would be to bung the LISA money into DC pensions before you finally retire: tax advantage after tax advantage! Or maybe when you are 60 would be a good time to pass some money to your children.

If you tire of the police and move into another line of work it's likely that you will be delighted to have a Defined Benefit pension to look forward to.

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Re: Police pension or invest in my own?

#434360

Postby MDW1954 » August 12th, 2021, 2:43 pm

Moderator Message:
As long as the OP is still getting useful replies and insights, I am loathe to lock this topic. But can we keep it on topic, please? --MDW1954

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Re: Police pension or invest in my own?

#434425

Postby AF62 » August 12th, 2021, 7:11 pm

Scott1234 wrote:You seem to have a lot of knowledge on the public pensions, are you in the financial sector?


Retired from the Civil Service so am benefiting from a similar pension, including the 2015 changes that actually benefitted me - and those changes also benefitted some others although I could never convince them as their mind had been set by the unions and colleagues that the 2015 scheme was evil.

Over the years I encountered many people who either didn’t understand their pension or had misunderstood the benefits - and in particular from the 2015 changes where the ‘cannot take my pension until 67’ was repeatedly mentioned, without actually doing the maths on the accrual rate and actuarial reduction.

As you have started to do, do the maths and there should be calculators available for you to download from the pension website to assist.

As for McCloud, if you joined in 2014 then unfortunately it probably doesn’t apply to you as my recollection is it covered people who were in the old scheme before April 2012 when the changes were announced and were still in a scheme in April 2015 when the new scheme came in.

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Re: Police pension or invest in my own?

#434465

Postby Hariseldon58 » August 12th, 2021, 11:40 pm

I used to be a policeman and had five years contributions, I transferred it out to a SIPP a few years back, shortly before they prevented you doing that and received just under a £100k in lieu of 3k a year.

When I joined it was retire at 50 on ⅔ salary, index linked, a very generous scheme. I left at age 25 to do more interesting things and I endeavoured to privately save up and do better than that. I succeeded and retired at 49, some 14 years ago.

It is very difficult to replace such a pension, despite the reduced generosity, it is still an absolute steal, join the pension , if you can buy back the years, do so.

Nothing to stop you saving with an ISA, to replace such a pension it’s far more difficult than assuming x% a year and a withdrawal rate of y%.

Markets do not return these steady yearly percentages, they go up and down , a lot, we have had 12 great years of growing markets, I retired at 49 in 2007 and lived off my investments, almost immediately the market collapsed with the GFC, it was uncomfortable, with hindsight we know the market recovered but living it is very different.
You have no idea of what will happen. I would have really liked that reliable pension then !!!

Take the police scheme , save in an ISA and learn about markets and investing first hand.

Most of the guys I worked with and still know, left early, either voluntarily or through ill health. A good friend made it beyond chief super and retired , the stress of it all did not do him any good, great pension though.


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