Opt out of 2015 Police pension

A question about : Opt out of 2015 Police pension

I have been a Police officer for 12 years and joined on the 1987 Police pension scheme where I was supposed to work for 30 years and pay 11% into the pension scheme.

Following Hutton's pension review where all public sector pensions were grouped together and general recommendations put forward irrespective of the state of any individual scheme. The schemes ranged from non contributory to 11% contributions for Police.

I currently pay 14.25% of my salary into the pension and the index linking has changed from RPI to CPI. The change in index linking alone has effectively reduced the benefits of the pension by around 20% over the life of the pension .

I accepted these changes because the pension was still good and the general pressures on the Countries finances. However, when the 2015 pension changes come in I will have to work 8 years longer, still paying in 14% to receive a lot less at the end. And if I decide to leave the Police prior to retirement age (now 60) I will have to wait until state retirement age until I claim my Police pension.

Given the state of Policing at the moment I don't know if I will serve the full 26 years until I reach 60. This will also be the second pension change in 10 years and I don't trust any future government not to change it again.

So I am looking at coming out of the Police pension scheme. I appreciate I will loose out on employer contributions but if I invest well in a SIPP I can build my own pension pot and take advantage of the compound interest and the recent changes to private pensions when I do retire.

I have several friends in the Police who have opted out in recent years and invested that money in property and they seem to be very happy with their investment choices.

Any thoughts or recommendations?

Best answers:

• Try a search on this forum. You will get your answer.
• Your friends may be happy now but when they reach retirement age and realise how much better off they could have been, then you will be laughing all the way to the bank because you didn't opt out of what is still a very valuable pension scheme.
• Essentially, don't. You may well be able to build a pension pot with a SIPP but I don't know why you wouldn't take advantage of the employer pensions scheme, where they manage the risk, match the 13-14% contributions and pay an index linked pension with suitable spousal benefits? It seems like cutting off your nose to spite your face.
  i imagine there are many people on here who'd love to have the opportunity of such a pension.
  I don't get why the change of RPI to CPI is such a deciding factor? Unless I'm mistaken, with a SIPP you are unlikely to get either?
  Also you are not strictly correct to say that if you leave before 60 then you don't get your pension until SPA (67-68). If you leave at 55 then you can take it immediately (albeit with an actuarial reduction) or leave at 55 and wait until 60 to get it. In a country where the majority of people are expecting to work until 67+ and my kids, probably until 70, I don't call working till 55 (or even 60) a particular hardship.
  I'm not a pensions expert by any means, so others may come along and trump what I've said.
  If you want to retire still at your original age (52 from your maths) then I guess you'll have to save enough money to enable you to bridge the gap until your pension pays out.
• First, forget the past. What pension you had is irrelevant, the question is what is best of the choices you have available going forward.
  From what you say, the choice is between:
  (a) Opt-out, get nothing, pay nothing.
  (b) Remain in scheme as active member until retirement
  Pay 13.44% contributions in the post 2015 scheme (I think). Accrue pension of 1/55.3 with revaluation of CPI+1.25%, and a Normal Pension age of 60.
  (c) Leave before retirement
  Pay 13.44% contributions in the post 2015 scheme (I think). Accrue pension of 1/55.3 with revaluation of CPI+1.25% until leaving then CPI thereafter, and a Normal Pension age of 68 (based on your age).
  If you are staying in the scheme until retirement (ie scenario b) then remaining in the scheme is almost certainly better than opting-out.
  If you leave fairly soon after joining the scheme, the cost of those benefits is very expensive and there is very little value in the employer contribution (ie you are pretty much paying for all of the pension benefits yourself). That reflects the strong cross-subsidies between early leavers and long-stayers in the scheme.
  You are probably old enough to make staying in the scheme worthwhile (if you were a young new entrant the figures would be even less favourable), particularly as you get final salary linking on the old benefits. You don't sound as if you have any intentions to leave imminently, which further makes remaining in the scheme attractive.
• There's old scheme = really good.
  There's current scheme = pretty good.
  There's opting out = less value and smaller pension for you.
  If one option of the three isn't available then it comes down to a straight choice. Which do you think is best?
• It would be very foolish to leave.
• It's not very comforting to think we're policed by someone acting so irrationally just because he's having a hissy fit.
  Anyone who frequents this forum is used to that behaviour from teachers and NHS employees but, really, bobbies?
• Yeah we've had a few in the past.
• Assume:
  OP is 34
  OP earns Ј40,000
  Contribution rate is 13.44%
  OP could get annual 6% return in a SIPP
  OP leaves scheme in 2016 after 1 year of membership
  OP State Pension Age is 68
  CPI is 2% in all years
  The OP would accrue Ј723 of pension in the police scheme. This is uprated by CPI+1.25% in year one, then by CPI after the OP has left. This would reach, in cash terms, Ј1,436 at age 68.
  The member pension contribution for that year is Ј5,376. By age 68 this would grow to Ј38,982 if invested in a SIPP returning 6% (net of fees).
  Using the annuity calculator at MAS suggests an annuity rate of 3.36% for a 68 year old wanting an inflation linked annuity with 50% spouse pension and 5 year guarantee, taking no tax free lump sum.
  That suggests an annuity of Ј1,308 could be purchased (assuming no change in annuity rates) if the contribution were instead invested in a SIPP and the pot of Ј38,982 used to buy an annuity.
  That is still inferior to being in the scheme (annual pension of Ј1,436), but not massively so. If the OP instead remained in the scheme for longer the scheme would become increasingly advantageous.
  Could those who argue this scheme is so massively good that alternatives should not even be considered (particularly when OP stated he may leave the service - "Given the state of Policing at the moment I don't know if I will serve the full 26 years until I reach 60") back up those assertions with some figures?
• Give me a guarantee over an assumed growth rate any day of the week.
• And any chance of promotion leading to a salary increase in service?
• Sadcop, I really hope you're not as sad as your monika suggests?! You are still in a very strong position and the 14% contribution would have to be more like a third of your gross salary to get something comparable in a private pension.
  As a compromise you might consider paying an equivalent amount into a SIPP and/or a ISA that can be drawn up on as you approach full retirement.
  I think the boat for making huge sums on property has long left the harbour. There'll be a lot of people found swimming naked when the tide goes out.
• Hi all... apologies for the not very inspired username but as you can gather I'm another one, one of many many thousands who are still waiting to receive full details of the new 2015 Police Pension.... we have just a few weeks to make what seems to be a hugely important decision.
  Sadly when we ask about finances in a public arena I can't help but feel people think that we've got it great, have the best pensions etc. and that may well be true buts it's not quite so easy to see that on the inside. For most cops they give up on it all and just accept the status quo... not that we can actually do anything to protest of course (we have no employ right).
  I'm grateful for the comments here, especially Hugheskevi who has tried to look and present the relative pro's and cons... there are so many variables and two pension schemes PPS and NPPS currently that for most of us we just don't have a clue.
  Following on from SadCop's situation, I joined later - a mature joiner and am currently 44. I started work in the public sector back in 1987 then did some time in the private sector (wish I had put more money aside the for sure!). I've always been employed, never out of work and always paid something towards a pension (except for two years in my early 20's). Then when I joined the Police I was given the option to consolidate everything I had into the the 2006 New Police Pension Scheme which I did thinking at 38 I would do the job until I was 57 or so and take whatever the pension was worth at that time (remember this was pre-recession and austerity). Consequently I now have around the equivalent 11 years of police pension, I think my pensions teams said the fund was worth about Ј40k.
  I won't bore you with the details but a lot more than just pensions has changed and I no longer have any intention of staying until I retire. Indeed the government reforms have it seems actively placed policies that seem designed to prevent someone achieving a full pension (not that I ever could anyway). I don't think I can leave just yet (various reasons) but certainly within 3 years I think.
  My salary for example is currently Ј36k and that is likely to increase slightly over the next few years taking into account annual incremental rises, but my pension contributions will increase from 11.5% I believe currently to 13.7% I am a homeowner with dependent teenage children, I live with my partner of many years but we are not married, our household income is topped up by her 25 hours or so a week at minimum wage, we can't afford to put anything in a pension for her and I have no idea what we'll do when we reach retirement, sell the house I guess?
  I am mindful of the relative benefits of the new career average scheme but I really think there is no future in policing for me and leaving will ultimately be a certainty. I realise my employer will be contributing around 14.3% and this is great but it's still much lower than what I thought I was going to get as an employer contribution (24.2% currently I believe). I naively justified joining and taking a large pay drop thinking that my employer would be investing in my pension to such a degree.
  The one benefit that does make me very unsure what to do is the death in service benefit (currently 3 x gross annual salary I believe). In the last 15 months three colleagues have died prematurely, aged 42,43 and 51 - I've never worked in a job where there have been such regular loses of good, it concerns me (for my family's sake) that it could happen to me and where that would leave them.