I don’t trust the state pension to exist when I’m 67 (or early 70’s). I’m currently 29. Should I set up a SIPP?

[loverintruth]

I currently pay into my employer pension (police) and I pay into a S&S ISS (Vanguard global all cap) but I don’t trust that by the time I reach state retirement age it will still exist in its current form (if at all). Would setting up a SIPP be worthwhile?

That way if I get a state pension it will be a happy additional income.

 

[mirandaf]

@loverintruth Are you an Officer or Staff member?

Officers are currently on the CARE scheme, which is a DB scheme which whilst expensive each month - will provide you with a decent income of 1/54 of your salary, for life upon retirement.

Retirement of the Police CARE pension is at 60. You can go earlier at 55 but you will get an actuary reduction of 5% per year.

Staff are different and will depend on your local arrangements/Union.

 

[loverintruth]

@mirandaf Officer! And yeah, the officer pension is decent. I just want to fully secure my future post work (or more ideally, retire early)

 

[mirandaf]

@loverintruth Remember if you retire/leave policing BEFORE 55, your CARE pension is deferred until SPA (67).

 

[bppartner]

@loverintruth What made you want to become a policeman officer?

 

[mirandaf]

@bppartner You get to jump through the air firing two guns.

 

[ront76]

@mirandaf Hot fuzz

 

[sjcargill]

@bppartner Car slides obviously

 

[zeenosue]

@mirandaf Hi, do you have more info on the CARE scheme? How does the 1/54 of salary operate? TIA

 

[mirandaf]

@zeenosue Ok - so for each year you pay full pension contributions, you get 1/54 of your salary guaranteed for the rest of your life when you retire. Also index linked so rises each year.

So if you earn £27k, each year you get £500. If you earn £54, you get £1k.

Means if you work 30 years at £27k you will have £15k a year pension. 30 years at £54k = £30k pension.

It’s not as good as the ‘older’ police pensions, but still extremely good compared to many private sector DC schemes.

Commutation is another subject we won’t touch on for now, but essentially you will get a tax free lump sum too.

 

[shadow2]

@mirandaf Just adding that the pension built up rises with CPI so it moves with inflation, meaning what you can buy for £15k today, you'll be able to buy the same goods with your pension in retirement too.

Edit: Deleted wrong part of sentence, although the benfit grows with inflation it will not have the same buying power.

 

[inhasap6]

@shadow2 Wouldn't it actually be quite a bit less than that, as you're not locking in that £15k value now but over the course of 30 years?

 

[shadow2]

@inhasap6 No, in reality it'll be more if there's any pay rises. It works out as 1/54 x 2024 salary + 1/54 x 2025 salary + ... + 1/54 x 2054 salary.

Edit: After simulating the scenario I realise I was wrong, stationary salary will deteriorate the end benefit in relation to inflation.

Year
Date
Salary Uplift
Salary
Earned Benefit
Existing Benefit
CPI
Uplift
New Benefit
Value of £15k

1
2024
0.00%
£30,000.00
£555.56
£0.00
3.00%
£0.00
£555.56
£15,000.00

2
2025
0.00%
£30,000.00
£555.56
£555.56
3.00%
£16.67
£1,127.78
£15,450.00

3
2026
0.00%
£30,000.00
£555.56
£1,127.78
3.00%
£33.83
£1,717.17
£15,913.50

4
2027
0.00%
£30,000.00
£555.56
£1,717.17
3.00%
£51.51
£2,324.24
£16,390.91

5
2028
0.00%
£30,000.00
£555.56
£2,324.24
3.00%
£69.73
£2,949.52
£16,882.63

6
2029
0.00%
£30,000.00
£555.56
£2,949.52
3.00%
£88.49
£3,593.56
£17,389.11

7
2030
0.00%
£30,000.00
£555.56
£3,593.56
3.00%
£107.81
£4,256.92
£17,910.78

8
2031
0.00%
£30,000.00
£555.56
£4,256.92
3.00%
£127.71
£4,940.19
£18,448.11

9
2032
0.00%
£30,000.00
£555.56
£4,940.19
3.00%
£148.21
£5,643.95
£19,001.55

10
2033
0.00%
£30,000.00
£555.56
£5,643.95
3.00%
£169.32
£6,368.82
£19,571.60

11
2034
0.00%
£30,000.00
£555.56
£6,368.82
3.00%
£191.06
£7,115.44
£20,158.75

12
2035
0.00%
£30,000.00
£555.56
£7,115.44
3.00%
£213.46
£7,884.46
£20,763.51

13
2036
0.00%
£30,000.00
£555.56
£7,884.46
3.00%
£236.53
£8,676.55
£21,386.41

14
2037
0.00%
£30,000.00
£555.56
£8,676.55
3.00%
£260.30
£9,492.40
£22,028.01

15
2038
0.00%
£30,000.00
£555.56
£9,492.40
3.00%
£284.77
£10,332.73
£22,688.85

16
2039
0.00%
£30,000.00
£555.56
£10,332.73
3.00%
£309.98
£11,198.27
£23,369.51

17
2040
0.00%
£30,000.00
£555.56
£11,198.27
3.00%
£335.95
£12,089.77
£24,070.60

18
2041
0.00%
£30,000.00
£555.56
£12,089.77
3.00%
£362.69
£13,008.02
£24,792.71

19
2042
0.00%
£30,000.00
£555.56
£13,008.02
3.00%
£390.24
£13,953.82
£25,536.50

20
2043
0.00%
£30,000.00
£555.56
£13,953.82
3.00%
£418.61
£14,927.99
£26,302.59

21
2044
0.00%
£30,000.00
£555.56
£14,927.99
3.00%
£447.84
£15,931.38
£27,091.67

22
2045
0.00%
£30,000.00
£555.56
£15,931.38
3.00%
£477.94
£16,964.88
£27,904.42

23
2046
0.00%
£30,000.00
£555.56
£16,964.88
3.00%
£508.95
£18,029.38
£28,741.55

24
2047
0.00%
£30,000.00
£555.56
£18,029.38
3.00%
£540.88
£19,125.82
£29,603.80

25
2048
0.00%
£30,000.00
£555.56
£19,125.82
3.00%
£573.77
£20,255.15
£30,491.91

26
2049
0.00%
£30,000.00
£555.56
£20,255.15
3.00%
£607.65
£21,418.36
£31,406.67

27
2050
0.00%
£30,000.00
£555.56
£21,418.36
3.00%
£642.55
£22,616.46
£32,348.87

28
2051
0.00%
£30,000.00
£555.56
£22,616.46
3.00%
£678.49
£23,850.51
£33,319.34

29
2052
0.00%
£30,000.00
£555.56
£23,850.51
3.00%
£715.52
£25,121.58
£34,318.92

30
2053
0.00%
£30,000.00
£555.56
£25,121.58
3.00%
£753.65
£26,430.79
£35,348.48

Rerunning the simulation with salary rising with CPI (3% for demonstration purposes) results in a benefit of £39,276.09, more than the £35k needed to buy £15k of 2024 goods.

 

[inhasap6]

@shadow2 Ohhh, so if the job wage increased exactly in line with inflation than the 15k future value would be exact?

 

[shadow2]

@inhasap6 Edit: Ignore this

No, if the salary stayed at exactly £27k per year (no inflation on salary) for 30 years it'd be worth whatever £15k buys with today's money. Instead, assuming salary also increases (probably not as much as inflation though) means that you'd get more than £15k's worth in time, as your career average salary rises.

Assume starting today, existing benefit is zero. Earn £27k this year and you'd get £27k/54 = £500 added to your defined benefit i.e. £500.

Next year you earn £28k, again divide that by 54. That turns into £518.52 added to your defined benefit. But the existing £500 also gets uplifted by CPI (pretend 5% for easy maths) meaning it's £525, plus the new £518.52 giving a new defined benefit total of £1043.52.

After year three on a £29k salary adds £537.04 for the year, but the DB has been uplifted by inflation again for that year (say 2.5%) taking it to £1069.61 + £537.04 = £1606.65....

... keep going (build a spreadsheet!) and also compare what £15k adjusted by inflation is after 30 years, and see the difference a pay rise can make.

/wipes egg off face after building said spreadsheet and realising I'd misunderstood @inhasap6 's argument

 

[inhasap6]

@shadow2 In your 3rd paragraph you end with £1043.52 after the 2nd year, that's less than double the £525 inflation adjusted from the first year, so surely that proves my point of it being worse than £15k spending power by the end?

 

[shadow2]

@inhasap6 It's misleading after just a few years but that quirk disappears over time. Only year one was adjusted by inflation, year two was simply the (higher) salary driving the increased benefit. After 3 years of employment, two years of benefit get the inflation adjustment... after 30 years 29 years of benefit gets adjusted by inflation.

 

[jhillaire84]

@mirandaf To have an equivalent annuity of £30k rising at RPI (rather than CPI) from a private pension it would cost you £750k (£4k p/a per £100k lump sum paid at 60 according to this table).

And that is after rising interest rates, 2-3 years ago you would have had to pay much much more than that due to annuity rates being linked to interest rates which were at

 

[jesusisworthy]

@loverintruth Is there a reason you aren't increasing your pension percentage through your work? Do the police have a special system or something different.

Nothing wrong with setting up a SIPP. I'm similar, I'm planning on assuming I'll never see a gov pension

 

[mrstbw]

@jesusisworthy Could be a defined benefit scheme rather than defined contribution.