Alpha EPA vs Added Pension

Legacy_user

I am a member of the Alpha pension and I also have 14 years service in the PCSPS Classic Scheme.

My current retirement age is 67 and I am looking to go early.

I have looked at the options of buying a three year EPA or buying added pension to buy out the actuarial reduction if I go early.

As it isn't currently possible to obtain a pension forecast unless you are actually retiring, it is difficult to know how much added pension I need.

Is there a particular benefit of an EPA vs added pension? I understand an EPA doesn't count towards the pension tax limit or something, but I don't really understand why that is a benefit. I also understand that if I buy an EPA, I can't buy any more added pension due to the added pension limit.

Finally, if I bought a 3 year EPA and retired at 60, would I only have an actuarial reduction of five years?

RuleTheWorld

would requesting a transfer value require them to provide a statement to accompany it?

Silvertabby

would requesting a transfer value require them to provide a statement to accompany it?

A Civil Service pension can't be transferred out to a private/money purchase scheme, so a transfer value is irrelevant.

OP - you may be too young to ask for an actual estimate, but you should be able to use the on-line calculator. Bear in mind that this will only give you an idea of what you might expect - but it'll be a starting point.

hugheskevi

I have looked at the options of buying a three year EPA or buying added pension to buy out the actuarial reduction if I go early.

You understand that the EPA option only applies to your future accrual of pension, the alpha pension you have already accrued will continue to have a Normal Pension age of 67, and it would only be pension accrued in future which would have an EPA age of 65.

As it isn't currently possible to obtain a pension forecast unless you are actually retiring, it is difficult to know how much added pension I need.

You should be able to use the Actuarially Reduced Pension Buy-out calculator available on the member calculators page to work out the actuarial reduction.

Is there a particular benefit of an EPA vs added pension?

Not really. The value of EPA would not be affected by an increase in State Pension age as you would still get an additional 2 years of pension payments, whereas an increase in State Pension age would reduce the value of added pension. The main advantage is the Annual Allowance treatment.

I understand an EPA doesn't count towards the pension tax limit or something, but I don't really understand why that is a benefit.

This is irrelevant unless you are worried about exceeding the £40,000 Annual Allowance limit. If Annual Allowance is an issue, EPA is far more attractive than Added Pension as EPA has zero pension input, whereas Added Pension will count toward the Allowance.

I also understand that if I buy an EPA, I can't buy any more added pension due to the added pension limit.

It depends on the amounts. The total value of EPA and Added Pension is subject to a cap.

The ordering is important - if you purchase Added Pension first then unless you have reached the Added Pension cap you can buy an unlimited amount of EPA, whereas if you purchase EPA first you are limited in the amount of Added Pension you can buy. Rather confusingly, the total value of the EPA from the time of purchase to EPA age counts toward the cap, so just committing to buy a single year of EPA can take you over the cap whereas it would take an Added Pension purchase of many tens or even hundreds of thousands of pounds to exceed the cap.

if I bought a 3 year EPA and retired at 60, would I only have an actuarial reduction of five years?

You could only buy a 2 year EPA, and yes, the actuarial reduction would be 5 years (Assuming your State Pension age does not change).

System

hugheskevi wrote: »

You understand that the EPA option only applies to your future accrual of pension, the alpha pension you have already accrued will continue to have a Normal Pension age of 67, and it would only be pension accrued in future which would have an EPA age of 65.



You should be able to use the Actuarially Reduced Pension Buy-out calculator available on the member calculators page to work out the actuarial reduction.



Not really. The value of EPA would not be affected by an increase in State Pension age as you would still get an additional 2 years of pension payments, whereas an increase in State Pension age would reduce the value of added pension. The main advantage is the Annual Allowance treatment.



This is irrelevant unless you are worried about exceeding the £40,000 Annual Allowance limit. If Annual Allowance is an issue, EPA is far more attractive than Added Pension as EPA has zero pension input, whereas Added Pension will count toward the Allowance.



It depends on the amounts. The total value of EPA and Added Pension is subject to a cap.

The ordering is important - if you purchase Added Pension first then unless you have reached the Added Pension cap you can buy an unlimited amount of EPA, whereas if you purchase EPA first you are limited in the amount of Added Pension you can buy. Rather confusingly, the total value of the EPA from the time of purchase to EPA age counts toward the cap, so just committing to buy a single year of EPA can take you over the cap whereas it would take an Added Pension purchase of many tens or even hundreds of thousands of pounds to exceed the cap.



You could only buy a 2 year EPA, and yes, the actuarial reduction would be 5 years (Assuming your State Pension age does not change).

Thanks for all the advice, which has helped a lot. If I can start added pension and then buy an EPA, could I start buying £50 a month added pension from this April then start buying an EPA from April 2018 and run both together?

Re - only two years EPA - the alpha website says I can buy three years EPA?

Also, if I joined alpha in 2015, and I buy an EPA in 2018, do I have to pay the backdated EPA contributions as a lump sum?

hugheskevi

Thanks for all the advice, which has helped a lot. If I can start added pension and then buy an EPA, could I start buying £50 a month added pension from this April then start buying an EPA from April 2018 and run both together?

That should work, but you may well not be over the combined cap anyway unless your earnings are very high, in which case you could do both Added Pension and EPA from April 2017.

Re - only two years EPA - the alpha website says I can buy three years EPA?

EPA is limited to a maximum of 3 years and cannot reduce the age at which unreduced pension is paid below 65. As your NPA is 67, you are limited to two years. When you use the EPA estimator, you should see that it will not show you an EPA-3 option after you have entered your date of birth.

Also, if I joined alpha in 2015, and I buy an EPA in 2018, do I have to pay the backdated EPA contributions as a lump sum?

You can only pay EPA for future accrual. The pension accrued between 2015 and 2018 would have a Normal Pension age of 67.

When you commence your pension, each portion of pension is calculated, being reduced (if you retire before EPA/NPA age) or increased (retire after EPA/NPA age) accordingly.

System

If my plan is to retire as close to 60 as I can, and I have an extra £100 a month to pay in, would you put half in an EPA and half in added pension or the full £100 in added pension?