Clueless on Pensions - Civil Service Alpha or Partnership?

hugheskevi

gtat said:

I've read quite a lot on these pages about AP vs EPA, but not much about AP vs AVC (vs SIPP) - do you have any thoughts on this? I'm struggling to decide what would be best for my situation.

In terms of AVC vs SIPP, the Civil Service AVC isn't part of the same arrangement as the DB scheme, so you do not get the benefit of being able to take it all or mostly tax-free, just the standard 25%. You can also take it at a different age to the DB scheme. So it is just the same as any Defined Contribution pension so consider it against other products such as SIPPS in the usual way by comparing investments offered and charges. Having said that, it is very modern and very low charging, so is well worth considering (many of the AVC schemes in the public sector are ancient and the charges much higher than you can obtain elsewhere).

For AP vs AVC, you are comparing two completely different beasts. Added Pension is great at increasing annual income in retirement. You will not be able to get a better priced guaranteed income, nothing is even close. It isn't very flexible however - you can take a lump sum, but at the terrible rate of 12:1 so you probably don't want to do that. Which only leaves the age at which you take the pension as flexible, and as Added Pension is only going to be a small part of the overall pension and has to be taken at the same time as the rest of the pension usually (few exceptions around redundancy) even that isn't really flexible. Defined Contribution pension is almost the exact opposite in many ways - extremely flexible, but no guarantees. Therefore the two are actually very complementary, especially for early retirement where DC can be used to fund or top-up pensions during the period before all pensions come into payment at State Pension age.

So to summarise, if you want more income AP is great, if you want more flexibility then DC is great. One caveat - you can build up DC pension anytime in your career, whereas AP is only available whilst working in public sector.

Kynthia

Gtat at your age I'd consider getting additional pension to make the most of having a DB for now. Unless you already have many years of DB pension, your partner also has a DB pension, and you plan to stay in the public sector for decades, it's likely you'll have DC pensions as part of your retirement. You can save for more DC pension at any time whereas the chance to maximise your risk-free and guaranteed DB income is limited.

gtat

@Kynthia and @hugheskevi thank you both for your very helpful responses.
I currently have 3 x DBs:
- approx. 5 years of SAUL
- approx 5 years of USS
- new starter in Alpha
I don't have any DC yet. 
I assume it is best to keep my three DBs separate, rather than transfer the first two to Alpha?

hugheskevi

gtat said:

@Kynthia and @hugheskevi thank you both for your very helpful responses.
I currently have 3 x DBs:
- approx. 5 years of SAUL
- approx 5 years of USS
- new starter in Alpha
I don't have any DC yet. 
I assume it is best to keep my three DBs separate, rather than transfer the first two to Alpha?

You can transfer within 12 months of joining. If that window is still open you may as well ask for quotes about what you would receive for transferring in either (or both) pensions to see what the position is, rather than assuming anything.

gtat

hugheskevi said:

gtat said:

I am facing a similar question at the moment. I joined the CS last year, earn £50,000 (up to £55k including bonus) and I am part of Alpha. We are lucky enough to have recently had our first child. As such, I am looking to increase my pension contributions so that I don't have to pay tax on child benefit.
Of the three options (AP vs EPA vs AVCs), what would be the best route to achieve this?
Or are there other better options e.g. a SIPP, LISA?
Thank you!

So your taxable earnings are £47,275 (up to £52,275 including bonus) after standard member contributions.

Any of AP, EPA or AVC as well as SIPP (or any form of Defined Contribution pension) can reduce your adjusted income. A LISA will not.

EPA is perhaps less suitable than the other options as you do not know the amount of income you will need to put into a pension, as that will depend on bonus. The other options can have contributions at whatever level you wish made late in the tax year when your tax position is known.

Using the highest taxable earnings of £52,275, then I would have to make increased pension contributions (e.g. added pension) of £200 per month? I.e. my take home pay would reduce by £200 per month, is that correct?
Thank you

Dazed_and_C0nfused

gtat said:

hugheskevi said:

gtat said:

I am facing a similar question at the moment. I joined the CS last year, earn £50,000 (up to £55k including bonus) and I am part of Alpha. We are lucky enough to have recently had our first child. As such, I am looking to increase my pension contributions so that I don't have to pay tax on child benefit.
Of the three options (AP vs EPA vs AVCs), what would be the best route to achieve this?
Or are there other better options e.g. a SIPP, LISA?
Thank you!

So your taxable earnings are £47,275 (up to £52,275 including bonus) after standard member contributions.

Any of AP, EPA or AVC as well as SIPP (or any form of Defined Contribution pension) can reduce your adjusted income. A LISA will not.

EPA is perhaps less suitable than the other options as you do not know the amount of income you will need to put into a pension, as that will depend on bonus. The other options can have contributions at whatever level you wish made late in the tax year when your tax position is known.

Using the highest taxable earnings of £52,275, then I would have to make increased pension contributions (e.g. added pension) of £200 per month? I.e. my take home pay would reduce by £200 per month, is that correct?
Thank you

No.  You would still get tax relief on the contribution so the impact on your take home pay would be less.

If your taxable income is £52,275 then you will be getting a mix of 20% and 40% relief.

hugheskevi

gtat said:

Using the highest taxable earnings of £52,275, then I would have to make increased pension contributions (e.g. added pension) of £200 per month? I.e. my take home pay would reduce by £200 per month, is that correct?
Thank you

Why make monthly contributions? Why not wait until your taxable income for the year is known and make a lump sum contribution calculated to avoid higher rate income tax? As Dazed_and_C0nfused says above, tax relief means take home pay will be reduced by a lower amount than gross contribution (although there may be a lag between making the contribution and receiving full tax relief, depending on how the contribution is made).

gtat

hugheskevi said:

gtat said:

Using the highest taxable earnings of £52,275, then I would have to make increased pension contributions (e.g. added pension) of £200 per month? I.e. my take home pay would reduce by £200 per month, is that correct?
Thank you

Why make monthly contributions? Why not wait until your taxable income for the year is known and make a lump sum contribution calculated to avoid higher rate income tax? As Dazed_and_C0nfused says above, tax relief means take home pay will be reduced by a lower amount than gross contribution (although there may be a lag between making the contribution and receiving full tax relief, depending on how the contribution is made).

I'm looking to make a pension contribution this month so I can avoid the higher rate income tax for 20/21 when claiming Child Benefit. However, as I have only been in Alpha (Civil Service) for 8 months I don't have sufficient service to do that through Added Pension - it appears I need 12 months service. I also believe EPA has to start on the 01 April, so that is ruled out for this tax year too.

Any advice on whether I have time to set up AVC or a SIPP before now and the end of this month in order to make a one off payment and reduce my earnings for this tax year? I have tried researching it today, but it is unclear how long the process takes.

hugheskevi

Any advice on whether I have time to set up AVC or a SIPP before now and the end of this month 

Not enough time for AVC (need a couple of months to get everything set up), plenty of time for a SIPP which can be set up same day. 

jdlak

glider3560 said:

stud26 said:

glider3560 said:

Do you have a pension you could transfer into Alpha?  If you don't and can afford to, maybe open a SIPP with a company like Hargreaves Lansdown, deposit £1,000 but keep it in cash then transfer that into Alpha.  Then you get to keep the Alpha pension benefits, even if employed for less than 2 years.

Thanks. I do have a personal pension. Can you explain how this helps to negate the lack of 2 years of service?

Have a look at Section 4, page 4 of https://www.civilservicepensionscheme.org.uk/media/95350/alpha_schemeguides4_colour_v3.pdf.  There is a question "I transferred in a pension from another pension scheme. Does this affect anything?" and the answer says "A transfer in from a personal pension allows your pension to be preserved even if you have less than two years’ service."

It basically removes the need to have two years service to retain the benefits (a "preserved pension").

Glider, how do you go about transferring SIPP cash balances to pensions? Is this something HR will just help with/sort out?