Civil Service Alpha Added Pension Calculator - Wrong?

Tom99

[FONT=Verdana, sans-serif]The fact that the Civil Service Added Pension calculator is wrong does not surprise me.[/FONT]
[FONT=Verdana, sans-serif]A few years ago I pointed out to MyCPS that the calculator showed you would get more pension if it was taken at age 50 than you would get at age 54.[/FONT]
[FONT=Verdana, sans-serif]Clearly there was a mistake in the spreadsheet but MyCPS would not have it and insisted the spreadsheet was correct. I tried escalating the issue but got nowhere and gave up after several months.[/FONT]

Bravepants

uclown2002 wrote: »

How many years would it need to be to still make it attractive?


I'm joining Alpha in 2019 from Classic for my last 4 and a bit years and am seriously considering adding to it.

I would have to do the maths in my spreadsheet to work this out. BUT I look at it another way...


I can either add more money to my Alpha Pension by buying Added pension, OR I can put that money into my S&S ISA, which is also part of my retirement pot.


If I put it in my ISA, in retirement I would withdraw at most 4% in the first year and in subsequent years increase the draw by inflation. This is based on the widely touted 4% safe withdrawal rate, which statistically says that I should not run out of money. However, that's only statistics, it COULD be wrong, given that the ISA is subjected to the whims and fancies of the stock market.


I worked out (using the "correct" calculator) that I could put the same money into Added Pension to buy an additional yearly amount and that, even with actuarial reduction to the age I want to claim it, the annual added pension I would get would be equivalent to just over 4% of the total amount I paid in...this is index linked AND not subject to the whims and fancies of the stock market!

Also of course I get out of the 40% tax bracket, with a subsequent 40% boost to my money going in.

So I haven't looked at "years to pay back", just safe withdrawal rate equivalence, backed up with the added security of the pension. I'm not so much bothered about getting my capital back, but prefer to have the security of the income.

Zypher

Worth it is a subjective term however you need to consider the ROI, the old Premium added pension scheme required around 12 years to get your return on investment .


The Alpha scheme is added to by your contributions yearly and the pot your building up gets adjusted inline with CPI I believe.
If this scheme also returns a 12 year figure (not allowing for any inflation) then taking the pension at 68 means you would need to live to 80 to recoup the money you put in and start gaining any profit (ie you would have been better off banking the money) however as the chances are there will be the benefits of inflation on the pot which is usually higher than the interest rate in the bank then it looks more promising and any years you live past 80 are profit.


There is the risk that the retirement age will move again and who knows it could be 70/75 before we can retire by time you get there.


Of course you could opt to invest the money elsewhere but you lose the tax relif (20% or more if your a higher tax bracket which is effectively free money - and this wasn't taken into account on calculating the 12 year RoI ie you pay £100 into your pension monthly but your wages after tax drop by £80) and you have more risk on the investment compared to the pension.


I would say a 12 year RoI is still good but if it starts to go to 15+ maybe not so good (better if your in the 40% tax bracket)

Zypher

The updated calculator is now up... tho missing the number of years you make a monthly payment over (I am assuming the figure given is based over 1 year of monthly payments

Bravepants

Zypher wrote: »

The updated calculator is now up... tho missing the number of years you make a monthly payment over (I am assuming the figure given is based over 1 year of monthly payments

Yes, it looks like it is based over 1 year. Even though the Guidance notes talk about entering a period in years. Talk about half a*rsed!


Anyway the email I received from MyCSP, via my pension department, talks about multiplying up the single year amount by the number of years willing to pay, and by that reckoning it is now in rough agreement with the 2017 version.

Thrugelmir

Bravepants wrote: »

This is based on the widely touted 4% safe withdrawal rate, which statistically says that I should not run out of money.

Depends entirely on what you are invested in and the rate of interest on the bond segment. The original study being totally US based. I'd prefer the certainty of a guaranteed index linked base income first. Speculation can then be made afterwards. When timing of drawdown isn't of such importance. Particularly with the exit from QE to be endured in the future. Unlikely to be uneventfull.

Tom99

Bravepants wrote: »

Anyway the email I received from MyCSP, via my pension department, talks about multiplying up the single year amount by the number of years willing to pay, and by that reckoning it is now in rough agreement with the 2017 version.

[FONT=Verdana, sans-serif]That would not work. To buy the same amount of added pension each successive will get more expensive as you are closer to retirement.[/FONT]

Bravepants

Tom99 wrote: »

[FONT=Verdana, sans-serif]That would not work. To buy the same amount of added pension each successive will get more expensive as you are closer to retirement.[/FONT]

Yes, I figured that. BUT I intend to take it 13 years early so not that expensive. Also, the calculator shows the effect of adding lump sums, so if I lump sum in, say £10k next year, I should get the same amount of pension cheaper than if I lump sum in a year later.

Bravepants

Thrugelmir wrote: »

Depends entirely on what you are invested in and the rate of interest on the bond segment. The original study being totally US based. I'd prefer the certainty of a guaranteed index linked base income first. Speculation can then be made afterwards. When timing of drawdown isn't of such importance. Particularly with the exit from QE to be endured in the future. Unlikely to be uneventfull.

I agree about your comment regarding index linked income. I would prefer the surity of that, rather than my ISA. I have been mulling over the possibility of buying the full allowable Added Pension NOW (currently £6800), using money from my ISA! It's tempting, would be cheaper than waiting a year or two, BUT life is full of uncertainties. Maybe I won't even get to 55, never mind 60!


Edit: Of course I would have to split the lump sum over several years so I don't go over my annual contribution limit!

Tayloriw1

If I retire at say 56 how much reduction would my Alpha pension be ?
As classic says 5% per year but Alpha just says a reduction