Civil service pension choice new starter

statsmonkey180

Hello, I am 27 years old, have started work as a civil servant, and have been asked to choose between alpha and partnership pension schemes.


I woudl like to retire late 50's or early 60's, certainly before state retirement age. I have a fair amount of savings.



I know convential wisdon says to choose alpha, however I am wondering whether my situation favours choosing partnership at first, or at least a combination at some point. I fully intend and expect to stay at the CS for my entire career. At the moment I am on 25k per annum.


I could only access alpha at state retirement age so I need to think about the intervenening years. Therefore,
I was thinking maybe choose partnership at first to build up a pot, and then later on switch to alpha when it becomes more generous (due to years of service) and at a greater rate than partnership. Or Should I wait until there is a crash and then switch to partnership?



Would greatly appreciate advice on this. I am new to pensions, but I don't want to just fall into the easy trap that alpha is automatically better.



Thank you

hugheskevi

I woudl like to retire late 50's or early 60's, certainly before state retirement age.

That may suggest a combination of alpha pension (normal pension age=68, may well increase in future) and Defined Contribution (DC) pension would be useful. The DC pension being used between your minimum pension age (55, may well increase in the future) and your normal pension age.

I could only access alpha at state retirement age so I need to think about the intervenening years.

You can access alpha from your minimum pension age (55, subject to future increase), albeit subject to actuarial reduction.

I know convential wisdon says to choose alpha, however I am wondering whether my situation favours choosing partnership at first, or at least a combination at some point. I fully intend and expect to stay at the CS for my entire career.

I don't see anything especially different about your situation to most others.

One thing which may affect your thinking is if you think you will be a higher earner at some stage - earning, say, £90,000+ p/a. In that case you might be affected by the Annual and/or Lifetime Allowance in future which may lead to different early or mid-life saving plans.

I was thinking maybe choose partnership at first and then later on switch to alpha when it becomes more generous (due to years of service) and at a greater rate than partnership. Or Should I wait until there is a crash and then switch to partnership?

Alpha being more generous later in life is not related to years of service, but rather it is related to age. This is because accrued pension increases by CPI (rather than CPI+x or earnings, as in other public service pension schemes or the rate of return that may be expected in DC schemes). As CPI is a low rate of increase, alpha is more favourable for older members who have less time to commencing their pension than younger members who will have many years of CPI indexation.

I would not base any decisions on market conditions - that is akin to timing the market, and shouldn't be influencing major saving decisions.

Would greatly appreciate advice on this. I am new to pensions, but I don't want to just fall into the easy trap that alpha is automatically better.

A few reasons for choosing Partnership are:

• Unable to afford main scheme contributions
• Expect to remain in post under 2 years (and so would get refund or transfer of contributions from alpha when leaving)
• Distrust of security of alpha (political interference) and preference to have actual money in their pension
• Annual Allowance or Lifetime Allowance issues

None of the above appear to apply to you. Given that, I would suggest exploring whether both alpha and a DC pension may be attractive, probably moreso in the future if you become a higher rate taxpayer. In particular, contributing any income subject to higher rate tax into a DC pension (which could be Civil Service AVCs) would be attractive due to the tax savings. There are also ways to enhance alpha, via Added Pension and EPA, which could be desirable.

statsmonkey180

hugheskevi wrote: »

That may suggest a combination of alpha pension (normal pension age=68, may well increase in future) and Defined Contribution (DC) pension would be useful. The DC pension being used between your minimum pension age (55, may well increase in the future) and your normal pension age.

A few reasons for choosing Partnership are:

• Unable to afford main scheme contributions
• Expect to remain in post under 2 years (and so would get refund or transfer of contributions from alpha when leaving)
• Distrust of security of alpha (political interference) and preference to have actual money in their pension
• Annual Allowance or Lifetime Allowance issues

None of the above appear to apply to you. Given that, I would suggest exploring whether both alpha and a DC pension may be attractive, probably moreso in the future if you become a higher rate taxpayer. In particular, contributing any income subject to higher rate tax into a DC pension (which could be Civil Service AVCs) would be attractive due to the tax savings. There are also ways to enhance alpha, via Added Pension and EPA, which could be desirable.

Thank you, your advice to have alpha & a DC pension sounds very sensible. I would say number 3 partially applies to me though! I think the state retirement age is absurd. I will look into AVC because I haven't heard of that.

ewaste

Alpha is generally the only sensible choice in my opinion, especially as you are starting out. You likely won't be able to get a promise of future income e.g. a defined benefit pension elsewhere and won't already have any DB service accrued previously.

If you want to retire before 68 you make your own private provision via saving into ISA's including LISA and a SIPP. You can plan to burn through this in early retirement with the security of defined benefit pension income kicking in as you get older.

Retirement won't be a cold turkey affair for many in the future we will mark retirement primarily as a life style adjustment. We will then probably transition in full traditional retirement at age 68+ which is when you ideally want reliable and hassle free retirement income. Beforehand you can manage your savings and SIPP in conjunction with part time work or consulting to bridge between getting fed up with the rat race and the security of defined benefit income.