Civil Service Alpha EPA

oxfordowl1

Good evening everyone,

I think I'm doing OK with my alpha pension, but I'm looking into increasing my pension contributions by about £100 - 150 a month. This would be to enable me to retire earlier as I forecast I don't need additional pension income.

My first thought was either a SIPP or CSAVC, but I've looked into Effective Pension Age (EPA) and think it might be a good idea for me. Considering 2019/20 only, reducing my NPA by 3 years costs 2.2% of my salary, although this level will increase over time. Without considering tax implications, this would cost me £808 and I would gain £2,558 (3 * 2.32% * £36750), increasing with CPI. In simplistic terms, I would be investing £808 now to get £2,558 (in todays money) in 35 years time. This is a guaranteed 3.3% above inflation annual gain. This seems like a decent deal and would allow me to take more risk with the rest of the money in a SIPP/CSAVC.

I'm wondering if I have missed anything? I'd be grateful for any thoughts or advice you have. Many thanks in advance for your replies.

Age: 30
Current salary: £36,750
Pension as of 31.03.2018: 1,905 pa in alpha, 5 years in nuvos (1/60th at 65, no lump sum).
Housing: 23 years mortgate outstandong £88k, overpaying £100 a month as it seems a good idea
Finances: No debt, about £20,000 savings.
Long term aim: Reduce hours so I can spend more time hiking with my partner

PS: The more I look into it, alpha seems very generous - have I misunderstood anything?

TJB24

Hi there - I'm also a Civil Servant, 24 and on a DfT HEO salary - also on Alpha. I've been trying to look into it recently with the same thoughts as you.

Frankly, it depends how much risk / effort we want to put into it. I think EPA is expensive, personally, for only a gain of 2.32% + CPI. The opportunity cost is a SIPP or Lifetime ISA, and the performance of your own investments therein.

If you put your £808 into a Lifetime ISA, HMG gives you a 25% bonus on contributions (max £1k p/a), so it becomes £1,010. You can make deposits until you are 50. By my calculations, assuming 5% compounded growth, you would have about £37k by 50, then £61.5k by 60.

That final pot is then 100% tax free. You could live off the capital or reinvest for income.

Between 50 and 60 it then might be worth contributing to a SIPP, for a similar result, but this would be taxable and have less time to grow.