Civil Service - Alpha Pension vs SIPP or Partnership

TJB24

Dear All,

I am a 24 y/o Civil Servant. I have contributed to the Alpha pension scheme since I was 19.

Whilst life is very hard to predict at this juncture, I could see myself working in the Civil Service all my working life (sorry Telegraph readers!)

I am already a homeowner, save 30% of my net income, and actively invest in a Stocks ISA, returning 11.5% YTD. I also contribute £50pcm into a Stocks LISA.

My aspiration would be to retire early, or at least take partial retirement and work part-time in my 50s. I have no intention of working until 70 or whatever the SPA is by that point.

My understanding of Alpha is that it is has no actual fund, rather I build up an IOU with the Government based on 2.32% + CPI of my salary, compounded over my years of service. When I retire I'm then paid this without needing an annuity and the value is regardless of my health etc. My ~6% contributions, tax relief and employer contributions are basically irrelevant.

Whilst in theory totally secure, as a budding investor I'm worried that Alpha is actually a raw deal when I could instead opt out, put 6% of my salary into a SIPP, plus tax relief, and potentially achieve a better return than 2.32% + CPI in the long term. Most importantly I could then cash this out at 57 without taking a reduction, as I would do in Alpha.

The Civil Service very sadly does not allow for paying employer contributions into a SIPP.

Fully understanding the risks, I'd like some advice on the above. For example are there any users of Partnership here, which I understand would give me better control of my pension via Legal & General, with employer contribution of max 3%?

I'm intending to see a financial adviser later this year.

Many thanks in advance,

Tom

Brynsam

TJB24 wrote: »

Whilst in theory totally secure, as a budding investor I'm worried that Alpha is actually a raw deal when I could instead opt out, put 6% of my salary into a SIPP, plus tax relief, and potentially achieve a better return than 2.32% + CPI in the long term. A raw deal? You really haven't yet grasped what a fantastic deal a gold-plated defined benefit scheme like Alpha is. How would you get this 'better return' with no employer contribution?Most importantly I could then cash this out at 57 without taking a reduction Huge misunderstanding. The reduction may not be explicit, but it's there - your fund has had less time to grow and will be much lower than if you left it to grow until you were older. If you chose to buy an annuity, the younger you are the lower the amount you'll get (because it is payable for longer the younger you take it), as I would do in Alpha.

The Civil Service very sadly does not allow for paying employer contributions into a SIPP. Quite right too, when they offer such a fantastic deal via their own scheme

Fully understanding the risks but you don't - that's the problem, I'd like some advice on the above. For example are there any users of Partnership here, which I understand would give me better control of my pension via Legal & General, with employer contribution of max 3%? Control to get a worse outcome....

See above - hope the comments help. Might be an idea to see that IFA sooner rather than later...

BoGoF

Alpha a raw deal?

For the non civil servant taxpayer maybe.

atush

Whilst in theory totally secure, as a budding investor I'm worried that Alpha is actually a raw deal when I could instead opt out, put 6% of my salary into a SIPP, plus tax relief, and potentially achieve a better return than 2.32% + CPI in the long term. Most importantly I could then cash this out at 57 without taking a reduction, as I would do in Alpha.

You completely misunderstand your pension. While you pay in 6%, the gov effectively pays in like 25% to fund that IOU. Nothig you can do with just your 6% will touch it. So forget the vs SIPP part.

What you CAN do, is+ Sipp. run a sipp alongside your DB CS pension. So that you can retire early.

Good luck in your career. Am impressed with your savings and finances as is, just not with your understanding of your DB pension

jimi_man

Really?

If your salary is £30,000 a year then 6% is £1800 a year into your SIPP. Compounded over 43 years at 5% (7% - 2% inflation average) that gives around £270,000.

However the Alpha scheme works out at 43/43rds over the same time period, which is effectively your salary now, so £30,000 pension. More when you take into account the five years you’ve already paid in (nearly £34K in total).

I know what I’d do…..

marlot

TJB24 wrote: »

...For example are there any users of Partnership here, which I understand would give me better control of my pension via Legal & General, with employer contribution of max 3%?...

You've mis-understood.

Yes, your contribution up to 3% is matched. But you'll also get an additional 8% minimum employer contribution - even if you contribute nothing.

See the guide at https://www.civilservicepensionscheme.org.uk/members/civil-service-added-voluntary-contributions/partnership/thinking-of-joining-partnership/ and also the table at the bottom of this page https://www.civilservicepensionscheme.org.uk/employers/employer-contribution-rates

TJB24

Many thanks all for your comments, clearly my understanding of my pension needs some work! Appreciate the constructive candor.

Bravepants

Yes keep Alpha and run something alongside it. Don't make the biggest mistake of your financial life! :-)