Alpha added pension vs SIPP

tintin00

Hi folks,

Just started with the Civil Service and enrolled in Alpha. My salary for now is just below the 40% bracket but will rise above.

I have a very healthy. Sipp and am considering either alpha added pension or continuing to pay into my pension.

I am leaning towards my sipp as I can tolerate risk, enjoy investing and watching my money grow, and like the idea of an inheritance sitting there should I pass early.
A few questions about added alpha though. Does the added chunch increase with cpi like the rest of your apha balance, and can you get tax relief on the cost?

Any other thoughts of sipp vs added alpha?

Thanks

Dazed_and_confused

From Alpha scheme guide (Google is your friend)

Added pension is an additional pension that you can choose to buy. It increases in line with rises in the cost of living every year both before and after it comes into payment. When you retire you can choose to give up some of your added pension to take an additional lump sum.

Tax relief is probably via "net pay" i.e. salary £35,000 less say 10% pension contribution = £31,500 taxable pay (figure on your P60).

Alpha has guarantees. SIPP has flexibility and is often seen as a bridge between early retirement and DB pensions like Alpha and State Pension coming into payment.

atush

Do you plan on retiring before your scheme age or not?

This is the relevant question to ask yourself. And tell us

tintin00

Yes. Scheme ends as my NPA, 68. Hope to be away late 50's / early 60's.

hugheskevi

Just started with the Civil Service and enrolled in Alpha. My salary for now is just below the 40% bracket but will rise above.

Sounds like no hurry for extra pension contributions now, and wait until higher rate is an issue and pension of the higher rate portion.

I have a very healthy. Sipp and am considering either alpha added pension or continuing to pay into my pension.

You could also consider transferring some or all of the SIPP into alpha.

Any other thoughts of sipp vs added alpha?

There is also EPA to consider (reduces Normal Pension age of alpha).

The Civil Service Pension AVC scheme is now provided by Legal and General at low charges (half the previous charge), you could consider transferring the SIPP there, or building up future pension in the AVC.

tintin00

Thanks for all the info.

Is the avc pension basically a dc pension bolted onto alpha?

hugheskevi

Is the avc pension basically a dc pension bolted onto alpha?

The AVC scheme is applicable for members of any of the DB schemes, not just alpha.

It is essentially a stand-alone DC scheme, and in particular does not have any pension commencement lump sum benefits, benefits can be taken independently of the DB pension, and all pension flexibility withdrawal methods are supported.

Thrugelmir

The return on buying added pension maybe very attractive. Why take risk when there's no need to. Building a secure base income as a cornerstone for retirement is no bad thing. Take risk when you can afford to do so.

Investing is fun in a bull market. Not so much fun when it's a bear market.

tintin00

Is the added pension part of alpha a good deal though? What is the equivalent growth rate.
Obviously the lack of fees and no risk is very attractive, but is it worth it?

hugheskevi

Is the added pension part of alpha a good deal though? What is the equivalent growth rate.

It is priced using a discount rate of CPI+2.2%. That is far higher than any nil or low risk investment (eg gilts, high quality corporate bonds) but lower than you could expect from long run equity returns.

Compared to a DC pension, the Added Pension is 0% management charges and no loading fees for an annuity purchase of uncapped CPI escalation with 50% survivor benefits and a 5 year guarantee period.

Obviously the lack of fees and no risk is very attractive, but is it worth it?

Depends what you want. For provision of a lifetime income with no inflation or investment risk it is almost certainly the best value option.

But with very poor lump sum commutation factor, it isn't good for provision of capital.

tintin00

Very informative. Thanks very much!