Civil service alpha pension EPA

stragglebod

Hello everyone, can anyone help me try to get my head around whether taking out an EPA would be worth it?

I'm currently 50, member of the civil service alpha scheme, on £30000 ish a year, normal pension age 67.

I've already got a bit of pension built up in other schemes so I expect my retirement tax band will be the same as my working one.

For a -1 NPA I've been quoted a cost of 1.5% of pensionable earnings. As I understand it I'll get back 2.32% of pensionable earnings so is it as simple as comparing the 2 numbers and going for the EPA as long as it's less than 2.32?

Or do I have to factor in tax? I know I'll have to pay tax on the pension but presumably that's set off against tax I'd be paying anyway if I keep taking it now as salary? Or am I misunderstanding things?

I'm told the contribution is likely to rise but presumably I can stop paying into the EPA if the contribution hits 2.32?

Is there any reason why it would still make sense to pay into an EPA even if the contribution exceeded 2.32?

I really don't understand pensions

Thank you!

german_keeper

Not sure what level your knowledge is at based on "I really don't understand pensions" but if for example you don't know the difference between Defined Benefit and Defined Contribution I would google that as a starter. If you do already know that you are ahead of a lot of other people!

Alpha is defined benefit, which means a calculation is used to determine an annual pension when you retire. So the 2.32% figure, although calculated as a monetary figure, isn't really cold hard cash, more a theoretical amount, so I wouldn't see any direct correlation between the 2.32% and 1.5% figures. Actually the 1.5% is cold hard cash because it would be money you paid out of your wages.

Defined benefit schemes have a normal pension age and if you want to retire before that an actuarial reduction is applied to your annual pension. You will get more years pension so it is paid at a lower rate. I have had a quick look at the Alpha AR tables and 1 year factor on 67 NPA is 0.945. This means you would receive 94.5% of your entitlement if you retired at 66. My understanding of EPA is that you will pay 1.5% of your salary to buy out the AR, hence being able to retire at 66 without reducing your pension. But bear in mind the Alpha pension you build up before taking out the EPA will not be calculated without AR.

So I would think the way to look at this is to work out how much extra you would pay in contributions and then compare the annual pension at 66 without AR to the amount with AR applied. There is a calculator on the MyCSP website to help. It would also be useful to read through the Alpha booklet and info on AR and EPA on the website.

Have you discussed with your colleagues? I find three main types. 1. I don't understand it and I can't be bothered with it, 2. As 1 but with a realisation that they really should make the effort, 3. I quite like pension stuff and find it very interesting anyway. Where I work there are several people in the latter 2 categories and we regularly discuss pension related matters.

Bravepants

Don't forget you could buy Added Pension instead of EPA. Added Pension seems a bit more flexible.

stragglebod

Thanks @Bravepants I'll have a look at that.

Tom99

Bravepants wrote: »

Don't forget you could buy Added Pension instead of EPA. Added Pension seems a bit more flexible.

I would second that. With Added Pension you pay a lump sum this year for a fixed amount of extra pension at a given age.
It is far easier to understand than EPA which brings forward the pension you earn this year by 1,2 or 3 yrs.
It's easier to understand when all your pension is payable from the same age and you can always take retirement earlier for a reduced sum, about 5% less for each year early.

stragglebod

Thanks @Tom99, will take that into account.

Bravepants

Tom99 wrote: »

I would second that. With Added Pension you pay a lump sum this year for a fixed amount of extra pension at a given age.

You can also pay by monthly contribution, as well as lump sums. You are only allowed one lump sum a year I believe. Your company should send you an email every February or so to remind you that the deadline for that financial year is approaching for lump sum contributions.



WIth a lump sum you pay by cheque and have to claim the tax refund by contacting HMRC, registering for self-assessment and completing a tax return, which is easy to do online. You just need to get a Unique Tax Reference (UTR) number for yourself.



Monthly contributions are deducted from your gross pay and are PAYE.


For annual allowance tracking purposes any Added Pension you buy is multiplied by 16, and you deduct the total from your £40k annual allowance.

If you earn more than £40k you can carry forward the difference between pay and allowance from the previous three years.