Civil Service Pension - EPA & Voluntary scheme

pensioner1993

I am 26 years old and about to join a job on £39,000 at the civil service. I am currently on the Alpha pension scheme. I am looking at how I can boost my pensionable earnings with the potential of retiring early. I was wondering whether it would be appropriate to use some of the extra civil service pension schemes to achieve this - is it possible to get some advice?
I have researched the EPA scheme which allows one to contribute to an early retirement (3 years earlier form the State Pension Age). Would this be a good option for somebody at my age?
Or the Additional Voluntary Contributions scheme which can be used to invest. I don't really understand this scheme so if anybody could explain it to me in a little more detail then I would really appreciate that. Would I be able to take this earlier without financial penalties?

The other option would be to invest outside of these schemes. Would this be recommended? Or should I continue using the schemes within the CS?

Thank you so much in advance! If you need more clarification on what I mean then please ask questions. 

Bravepants

Hello and welcome. This somewhat recent and related thread may help:

https://forums.moneysavingexpert.com/discussion/6137456/quick-advice-needed-for-pension-transfer-from-uss-to-alpha/p1

pensioner1993

Hello thanks for your information although I am still slightly confused. 
For the EPA, why is saving 2.7% a year more in the pension scheme good when I could save 2.7% in an ISA and accrue interest and use it for early retirement? Is there a benefit that I am missing?

kuratowski

Any additional pension you accrue will be increased every year in line with inflation.  But money you stick in an ISA will earn interest at a rate lower than inflation, so you'll be worse off in the long run.  (Unless you invested your money in a S&S ISA, but then the returns depend upon financial markets leaving which is risky; by contrast, the return from purchasing additional pension is guaranteed.)

Bravepants

I know you've looked at the EPA scheme, but why have you not also looked at the Added Pension scheme?

pensioner1993

Bravepants said:

I know you've looked at the EPA scheme, but why have you not also looked at the Added Pension scheme?

I am on the alpha scheme so I don't have access to added pensions. Do you have much information on the additional voluntary contribution scheme? I would like a pension pot that is invested and it seems you can take the money out at age 55 so surely a good option?

MaxZorin

You will have access to Added Pension.  It’s exactly that - purchasing additional pension.  EPA brings forward the date you can receive your Civil Service Pension (up to 3 years earlier than SPA) with no actuarial reduction.  It’s typically better to begin either of these earlier rather than later as it’s cheaper!

AVCs are completely different.  Alpha is a Defined Benefits scheme and a very good one - a guaranteed income in retirement.  AVCs are Defined Contributions - in essence your contributions receive tax relief and are invested on your behalf by Legal and General.  This should then build an additional pension pot you can currently access from 55 though this is expected to increase to 58.  AVCs make more sense if you are a higher rate taxpayer as you get increased tax relief.  A LISA is more tax efficient for basic rate taxpayers, as you get the same tax relief but can withdraw the entire amount tax free, but it can’t be accessed prior to 60 (without reduction) for retirement purposes.  LISAs can also be used for you first home purchase as well with may or may not be of interest to you.

Bravepants

You DO have access to Added Pension and you can take your Alpha pension from age 55, although it will be actuarially reduced. The Added Pension contributions are deducted from your gross income. 

If you want to contribute to an additional Defined Contribution scheme then you would probably be better using a SIPP, rather an an AVC attached to your work's pension, as you will have a greater choice of funds in which to invest. 

pensioner1993

MaxZorin said:

You will have access to Added Pension.  It’s exactly that - purchasing additional pension.  EPA brings forward the date you can receive your Civil Service Pension (up to 3 years earlier than SPA) with no actuarial reduction.  It’s typically better to begin either of these earlier rather than later as it’s cheaper!

AVCs are completely different.  Alpha is a Defined Benefits scheme and a very good one - a guaranteed income in retirement.  AVCs are Defined Contributions - in essence your contributions receive tax relief and are invested on your behalf by Legal and General.  This should then build an additional pension pot you can currently access from 55 though this is expected to increase to 58.  AVCs make more sense if you are a higher rate taxpayer as you get increased tax relief.  A LISA is more tax efficient for basic rate taxpayers, as you get the same tax relief but can withdraw the entire amount tax free, but it can’t be accessed prior to 60 (without reduction) for retirement purposes.  LISAs can also be used for you first home purchase as well with may or may not be of interest to you.

Thanks for the advice. To retire early, I am guessing that added pension makes no difference to this? I am thinking that I could sign up for EPA. 
Thank you for the advice on the AVCs and LISAs, they have clarified my confusion. I currently have a LISA and am contributing towards buying my first home. 
I was wanting to take on some sort of investment (risk) as well as my pension and LISA. Maybe I should invest in a separate stocks and shares ISA outside of the pension fund if it doesn't benefit me on AVCs. 

MaxZorin

Your strategy depends mostly on your preferred retirement age.  S&S ISAs are useful if you want to retire in your 50s; a SIPP/AVCs can be useful from 55 (presently!); a LISA can help to bridge the gap from 60 to SPA.  

As Bravepants stated, you can currently take an Alpha pension from 55 but it will be actuarially reduced by nearly 50% for doing so as the pension would be in payment for longer.  That’s quite a way in the future for you and who knows what legislation will change in the interim?

Congratulations on considering all of this at your age.  It’s good to make an early start and a variety of approaches should give you flexibility in achieving your goals.

MaxZorin

Added Pension and EPA have a similar effect from what I remember.  A poster called hugheskevi is really knowledgeable about this. You can probably find details of previous threads by running a search on ‘Alpha EPA’.