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Civil Service Pension and SIPP

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I am 56, in Civil Service for 38 Years, hoping to retire aged 61/62. I only recently started a private pension which is a SIPP with AJ Bell. I did this when I found out, rather late in life, that for every £100 invested, government adds £25, and I liked the idea of this free money.

I earn £18,463.56 per annum at present. might get a below inflation pay rise if I’m lucky ☺️. I’m in the Alpha scheme and contribute 4.6 per cent £70.77 pm. Or £849.24 pa. Employer pays 26.6 per cent, £4911.30, so my total contributions are £5760.62.

£18463 salary less £5760 paid into works pension leaves £12703. Is this the amount I am allowed to invest in the SIPP? I know this is incorrect, but am just unsure why it’s incorrect and what calculation I should have used. Does anyone have any advice please?

Thanks for reading. 
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  • xylophonexylophone Forumite
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    See https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/pension-contributions-qa/
    under
    Q: My client is an active member of his employer’s defined benefit pension scheme. He also wants to make a personal pension contribution. How do I calculate the maximum personal contribution allowed for tax relief? 
  • luvsbarginsluvsbargins Forumite
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    Thank you xylophone. I read the advice on the link and was surprised at the simplistic answer. The example did not mention employer contribution at all. I feel there must be more to it somehow. And I am not certain I can genuinely pay into a private pension £12703 each year without consequences. I will try to find other examples like the one you found.
  • edited 4 July at 2:52PM
    hugheskevihugheskevi Forumite
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    edited 4 July at 2:52PM
    I did this when I found out, rather late in life, that for every £100 invested, government adds £25, and I liked the idea of this free money.
    You will have to pay tax on 75% of it however in the future, so the gain isn't very much if you will be a basic rate taxpayer when you retire.
    I earn £18,463.56 per annum at present. might get a below inflation pay rise if I’m lucky ☺️. I’m in the Alpha scheme and contribute 4.6 per cent £70.77 pm. Or £849.24 pa. Employer pays 26.6 per cent, £4911.30, so my total contributions are £5760.62.
    What your employer contributes is irrelevant. It is only your contributions which matter. You need to look at your annual taxable income (remember to include bonuses and deduct member pension contributions). From what you say above, that would be £17,614.32 p/a. That is the amount you can contribute to a SIPP and receive tax relief. To receive the maximum tax relief you would pay in £17,614.32 * 80% = £14,091.46 to the SIPP, which would then be grossed up for basic rate tax relief by the provider.
    I am 56, in Civil Service for 38 Years, hoping to retire aged 61/62.
    Consider what you will do with your classic, classic plus or premium pension at age 60. If you do not draw it, you simply forego the income (ie you do not get paid arrears back to the Normal Pension age of 60 when you do claim the pension, or receive an actuarial uplift). Partial retirement may well be very attractive at that time, otherwise you would literally be working for nothing for a decent chunk of the week.

  • luvsbarginsluvsbargins Forumite
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    Thank you hugheskevi. My plan regarding taxation is, retire at 61/63 and take civil service pension of around £9000 tax free, and take all or most of what I’ve invested with AJ Bell out, before I became a taxpayer again aged 67 when I claim state pension.

    I had no idea until I posted my question that the employer contributions are not taken into account. That’s very interesting and means I can put more into my SIPP than I thought  I could.

    So far this year, in June and July, I’ve put £2000 net in. I will continue to add to that each time me and hubby have a spare £1000 to invest. Also, we are due to get a small inheritance soon (no idea how much yet) so some of that can go towards SIPP.
  • luvsbarginsluvsbargins Forumite
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    hugheskevi, if you are still reading. Thank you so much for the advice in your final paragraph. I got my pension statement this week. My classic plus pension is £8596. Thanks to your advice I will be taking it at 60. I don’t want to lose a year or two of this pension income.

    My pension statement says that classic plus lump sum is £13428. I am disappointed at this low amount as I’ve been paying in since 1982, 13 years as a full time employee and the rest part time.
  • zagfleszagfles Forumite
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    Thank you hugheskevi. My plan regarding taxation is, retire at 61/63 and take civil service pension of around £9000 tax free, and take all or most of what I’ve invested with AJ Bell out, before I became a taxpayer again aged 67 when I claim state pension.

    I had no idea until I posted my question that the employer contributions are not taken into account. That’s very interesting and means I can put more into my SIPP than I thought  I could.

    So far this year, in June and July, I’ve put £2000 net in. I will continue to add to that each time me and hubby have a spare £1000 to invest. Also, we are due to get a small inheritance soon (no idea how much yet) so some of that can go towards SIPP.
    In case it causes confusion for others, or you read something else on this, employer contributions (or rather the increase in pension value for a DB scheme), are taken account of in the Annual Allowance. However the AA is £40k for most people and so is very unlikely to be an issue for someone on £18k.
    So you only need to worry about the tax relief limit, which as stated above, is 100% of earnings, and employer contributions aren't relevant for this.
    Situations where the AA may be relevant to someone on £18k is if you got a big pay rise and have a final salary link, or you are subject to the MPAA (£4k) because you've already flexibly accessed pension savings. (google "MPAA triggers" for details on this)
  • luvsbarginsluvsbargins Forumite
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    Hi zagfles. Thanks for your input. Amazingly I understood everything you said! Hopefully the info will help others reading this post.
  • edited 4 July at 4:16PM
    hugheskevihugheskevi Forumite
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    edited 4 July at 4:16PM
    I got my pension statement this week. My classic plus pension is £8596. Thanks to your advice I will be taking it at 60. I don’t want to lose a year or two of this pension income.
    Be aware that to access your pension and continue working you need to reduce your income by at least 20%, through partial retirement.
    However, you will also be affected by abatement, which requires that the maximum you can receive from your salary and pension is no higher than your salary prior to taking partial retirement. That means you would need to move to about 50% of full-time hours to avoid your pension being abated.
    You can read more about abatement, partial retirement and use a partial retirement calculator on the civil service pension website.

  • luvsbarginsluvsbargins Forumite
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    Thanks hugheskevi. I know now that I need to take partial retirement at 60, and I know to work 18 hours or so, as it’s 37 hours if full time. I will look at it in more detail. However there is no urgency because, although I’d like to work for HMRC until I’m 62, I may be forced to go early, once our tax credit customers migrate to Universal Credit, administered by the DWP.
  • hyubhhyubh Forumite
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    My classic plus pension is £8596. Thanks to your advice I will be taking it at 60. I don’t want to lose a year or two of this pension income.

    My pension statement says that classic plus lump sum is £13428. I am disappointed at this low amount as I’ve been paying in since 1982, 13 years as a full time employee and the rest part time.
    'Classic Plus' means you explicitly chose at some point to switch to Premium terms going forward. The latter gave a higher accrual rate (1/60 rather than 1/80) for no automatic lump sum - instead, lump sum is available by 'commuting' your pension. So if you switched to Classic Plus in 2002, you have 10 years service on Classic terms (automatic lump sum) with the remainder of your final salary pension calculated on Premium terms (no automatic lump sum).
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