Civil Service Pension - EPA, Added Pension and McCloud

throwaway1234

I'm currently a member of Alpha with c. 10 years accrued service in Premium before I joined Alpha.  I've had a significant promotion within the last couple of years, so I think it is very likely that whether the outcome of the McCloud consultation is an immediate or deferred choice, it will be better for me to opt for Premium during the remedy period. I am currently paying for EPA (-3) in Alpha.

I note from the consultation (A17 - A19) that it is likely (although of course not confirmed) that I would be refunded the contributions I have made which would be 'taxable in the usual way' (I assume that just means added to taxable income in the year of receipt?).  Clearly this wouldn't happen until after the end of the remedy period, so I could presumably be then able to make a lump sum contribution to Alpha to buy added pension, subject to the limits on pension input (which, with carry forward, shouldn't be an issue I think)? The marginal rate brought about by HICBC means I'm currently also making some AVCs to bring taxable income down to £50k (or rather an adjusted figure to reflect the extension of my BR band due to gift aid) but other than the impact on pension input I don’t think that is relevant.

Given all this, I think it makes sense to swap from EPA to Added Pension for 21/22 - simply spending the same monthly should achieve broadly the same outcome (ie an amount of added pension that roughly matches the three year actuarial reduction on the 2.32%)  That will slightly reduce the amounts involved in refund and repurchase (a process I'd much rather happened automatically as is proposed for existing added pension contracts).

Does this seem broadly sensible?

I'm not clear how the self or self and dependents options for added pension link to the EPA I've been buying?

The following year (22/23) I'll be back in Alpha permanently and would naturally resume an EPA-3 option, but that would use up my entire added pension limit, I think - does that mean I'd now stuck using added pension for the foreseeable?  Or can I switch back to EPA in the future if I wish?


Many thanks - this is all rather complicated, and that's before I've even started to look at how I might calculate Pension Inputs accurately! 

hugheskevi

throwaway1234 said:

Does this seem broadly sensible?

Yes, although it would be unwise to rely too much on consultation proposals. By the nature of a consultation, changes to the policy proposals may occur. Taking action based on the consultation proposals prior to seeing consultation response from HM Treasury risks unforeseen policy change. Even consultation response details may change as the process moves into legislation and passes through the Commons and Lords. Even after that, there is still secondary legislation (the scheme rules) to be put in place.

I'm not clear how the self or self and dependents options for added pension link to the EPA I've been buying?

EPA effectively does not have any dependents option - if you were to die your spouse and dependents would receive the same whether you were purchasing EPA or not. Whereas with Added Pension, if you purchase spouse and dependents they would receive more than if you were only contributing to the main scheme. Added Pension would also be more valuable in the event of ill-health, as EPA gives you nothing but Added Pension benefits from ill-health.

So Added Pension (self-only) is closer to EPA than Added Pension (self and dependents).

The following year (22/23) I'll be back in Alpha permanently and would naturally resume an EPA-3 option, but that would use up my entire added pension limit, I think - does that mean I'd now stuck using added pension for the foreseeable?  Or can I switch back to EPA in the future if I wish?

As long as you have some of the limit remaining, you can purchase any amount of EPA. Whereas the amount of Added Pension you can purchase is limited to the amount of cap remaining you have.

This means that if you want to purchase both Added Pension and EPA, it is best to purchase the AP first and then EPA.

this is all rather complicated, and that's before I've even started to look at how I might calculate Pension Inputs accurately!

Remember the pension input arising from alpha Added Pension purchases is based on the amount of pension purchased, not the cost of the pension. To be able to buy EPA-3 you are presumably no older than early 40s, in which case it is likely that the pension input arising from an Added Pension will be about twice (or more) the price paid for the Added Pension purchase.