Civil Service Alpha Pension Contribution Rates

pensionshelp123

I am currently a member of the Civil Service Alpha pension scheme where I contribute a percentage of my salary based on my salary band. The contribution rates recently announced for the 2021/22 scheme year are as follows.

£0 - £23,100  4.6%

£23,101 - £56,000 5.45%

£56,001 - £150,000 7.35%

£150,001 + £8.05 %

Based on the new bands my salary is just £30 above the lower level of the 3rd band above which means I have to contribute 7.35% of salary, whereas someone earning £30 per year less than me would contribute just 5.45% or approx £1064 a year less and would therefore take home considerably more pay. This seems unfair to me. Does anyone know if there is any way around this, by for example reducing my pensionable pay in some way. I would be happy to take a £30 per year cut in salary as I would be considerably better off.
Thanks.

hugheskevi

Probably the easiest way would be to investigate what salary sacrifice benefits may be offered which you could use, eg, childcare vouchers, cycle-to-work, etc, and how they would affect pensionable earnings, you need to be careful here though eg I've seen cycle-to-work schemes that are salary sacrifice for income tax and national insurance, but not for pension contributions and accrual.

Other than that, see if your employer will agree to pay cut, or moving to work a 0.9994 FTE contract.

But the total gain is only about £600, and assuming you will have a pay freeze this year, next year you should go back down to 5.45%, although if you then get a pay rise you might keep switching between rates.

pat1976

It is such a large jump, isn't it? I dropped half a day a week when I went into the next bracket but for £30 it's going to be a couple  of hours, which will seem a strange thing to do but probably nothing stopping you.

If they based it on annual salary you could have got a couple of days unpaid leave in somewhere in the year, but the band you are in during each month is that months pay multiplied by 12, a tiny bonus could leave you worse off too. 

Emmia

You need to go slightly part time - like 0.9 rather than 1.0 FTE via a formal contractual change. 

I experienced exactly this situation a few years ago, but took the payrise - paycut as long-term it is probably better for your pension... the issue resolved itself a year or so later when the salary bands (set by your dept.) and pension bands (set by cabinet office) realigned.

Edit: Whilst the bands not aligning is a pain, you should think carefully about the long term impacts of making a contractual change to reduce your hours for a year or so, and the paperwork involved in doing it.

hugheskevi

It is such a large jump, isn't it? I dropped half a day a week when I went into the next bracket but for £30 it's going to be a couple  of hours, which will seem a strange thing to do but probably nothing stopping you.

If they based it on annual salary you could have got a couple of days unpaid leave in somewhere in the year, but the band you are in during each month is that months pay multiplied by 12, a tiny bonus could leave you worse off too. 

Net of basic and higher rate tax relief it is actually very smooth - 5.45 * 0.8 = 4.36% and 7.35% * 0.6 = 4.41% - although the rates are not quite aligned with higher rate tax threshold.

Looking at it on an hourly basis (based on 2000 hours p.a), it works out as being very close to needing to reduce hours by 1 per year to get under the threshold which is quite frustrating. Working a minute and half less per work should do it.

Also, bonuses are usually not pensionable.

You need to go slightly part time - like 0.9 rather than 1.0 FTE.

0.9 FTE would lose £5,600 p/a before tax. It would save £1,370 (before tax relief) on pension contributions, but overall the result would be much worse off.

Emmia

pat1976 said:

It is such a large jump, isn't it? I dropped half a day a week when I went into the next bracket but for £30 it's going to be a couple  of hours, which will seem a strange thing to do but probably nothing stopping you.

If they based it on annual salary you could have got a couple of days unpaid leave in somewhere in the year, but the band you are in during each month is that months pay multiplied by 12, a tiny bonus could leave you worse off too. 

Bonuses in the Civil Service are almost always (99.9% of the time in my experience) non-pensionable, so getting one doesn't affect the pension band.

pensionshelp123

Thanks all for the information. I did look into salary sacrifice, but the only option available to me was cycle-to-work and after reading up on this you are correct in that although it reduces pay for tax and NI purposes, it doesn’t affect pensionable pay, so wouldn’t help in this situation.
I think I may just take the hit for this year rather than go down the route of trying to change my contract, and hopefully it will sort itself out next year.
It would probably make much more sense for pension contributions to work similar to income tax where you pay separate percentage contributions for the different portions of your salary falling within each band rather than one percentage on the entire salary, which would get around this problem.