Civil service pension - Buying added pension by monthly contribution

simon_or

Hi, newbie here so please be nice

I've been working in a civil service dept for a few months now and am signed up to the default pension scheme alpha.

I have an alternate income for living expenses and so can afford to pay more into the pension if it makes financial sense to do so.

I can apparently buy added pension by upping my monthly contributions. So this will "boost" the final pension.

My question was, how do I compare the benefits of doing that versus (say) paying into a Vanguard SIPP ?

If it makes a difference I'm a basic rate taxpayer and in my mid 30s.

Any thoughts would be much appreciated.

Marcon

simon_or said:

Hi, newbie here so please be nice

I've been working in a civil service dept for a few months now and am signed up to the default pension scheme alpha.

I have an alternate income for living expenses and so can afford to pay more into the pension if it makes financial sense to do so.

I can apparently buy added pension by upping my monthly contributions. So this will "boost" the final pension.

My question was, how do I compare the benefits of doing that versus (say) paying into a Vanguard SIPP ?

If it makes a difference I'm a basic rate taxpayer and in my mid 30s.

Any thoughts would be much appreciated.

What are you trying to achieve - not as daft as it sounds! If you buy added pension (and you can get a quote from the scheme to show you how much you could 'buy' depending on how much extra you pay), you know what you're getting and the format it will take - i.e. the same as the main scheme pension.

If your priority is flexibility, the SIPP might fit the bill nicely if, say, you want to be able to draw funds while you are (say) still in your late 50s, don't want to provide a pension for a spouse, like the idea of drawdown where you can take cash as and when...

You could always hedge your bets and pay a bit more to the CS scheme and something to a SIPP; perfectly OK to do so and the SIPP provider will claim basic rate tax relief on your behalf and add it to your SIPP 'pot'.

NedS

As Macron alludes above, when buying added pension you know exactly what you are getting, but when investing in a SIPP you have no idea how that is going to perform over the next 20-30 years, before you reach retirement age making it impossible to compare one against the other, notwithstanding one is guaranteed and the other is highly variable in nature.

I would consider things like how much DB pension you already have built up, whether you think you will stay in a role offering a DB pension allowing you the opportunity to build up more DB pension moving forward, how risk adverse you are. You will likely want a good mix of DB + DC pension by the time you retire to give you a guaranteed DB income to cover your essential outgoings and the flexibility of a DC pot to cover a period between early retirement and drawing a DB pension, and the ability to draw on larger sums if and when required.

If I were in your shoes with no DB pension under my belt and did not plan on staying in the CS for the next 10-20 years, I'd be filling my boots with Alpha added pension now whilst I had the chance. If I already had 10 years of DB pension accumulated and planned on staying in the CS until retirement, maybe less so. The other thing I would consider is trying to time the market - I'd add to SIPP during times of market crisis when shares are cheap and DB pension at all time highs when they look expensive, although I appreciate that is not always possible when you are agreeing a 12 month contract in advance to purchase DB added pension. For example, do equity markets look cheap to you at the moment? If not, then this year might be better to purchase DB added pension. Next year may look very different.

OldBeanz

Just note that in your CS Pension which is a net pay arrangement that you do not get tax relief on non taxed income while with SIPP the amount is based around your total earned income.

marlot

If you're going to make big payments into the Civil service scheme, you could run into issues with the annual allowance.

A workmate became very good at working it out - it is non-trivial.

westv

Question connected to the CSPS. Why do they continue to require access to a full version of MS Excel to use most of their calculators rather than moving them all to Web based?

OldBeanz

westv said:

Question connected to the CSPS. Why do they continue to require access to a full version of MS Excel to use most of their calculators rather than moving them all to Web based?

Raised that a number of years ago. Didn't even register.
They are that poor that they failed to recover a few £K from me as they got themselves totally confused. My wife is in the LGPS - she can go online and along with an up-to-date value and at her NRA but will allow her to calculate most scenarios in-between. Night and day.

QrizB

westv said:

Question connected to the CSPS. Why do they continue to require access to a full version of MS Excel to use most of their calculators rather than moving them all to Web based?

I've not tried (I'm not in the CSPS) but can you not open their calculators in Excel Online? Or do they use functions that Excel Online doesn't support?

simon_or

Thanks all, that was very helpful and gets me started.

I don't have any DB pension built up and my priority is essentially to have the security of a 12k/year (inflation protected) DB pension in my latter years. I don't intend to stay in the CS for my whole career hence trying to make the most of it even through paying in lumpsums to buy added pension.

I used the calculator and the approximate numbers are - if I put in a 30k lumpsum, that buys me 3.5k/year of pension after 33 years.

Assuming I haven't got it wrong, from what I can understand, the 3.5k is as per today's money and it will be adjusted for inflation.

NedS

simon_or said:

Thanks all, that was very helpful and gets me started.

I don't have any DB pension built up and my priority is essentially to have the security of a 12k/year (inflation protected) DB pension in my latter years. I don't intend to stay in the CS for my whole career hence trying to make the most of it even through paying in lumpsums to buy added pension.

I used the calculator and the approximate numbers are - if I put in a 30k lumpsum, that buys me 3.5k/year of pension after 33 years.

Assuming I haven't got it wrong, from what I can understand, the 3.5k is as per today's money and it will be adjusted for inflation.

In your shoes, makes sense to build up a DB pension now whilst you are able.

You will need to consider the Annual Allowance if buying large amounts of Added Pension. Annual Allowance is £40,000 per year. As a ball park calculation (I say ball park as it does not account for indexation), multiply the increase in your DB pension for the year (that's the 2.32% of your salary you accumulate each year PLUS the amount of added pension you have purchased) by 16 to give you the contribution towards your AA. If your example, assuming you had a salary of £40k, your standard pension would be 2.32% of £40k (£928) plus the £3,500 you have purchased, multiplied by 16 is £70,848 and thus well over your Annual Allowance. Plus, you are unable to contribute a lump sum unless you have 12 months in the scheme, and by contributing a £03k lump sum, you may not receive tax relief on the full contribution. It may be better to contribute monthly from your salary at a rate that reduces your salary down to your personal tax free allowance assuming your Annual Allowance allows.

NedS

QrizB said:

westv said:

Question connected to the CSPS. Why do they continue to require access to a full version of MS Excel to use most of their calculators rather than moving them all to Web based?

I've not tried (I'm not in the CSPS) but can you not open their calculators in Excel Online? Or do they use functions that Excel Online doesn't support?

OpenOffice or LibreOffice are freely available and able to open MS Excel files for those who do not have access to MS Office.