the Civil Service Pension- is overpaying worthwhile?

queenbee22

Hello and thanks for your wisdom. I have just joined the Civil Service Pension scheme and want to understand whether I should overpay into the scheme on a monthly basis. I wasn’t going to but all of my colleagues who have come in on the same bulk recruitment are trying to transfer money in and set up pension overpayments before the three month deadline. I am concerned I am missing a trick! I don’t want to transfer any money out of my sipp but can afford to pay more into the CSPension from my salary. Please can anyone tell me how this works? 

If my normal pension contribution is  £150 per month from my wage, would paying £300 contribution double the amount I can draw down? Does my employer contribute also to my overpayment? 

I was planning to put a decent amount of money into my SIPP each month but I am
now wondering whether I should divert some of this money into my CS pension? I would like to be in a position to retire at 60 in 9 years time.  Many thanks for your input.

hugheskevi

I don’t want to transfer any money out of my sipp but can afford to pay more into the CSPension from my salary. Please can anyone tell me how this works?

This is set out in the scheme guide at this link.

If my normal pension contribution is  £150 per month from my wage, would paying £300 contribution double the amount I can draw down? Does my employer contribute also to my overpayment?

You do not draw down, you receive a flat monthly pension that increases by CPI each year. Your main pension is mainly funded by the employer, any additional pension you choose to purchase is funded by yourself. Hence doubling your contribution will purchase significantly less than the same regular contribution purchases.

queenbee22

Thanks hugheskevi, in that case I will stick with my original plan of adding to my SIPP rather than overpaying into the CSPension. 

michaels

There is a calculator here to show what pension you can get for a given contribution.  I am both transferring in from my sipp the max I can (purchase a pension of 50% of income) and contributing the max I can as I think it is extremely good value compared to putting the same money into a sipp.

Pension calculators - Civil Service Pension Scheme

queenbee22

Thanks Michaels. So I'm now trying to understand the Added Pension Calculator for members of Alpha. 

So if I buy £100/month of added pension over 1 year (12 monthly payments) it says the monthly amount payable to achieve this is £100.69. Does this mean that if I pay in £100/month for the next year I will receive £100.69 back/month when I'm 67 for each month of my retirement (appreciating that this will be index linked)? It also says that if you take this added pension you alpha added pension limit balance will be £6,900.00. What does this mean?

hugheskevi

So if I buy £100/month of added pension over 1 year (12 monthly payments) it says the monthly amount payable to achieve this is £100.69. Does this mean that if I pay in £100/month for the next year I will receive £100.69 back/month when I'm 67 for each month of my retirement (appreciating that this will be index linked)?

It means you would pay £100.69 each month for 12 months, an annual amount of £1,208.28.

This would purchase £100 of alpha Added Pension. This is an annual figure, payable from your Normal Pension age which is equal to your State Pension age. The £100 will increase in line with inflation (currently CPI) in future years.

It also says that if you take this added pension you alpha added pension limit balance will be £6,900.00. What does this mean?

You are limited to purchasing £7,600 p/a (2022/23 limit) of alpha Added Pension (which would cost £91,829.28). This excludes increases on purchased pension. It is unlikely to be a concern for you.

michaels

Keeping all numbers in real terms, to buy an equivalent annuity at 67 might cost you somewhere between 3.5k and 5k so paying £1200 for this seems like a bargain - although of course if you put the 1200 into a sipp it would probably grown in real terms before you reach 67.  By how much though is highly uncertain.