Civil Service Alpha Pension & EPA3

jonnym1985

Hi everyone,

Apologies if this is a duplication, I have found other threads but none that really explain it clearly as I’m a novice in terms of understanding pensions.

I work in the civil service and am a member of the alpha scheme, luckily I carried over 10 years worth of pension from 2 previous roles without a break in service to my current post. 

I know that if I pay the extra contributions for EPA3 (2.9% extra I believe) then I can retire at 65 with a pension not having to wait till I turn 68.

My question is, that if the EPA3 payments provide a pension from 65-68, what then happens at 68? Do I revert the pension given on the retirement modeller when I input my retirement age to 65? Also, how does this affect the lump sum payment, do the EPA payments contribute to lump sum or just pension?

details are;
pensionable salary - £30530
age - 37
current accrued pension - £7697 (inc Nuvos recalculation)
current estimated pension at 68 - £29980

I currently have a SL deduction of £135 with the balance clearing in 24 months (approximately) so I wouldn’t be starting EPA payments till then

Can anyone with a bit of pension savvy help explain what I would be entitled to at 65 having paid EPA3 from 40-65?

Many thanks in advance

Marcon

jonnym1985 said:

Hi everyone,

Apologies if this is a duplication, I have found other threads but none that really explain it clearly as I’m a novice in terms of understanding pensions.

I work in the civil service and am a member of the alpha scheme, luckily I carried over 10 years worth of pension from 2 previous roles without a break in service to my current post. 

I know that if I pay the extra contributions for EPA3 (2.9% extra I believe) then I can retire at 65 with a pension not having to wait till I turn 68.

My question is, that if the EPA3 payments provide a pension from 65-68, what then happens at 68? Do I revert the pension given on the retirement modeller when I input my retirement age to 65? Also, how does this affect the lump sum payment, do the EPA payments contribute to lump sum or just pension?

details are;
pensionable salary - £30530
age - 37
current accrued pension - £7697 (inc Nuvos recalculation)
current estimated pension at 68 - £29980

I currently have a SL deduction of £135 with the balance clearing in 24 months (approximately) so I wouldn’t be starting EPA payments till then

Can anyone with a bit of pension savvy help explain what I would be entitled to at 65 having paid EPA3 from 40-65?

Many thanks in advance

If a pension scheme pays out benefits before a member reaches the Normal Retirement Age (NRA) of the scheme in question, the starting level of the pension is usually reduced to reflect the fact it is expected to be paid sooner, and for longer, than if a member had actually reached NRA.

In broad terms, you'd be able to take some (not necessarily all) of your pension before your scheme's NRA of 68 without that reduction for early payment being applied; it depends how much you have paid in terms of EPA payments. 

Have you read this: https://www.civilservicepensionscheme.org.uk/media/1nwmgwie/epafs_v2_310315.pdf

If not, reading it may be very helpful. If you have and you're utterly baffled, then clearly it wasn't very helpful(!) - but seemed worth checking with you before anyone went into full answer mode here!

jonnym1985

Marcon said:

jonnym1985 said:

Hi everyone,

Apologies if this is a duplication, I have found other threads but none that really explain it clearly as I’m a novice in terms of understanding pensions.

I work in the civil service and am a member of the alpha scheme, luckily I carried over 10 years worth of pension from 2 previous roles without a break in service to my current post. 

I know that if I pay the extra contributions for EPA3 (2.9% extra I believe) then I can retire at 65 with a pension not having to wait till I turn 68.

My question is, that if the EPA3 payments provide a pension from 65-68, what then happens at 68? Do I revert the pension given on the retirement modeller when I input my retirement age to 65? Also, how does this affect the lump sum payment, do the EPA payments contribute to lump sum or just pension?

details are;
pensionable salary - £30530
age - 37
current accrued pension - £7697 (inc Nuvos recalculation)
current estimated pension at 68 - £29980

I currently have a SL deduction of £135 with the balance clearing in 24 months (approximately) so I wouldn’t be starting EPA payments till then

Can anyone with a bit of pension savvy help explain what I would be entitled to at 65 having paid EPA3 from 40-65?

Many thanks in advance

If a pension scheme pays out benefits before a member reaches the Normal Retirement Age (NRA) of the scheme in question, the starting level of the pension is usually reduced to reflect the fact it is expected to be paid sooner, and for longer, than if a member had actually reached NRA.

In broad terms, you'd be able to take some (not necessarily all) of your pension before your scheme's NRA of 68 without that reduction for early payment being applied; it depends how much you have paid in terms of EPA payments. 

Have you read this: https://www.civilservicepensionscheme.org.uk/media/1nwmgwie/epafs_v2_310315.pdf

If not, reading it may be very helpful. If you have and you're utterly baffled, then clearly it wasn't very helpful(!) - but seemed worth checking with you before anyone went into full answer mode here!

Thank you, I’ll have a look now. Retirement seems a lifetime away but I remember saying that about my 30s like it was yesterday!

hugheskevi

I know that if I pay the extra contributions for EPA3 (2.9% extra I believe) then I can retire at 65 with a pension not having to wait till I turn 68.

To be precise, the pension accrued in years for which you pay EPA-3 (but not pension accrued in earlier years) is payable without reduction from 3 years prior to Normal Pension age.

My question is, that if the EPA3 payments provide a pension from 65-68, what then happens at 68? Do I revert the pension given on the retirement modeller when I input my retirement age to 65? Also, how does this affect the lump sum payment, do the EPA payments contribute to lump sum or just pension?

Nothing happens at 68 - the pension continues as it was.

Alpha does not have an automatic lump sum, so you exchange pension for lump sum at retirement should you wish to do so (and the terms are awful, so you may well not wish to do so). That is all sorted out when you commence the pension and EPA does not have any impact other than slightly increasing the maximum lump sum available.

Simply think of EPA as reducing the Normal Pension age from 68 to 65 for the years in which you make EPA-3 contributions.

jonnym1985

hugheskevi said:

I know that if I pay the extra contributions for EPA3 (2.9% extra I believe) then I can retire at 65 with a pension not having to wait till I turn 68.

To be precise, the pension accrued in years for which you pay EPA-3 (but not pension accrued in earlier years) is payable without reduction from 3 years prior to Normal Pension age.

My question is, that if the EPA3 payments provide a pension from 65-68, what then happens at 68? Do I revert the pension given on the retirement modeller when I input my retirement age to 65? Also, how does this affect the lump sum payment, do the EPA payments contribute to lump sum or just pension?

Nothing happens at 68 - the pension continues as it was.

Alpha does not have an automatic lump sum, so you exchange pension for lump sum at retirement should you wish to do so (and the terms are awful, so you may well not wish to do so). That is all sorted out when you commence the pension and EPA does not have any impact other than slightly increasing the maximum lump sum available.

Simply think of EPA as reducing the Normal Pension age from 68 to 65 for the years in which you make EPA-3 contributions.

That’s a great help thank you for your time. But to be clear (as I said I’m a novice) I would be able to retire at 65 and claim the EPA pension then at 68 I would change from the EPA pension back to what I would receive at 68? This confuses me as if I retire at 65 I wouldn’t be working for those 3 years to accrue more pension. I’m really sorry if that sounds stupid I’m trying to get my head around this 🤦🏻‍♂️

edit - I may have twigged on, correct me if I am wrong. Figuratively speaking, and I am using fictional figures here just to illustrate… I have £7000 pension accrued to today. If from here on I pay EPA3 and it gives me a pension of £30000 @ 65 years old I would receive this until I turn 68. Upon this the previous £7000 from before EPA payments is added to make £37000pa?

jonnym1985

With NPA not being guaranteed to remain at 68 it could potentially rise by my retirement and EPA3 may not result in a retirement at 65.

Would it be more beneficial to buy Additional Pension with the £135 (what I am currently paying back in SL deductions) and have the opportunity to retire at any age that it is financially feasible. I know there will be deduction per year but 65 is the latest I would like to work to. Anything less than that again would be a huge bonus.

thanks 

hugheskevi

 You are not understanding.

Think of your pension as being a collection of blocks, each year you build up a block and when you retire all the blocks are added together to give you your pension.

Each individual block can be payable from NPA, or earlier than NPA if you purchased EPA. You might even have multiple different EPA contacts.

When you take the pension, your pension entitlement is determined based on all the blocks (regardless of whether a block has EPA or not - you claim your whole pension) and when they are payable from - some might be reduced, others might be enhanced depending on the age at which you retire.

Once the pension is determined, that is it. It is all put into payment and increases by CPI each year. Nothing gets added or changed when they reach NPA - after you take the pension NPA ceases to have any relevance.

EPA and Added Pension are mathematically very similar, and Added Pension would be impacted in the same way by an increase to NPA, as that is when Added Pension is payable from.

jonnym1985

hugheskevi said:

 You are not understanding.

Think of your pension as being a collection of blocks, each year you build up a block and when you retire all the blocks are added together to give you your pension.

Each individual block can be payable from NPA, or earlier than NPA if you purchased EPA. You might even have multiple different EPA contacts.

When you take the pension, your pension entitlement is determined based on all the blocks (regardless of whether a block has EPA or not - you claim your whole pension) and when they are payable from - some might be reduced, others might be enhanced depending on the age at which you retire.

Once the pension is determined, that is it. It is all put into payment and increases by CPI each year. Nothing gets added or changed when they reach NPA - after you take the pension NPA ceases to have any relevance.

EPA and Added Pension are mathematically very similar, and Added Pension would be impacted in the same way by an increase to NPA, as that is when Added Pension is payable from.

Thank you. I’ve got it now that makes a lot more sense than what I had assumed.

Thanks for replying 

jonnym1985

hugheskevi said:

 You are not understanding.

Think of your pension as being a collection of blocks, each year you build up a block and when you retire all the blocks are added together to give you your pension.

Each individual block can be payable from NPA, or earlier than NPA if you purchased EPA. You might even have multiple different EPA contacts.

When you take the pension, your pension entitlement is determined based on all the blocks (regardless of whether a block has EPA or not - you claim your whole pension) and when they are payable from - some might be reduced, others might be enhanced depending on the age at which you retire.

Once the pension is determined, that is it. It is all put into payment and increases by CPI each year. Nothing gets added or changed when they reach NPA - after you take the pension NPA ceases to have any relevance.

EPA and Added Pension are mathematically very similar, and Added Pension would be impacted in the same way by an increase to NPA, as that is when Added Pension is payable from.

In your opinion, given my circumstances provided, would it be more beneficial to purchase EPA3 @2.9% or added pension @£135/mth?

Obviously no one can predict if NPA will increase but would you be able to deduce if paying extra contributions of £135/mth would give a better final pension than if retiring at 65, compared to EPA3, if NPA ever increased to 70 (claiming pension at 67)?

Hypothetically speaking, taking the deduction per year over the 5 years early retirement if going for the Added Pension option.

NedS

jonnym1985 said:

hugheskevi said:

 You are not understanding.

Think of your pension as being a collection of blocks, each year you build up a block and when you retire all the blocks are added together to give you your pension.

Each individual block can be payable from NPA, or earlier than NPA if you purchased EPA. You might even have multiple different EPA contacts.

When you take the pension, your pension entitlement is determined based on all the blocks (regardless of whether a block has EPA or not - you claim your whole pension) and when they are payable from - some might be reduced, others might be enhanced depending on the age at which you retire.

Once the pension is determined, that is it. It is all put into payment and increases by CPI each year. Nothing gets added or changed when they reach NPA - after you take the pension NPA ceases to have any relevance.

EPA and Added Pension are mathematically very similar, and Added Pension would be impacted in the same way by an increase to NPA, as that is when Added Pension is payable from.

In your opinion, given my circumstances provided, would it be more beneficial to purchase EPA3 @2.9% or added pension @£135/mth?

Obviously no one can predict if NPA will increase but would you be able to deduce if paying extra contributions of £135/mth would give a better final pension than if retiring at 65, compared to EPA3, if NPA ever increased to 70 (claiming pension at 67)?

Hypothetically speaking, taking the deduction per year over the 5 years early retirement if going for the Added Pension option.

As @hugheskevi stated above, purchasing Added Pension and EPA are mathematically very similar. In theory, buying EPA-3 allows you to retire 3 years earlier than NPA with the same pension. Spending the same amount on Added Pension would buy you extra pension at NPA, but if you were to retire 3 years early, would then give approximately the same amount of pension once actuarially reduced as the EPA option. So, for the same investment from you, either option should give a similar final pension at any given age.

Personally, I'm buying Added Pension, simply for the fact I find it easier to get my head around exactly what I've accrued and what the impact will be if taking it early, before NRA. But I did like the explanation of EPA above which made it easier for me to understand.

NedS

jonnym1985 said:

hugheskevi said:

 You are not understanding.

Think of your pension as being a collection of blocks, each year you build up a block and when you retire all the blocks are added together to give you your pension.

Each individual block can be payable from NPA, or earlier than NPA if you purchased EPA. You might even have multiple different EPA contacts.

When you take the pension, your pension entitlement is determined based on all the blocks (regardless of whether a block has EPA or not - you claim your whole pension) and when they are payable from - some might be reduced, others might be enhanced depending on the age at which you retire.

Once the pension is determined, that is it. It is all put into payment and increases by CPI each year. Nothing gets added or changed when they reach NPA - after you take the pension NPA ceases to have any relevance.

EPA and Added Pension are mathematically very similar, and Added Pension would be impacted in the same way by an increase to NPA, as that is when Added Pension is payable from.

In your opinion, given my circumstances provided, would it be more beneficial to purchase EPA3 @2.9% or added pension @£135/mth?

Unless I have misunderstood, you are not comparing like for like here. Are you saying EPA3 is at a cost of 2.9% of your salary which would be £73.78/month, compared to paying £135/month for added pension? As you will get similar benefits for an investment into either option, clearly paying £135/month will purchase a lot more pension than paying £73.78/month.