Saving for the future - civil service pensions for twenty year olds

AKM96

Hello,

I am looking for some advice to help me save for my future.

A bit of background: I am a 26 year old civil servant who has been with the Defined Benefit Civil Service alpha scheme for 3 years. My contribution rate is 5.45% and my employer contribution rate is 27.9%. I currently earn ~55k. My alpha retirement age is 68.

Recently, I have received a promotion which means I am now in the privileged position to start investing and making my money work harder. My first goal has been to start saving for my first home. I have opened ISA's and LISA's to begin saving for this so all of that side of my affairs seems to be under control. So now all I am really looking to do is begin putting away some money for the future, and I know that the younger I do this the more my money will work for me. Therefore, my second goal for this is to avoid having to wait until hitting 68 years old to retire... but I am not sure what the best way is to go about this?

So a few questions from me that it would be great to get some insight on:

1) For any Civil Servants, am I making the most of my current pension? I don't know whether I should be paying in more or whether I should open another pension alongside my Alpha scheme or switch to another scheme? 

2) There is no way I want to be working until 68... What would be my best way to avoid this? Should I open a private DC pension scheme that I could cash out at a younger age to supplement me until state pension age? Or are there other options that I haven't considered?

3) I had also looked into a stocks and shares ISA? Could this be another alternative instead of opening a second pension? I heard that if I aim to put away £100 / month then it could be worth a lot by the time I am 50. But I don't know whether this is safe considering the current market.

Any guidance would be massively appreciated. As my primary goal is saving for my first home, I don't have lots of money to spare after putting aside money for this. But I thought even if I could put another £100 / month squirrelled away into something else then I might thank myself in 30 years time.

Many thanks!

Dazed_and_C0nfused

or switch to another scheme?

If you do the maths you will realise what a fantastic scheme that is.  Although the rest of the country would prefer you to leave it would be a terrible financial choice.

You currently pay £3000/year (probably £1800 after tax relief). And in return will accrue a pension of £1,276.

If you think you can do better please let us know how 😊

A separate DC scheme adds flexibility but the civil service scheme has other options worth reading up on.

As a (just) higher rate payer then some extra pension contributions will be very tax efficient.

Universidad

The Alpha scheme is one of the best pensions schemes currently open. You are in an exceptionally good position to take advantage of it, on account of your career average being high from the get go.

You can almost certainly not do any better in terms of retirement savings bang for buck, and even if you could, you definitely wouldn't guarantee results that are better, which is really the killer feature of a Defined Benefits pension - you know what you're getting, and it doesn't depend on market performance.

If you want to know you can retire early, defined benefits answers that question earlier and better than most other options.

First up look into EPA with Alpha (Effective Pension Age). You can effectively reduce your retirement age by 1, 2, or 3 years by buying it, and it doesn't count towards your Annual Allowance if you really start pumping money into pensions. It will take your contributions from 5.45% to nearer 10% if you buy the EPA -3 option, but you'll be able to retire at 65 without reduction to the amount of your pension (unless the retirement age goes up again, but at any rate EPA  takes three years off the State Pension Age).

The other thing to consider is Added Pension. This is where you buy extra Alpha pension. It's expensive compared to your main Alpha pension because there's no employer contribution, you pay for it all. But it's still good value and you don't pay tax on your contributions (up to the Annual Allowance - look up how to calculate that, but you probably won't hit it unless you're really serious about overpaying).

Your added pension won't be subject to the EPA if you're paying both, so it will be reduced if you retire early. If you retire 5 years early, you can multiply what you've earned by (roughly) 0.75 and if you retire 10 years early you can (again, roughly) multiply by 0.6 to get the actual pensioniable amount.

You do have other options, such as to pay into a separate DC only pension plan, as well as Alpha, and save up enough of a pot of money that it will carry you from when you want to retire to when you want to take your Alpha pension. The advantage of this is that there's no actuarial reduction on taking a DC pot at an earlier age, so you can hedge a bit against the retirement age going up, but there's no guarantee that your investment performs well - although over a whole career, the odds are good that it would.

draiggoch

Are you filling the LISA with the full £4000? This would be my priority at the moment as you are well covered with the CS pension. If you are then maybe look at a separate pension that can be taken to bridge early retirement.

Albermarle

I had also looked into a stocks and shares ISA? Could this be another alternative instead of opening a second pension? I heard that if I aim to put away £100 / month then it could be worth a lot by the time I am 50. But I don't know whether this is safe considering the current market.

This could be a good idea, if you think you may want a lump sum in say 10/15/20 years time i.e. before any pension money becomes available.
The reason for the time scales, is that the longer you hold an investment, the more likely you can avoid a loss/short and medium term volatility.
The current market is nothing unusual, it goes up and down all the time. If you invest long term, what is happening today or tomorrow is not really relevant.
Investing in stocks for beginners: how to get started - MSE (moneysavingexpert.com)
Stocks & shares ISAs: find the best platform - MSE (moneysavingexpert.com)
How to invest in a stocks and shares Isa: The quick and easy guide | This is Money

Be aware that if you invest in a separate DC scheme, this is also investing and comes with a risk, although with an even longer time scale, the risk is very minimised. 
Although whether investing via a pension or a S&S ISA, it is assumed you stick to mainstream investments and not invest in crypto, or Venezuelan gold mines etc 

Universidad

Albermarle said:

The current market is nothing unusual, it goes up and down all the time. If you invest long term, what is happening today or tomorrow is not really relevant.

..And to the limited extent that it is relevant, you're probably better off buying after the market has gone down, than after it has gone up.

horsewithnoname

can’t really add to the advice given, but we’ll done thinking about your pension now, i guarantee your future self will thank you! I wish I’d paid more attention to mine, thought I’d be fine to go at 60 with my mortgage paid off and my state pension as well. Now as the pay has gone down so much and it’s another 7 years till state pension my full retirement has been put off. So we’ll done thinking ahead, you won’t regret having such foresight. 

jonnyfive111

Blimey you've done exceptionally well to get what I imagine is a Grade 7 post at just 26yo!

Emmia

jonnyfive111 said:

Blimey you've done exceptionally well to get what I imagine is a Grade 7 post at just 26yo!

Freshly promoted ex fast streamer in London/on London weighting??

AKM96

Emmia said:

jonnyfive111 said:

Blimey you've done exceptionally well to get what I imagine is a Grade 7 post at just 26yo!

Freshly promoted ex fast streamer in London/on London weighting??

Yeah - that's it!

AKM96

Thank you so much everyone I really appreciate it