Can civil service partnership pension be a good idea sometimes? 10 February at 6:46PM in Pensions, annuities & retirement planning 16 replies 590 views

Fphelp123

So I am coming off a long temporary promotion from the senior civil service so my classic pension increased massively taking the McCloud remedy into account. I now go back to circa 65k salary from about 77k salary but I am not sure I want to go back to the stress of senior civil service so if not in 2 years time I thought it would be a good idea to opt out of the pension and into partnership to preserve my much higher final salary link and then I understand if i decide I will go back to the pressure I opt back in within 5 years and my final salary link is reinstated.  

Am I correct with this?  

For the next 2 years I aim to use salary sacrifice with AVCs as the higher child benefit charge is over 3k a year for me but then I aim to pay enough into my partnership to avoid the charge and build up a nice dc pension. I work out if I paid enough to get down to 50k adjusted income it would equal nearly 30k into dc pension each year plus a good income still while preserving my higher classic salary link. 

Am I missing anything with this?

finally I am looking at the partnership pension form and it asks what percentage of my after tax salary I want to contribute. How do I work out the after tax percentage so I can get close to 50k adjusted income? 

Finally do I then have to claim back tax each year between the 20 and 40% as partnership doesn’t offer salary sacrifice?

Dazed_and_C0nfused

For the next 2 years I aim to use salary sacrifice with AVCs

Finally do I then have to claim back tax each year between the 20 and 40% as partnership doesn’t offer salary sacrifice?

Perhaps you could clarify, do you have two jobs, one offering salary sacrifice and one that doesn't 🤔

najan49

I think the idea was to stay in the classic scheme for 2 more years and then switch. I presume the final salary used for the classic scheme is the best of your last 3 years.

Fphelp123

najan49 said:

I think the idea was to stay in the classic scheme for 2 more years and then switch. I presume the final salary used for the classic scheme is the best of your last 3 years.

Yes that’s right 2 more years in civil service pension although it will be alpha with banked classic service and final salary link I think. When in those schemes they offer salary sacrifice for additional contributions. 

If I moved to partnership they don’t offer salary sacrifice they take your contributions after tax and add 20% tax to them, the guide says you need to claim back any tax at 40% rate. 

Dazed_and_C0nfused

Fphelp123 said:

najan49 said:

I think the idea was to stay in the classic scheme for 2 more years and then switch. I presume the final salary used for the classic scheme is the best of your last 3 years.

Yes that’s right 2 more years in civil service pension although it will be alpha with banked classic service and final salary link I think. When in those schemes they offer salary sacrifice for additional contributions. 

If I moved to partnership they don’t offer salary sacrifice they take your contributions after tax and add 20% tax to them, the guide says you need to claim back any tax at 40% rate. 

When did they switch to salary sacrifice?  Surprisingly generous for the civil service to get in on the NI avoidance lark!

Partnership doesn't "add" 20%, it's 25%, which equates to 20% of the gross contribution.

Higher rate tax relief does have to be claimed.  You include the pension details on your Self Assessment return if you have to file one, otherwise you just have to contact HMRC.

You can get relief provisionally through your tax code if you don't want to wait for a refund after the tax year ends.

hugheskevi

Fphelp123 said:

So I am coming off a long temporary promotion from the senior civil service so my classic pension increased massively taking the McCloud remedy into account. I now go back to circa 65k salary from about 77k salary but I am not sure I want to go back to the stress of senior civil service so if not in 2 years time I thought it would be a good idea to opt out of the pension and into partnership to preserve my much higher final salary link and then I understand if i decide I will go back to the pressure I opt back in within 5 years and my final salary link is reinstated.  

Am I correct with this?  

Yes. The classic final salary is based on looking at salary as at exit of leaving scheme, then stepping back 91 days and looking at salary in the preceeding 12 months, and so on until 3 years is covered. Be careful to ensure you choose an exit date that gives you the best look-back period.

For the next 2 years I aim to use salary sacrifice with AVCs as the higher child benefit charge is over 3k a year for me but then I aim to pay enough into my partnership to avoid the charge and build up a nice dc pension. I work out if I paid enough to get down to 50k adjusted income it would equal nearly 30k into dc pension each year plus a good income still while preserving my higher classic salary link. 

Am I missing anything with this?

Given a salary of £65K, from which alpha contributions are taken, how does this equate to £30K per year? Do you have £15K of earnings elsewhere? Or do you mean that is what you would get from Partnership after leaving alpha?

Yes that’s right 2 more years in civil service pension although it will be alpha with banked classic service and final salary link I think. When in those schemes they offer salary sacrifice for additional contributions. 

That is not the pension scheme policy - salary sacrifice is not offered for AVCs. It could be possible for a niche employer to offer it, but none of the main departments do.

Fphelp123

For the next 2 years I aim to use salary sacrifice with AVCs as the higher child benefit charge is over 3k a year for me but then I aim to pay enough into my partnership to avoid the charge and build up a nice dc pension. I work out if I paid enough to get down to 50k adjusted income it would equal nearly 30k into dc pension each year plus a good income still while preserving my higher classic salary link. 

Am I missing anything with this?

Given a salary of £65K, from which alpha contributions are taken, how does this equate to £30K per year? Do you have £15K of earnings elsewhere? Or do you mean that is what you would get from Partnership after leaving alpha?

Yes that’s right 2 more years in civil service pension although it will be alpha with banked classic service and final salary link I think. When in those schemes they offer salary sacrifice for additional contributions. 

That is not the pension scheme policy - salary sacrifice is not offered for AVCs. It could be possible for a niche employer to offer it, but none of the main departments do.

Thanks for the replies. 

Yes apologies I mean if I were in partnership then the 14.75% contributions plus the 3% match plus me paying around 15k of my income into partnership would get to around 30k. 

I think my department does salary sacrifice for my alpha AVC’s as I have used them previously and it had the effect of reducing my gross pay by the amount I was sacrificing. It has only been the last few years where this didn’t work due to higher salary and annual pension allowance limiting amount I could contribute. 

My aim is to get best date to move to partnership as you point out, it looks like 1st February 2025 (my scheme allows me to move on that date also I know some don’t). So it is a while off but I like to map these things out. The cost of living increases applied to preserved pension might even work out better than pay rises particularly if I preserve a much higher final salary than I’m on. 

I just can’t understand how to best work out my percentage contributions in partnership, I don’t want to go much below an adjusted income of 50k but more so I don’t want to be paying what is around a 60% tax rate on anything over 50k due to child benefit charge. 

I don’t think it’s as simple as working out the percentage from gross pay and using that percentage. 

So if I earned say 70,000 (using this as I know my salary will increase a bit over next 2 years) what percentage of my pay after tax do I need to contribute to partnership to end up with an adjusted income of 50k at the end of the year? 

Dazed_and_C0nfused

Fphelp123 said:

For the next 2 years I aim to use salary sacrifice with AVCs as the higher child benefit charge is over 3k a year for me but then I aim to pay enough into my partnership to avoid the charge and build up a nice dc pension. I work out if I paid enough to get down to 50k adjusted income it would equal nearly 30k into dc pension each year plus a good income still while preserving my higher classic salary link. 

Am I missing anything with this?

Given a salary of £65K, from which alpha contributions are taken, how does this equate to £30K per year? Do you have £15K of earnings elsewhere? Or do you mean that is what you would get from Partnership after leaving alpha?

Yes that’s right 2 more years in civil service pension although it will be alpha with banked classic service and final salary link I think. When in those schemes they offer salary sacrifice for additional contributions. 

That is not the pension scheme policy - salary sacrifice is not offered for AVCs. It could be possible for a niche employer to offer it, but none of the main departments do.

Thanks for the replies. 

Yes apologies I mean if I were in partnership then the 14.75% contributions plus the 3% match plus me paying around 15k of my income into partnership would get to around 30k. 

I think my department does salary sacrifice for my alpha AVC’s as I have used them previously and it had the effect of reducing my gross pay by the amount I was sacrificing. It has only been the last few years where this didn’t work due to higher salary and annual pension allowance limiting amount I could contribute. 

My aim is to get best date to move to partnership as you point out, it looks like 1st February 2025 (my scheme allows me to move on that date also I know some don’t). So it is a while off but I like to map these things out. The cost of living increases applied to preserved pension might even work out better than pay rises particularly if I preserve a much higher final salary than I’m on. 

I just can’t understand how to best work out my percentage contributions in partnership, I don’t want to go much below an adjusted income of 50k but more so I don’t want to be paying what is around a 60% tax rate on anything over 50k due to child benefit charge. 

I don’t think it’s as simple as working out the percentage from gross pay and using that percentage. 

So if I earned say 70,000 (using this as I know my salary will increase a bit over next 2 years) what percentage of my pay after tax do I need to contribute to partnership to end up with an adjusted income of 50k at the end of the year? 

Well the first thing you would need to do is consider what other taxable income you have as that forms part of your adjusted net income so would be relevant for HICBC purposes.

So say you had £500 in (non ISA) interest and £200 in dividends then they could add a HICBC charge of 7% even though the income itself is taxed at 0%.

If partnership operates using the relief at source method (RAS) then you are only actually paying 80% of the gross contribution.  The pension company adds 25% to your contribution (equal to 20% of the gross amount).

I think my department does salary sacrifice for my alpha AVC’s as I have used them previously and it had the effect of reducing my gross pay by the amount I was sacrificing

That could equally be a net pay arrangement.

Net pay reduces income for tax purposes but not NI.

Salary sacrifice reduces income for both tax and NI purposes.

jimi_man

I’m pretty sure that the Civil Service pension doesn’t do salary sacrifice anywhere. 

Emmia

You can do additional contributions into a CS pension via payroll, but I don't know (having never done it) whether that comes out before tax - you definitely don't get any extra employer bit though.


Edit
The CS Pensions website indicates that you do get tax relief on CSAVCs are https://www.civilservicepensionscheme.org.uk/your-pension/managing-your-pension/increase-your-pension/civil-service-additional-voluntary-contribution-scheme-csavcs/

Dazed_and_C0nfused

Emmia said:

You can do additional contributions into a CS pension via payroll, but I don't know (having never done it) whether that comes out before tax - you definitely don't get any extra employer bit though.


Edit
The CS Pensions website indicates that you do get tax relief on CSAVCs are https://www.civilservicepensionscheme.org.uk/your-pension/managing-your-pension/increase-your-pension/civil-service-additional-voluntary-contribution-scheme-csavcs/

Definitely not salary sacrifice. 

Will I pay National Insurance on my AVC contributions?

Yes, you will pay National Insurance (NI) contributions at the standard rate.