My pension plan (SIPP + DBC) and Wife (Civil service Alpha + Premium) aged 43 ....,. how to optimise

lazer-zxr

Hello helpful forumites, I'm a little lost in all of this retirement planning.
My wife and I are 43. I work in the private sector, my wife is in the civil service scheme.
My SIPP pot is £157k. My workplace DBC is £98k. Contribution from me + employer is £3.5k/month.
My wife works 4 days a week. Her statement says: Your annual alpha pension: £2,500from 65, 

Your annual premium pension: £3,535 from age 60. Her Alpha pension is the current one.

I make salary sacrifice  contributions to pension, to keep me below £50k taxable, to get the child benefit etc. We therefore get pension tax allowance at the 40% rate.

I'd like us both to retire around 58, with £30k/yr present value. However, what I've not considered is, paying tax on pension income once retired. Are we better off adding payments to my wifes pension ..... either the premium, alpha or a SIPP (goodness knows which one of those), or to keep over paying into mine?

My head is very confused with all of this. Thanks in advance for any advice out there.

r6mile

You cannot “add” to the Premium scheme as it’s the older scheme.
What you can do is buy added years in the Alpha scheme, either via lump sum or monthly deduction - the cost of this depends on a lot of factors I think including age etc so she will have to contact Civil Service Pensions to get a quote.

There is also the option of buying EPA which allows you to take your pension a few years early without a reduction.

You should also keep in mind that the two CS schemes she is in are quite different - one is a final salary scheme while the other one is career average. Therefore a promotion will have a big immediate impact on the Premium pension but more gradual on the Alpha scheme.

What is her Civil Service salary? If you are a 40% taxpayer and she isn’t, then your current approach of paying into your pension makes sense. And if you take both your provisions into account, the combination of her index-linked pension plus your DC pension is a good one.

My suggestion for that 30k combined income you are after and retire at 58 would be to plan to take:

1) Ages 58-60 to drawdown 30k pa from your DC pensions
2) Ages 60-68 take her Premium pension + actuarially reduced Alpha pension + some from your DC pensions to equal 30k pa
3) Ages 68+ as above plus state pensions (so take less from your DC pensions to get to 30k)

Precise figures for the CS pensions are tricky as they will depend on salary increases, as well as Alpha actuarial reduction.

Albermarle

Everybody gets a personal tax allowance ( currently £12570) . Assuming that it continues in future then when you both stop work, you do not want to waste this. If one person has a large pension and the other a small one, then the some of the allowance for the latter can get wasted .
So for this reason it can be a good idea to keep some balance between partners future pension income.
The issue usually occurs for people retiring a few years before state pension age, as the state pension uses up most of the personal allowance anyway.

lazer-zxr

r6mile said:

You cannot “add” to the Premium scheme as it’s the older scheme.
What you can do is buy added years in the Alpha scheme, either via lump sum or monthly deduction - the cost of this depends on a lot of factors I think including age etc so she will have to contact Civil Service Pensions to get a quote.

There is also the option of buying EPA which allows you to take your pension a few years early without a reduction.

You should also keep in mind that the two CS schemes she is in are quite different - one is a final salary scheme while the other one is career average. Therefore a promotion will have a big immediate impact on the Premium pension but more gradual on the Alpha scheme.

What is her Civil Service salary? If you are a 40% taxpayer and she isn’t, then your current approach of paying into your pension makes sense. And if you take both your provisions into account, the combination of her index-linked pension plus your DC pension is a good one.

My suggestion for that 30k combined income you are after and retire at 58 would be to plan to take:

1) Ages 58-60 to drawdown 30k pa from your DC pensions
2) Ages 60-68 take her Premium pension + actuarially reduced Alpha pension + some from your DC pensions to equal 30k pa
3) Ages 68+ as above plus state pensions (so take less from your DC pensions to get to 30k)

Precise figures for the CS pensions are tricky as they will depend on salary increases, as well as Alpha actuarial reduction.

Thank you for taking the time with this reply, I really appreciate it.
I am (would be without pension contributions) a 40% tax payer, and my wife is not (her salary is around £28k). 

Dazed_and_C0nfused

Your annual alpha pension: £2,500from 65, Your annual premium pension: £3,535 from age 60. Her Alpha pension is the current one.

I am (would be without pension contributions) a 40% tax payer, and my wife is not (her salary is around £28k). 

Alpha is a pretty good scheme, on £28k she will be adding £650 each year to the existing £2,500 so ignoring pay rises and annual inflation increases (CPI I think with Alpha) the £2,500 will have become £12,250 by the she's 58.

Although in reality it will be more from the inflation increases, £2,500 + £650 + say 5% would be £3,307 in a years time.

r6mile

In that case you are in a pretty good position from age 68 - assuming no pay rises for your wife and ignoring inflation as above, your state pension plus hers plus Alpha pension plus premium equals around 37k of combined index-linked income.

So say a basic plan might be for you to use your DC pension to provide the 30k pa from ages 58 to 68 (plus your wife’s Premium pension). You could plan to do this either through drawdown or a fixed-term annuity for 10 years. From your figures above you should be very well on track to achieve this.

And then from ages 68 as above. You could plan to use any excess from your DC pot to fund larger discretionary expenses etc.

hugheskevi

lazer-zxr said:

My wife works 4 days a week. Her statement says: Your annual alpha pension: £2,500 from 65, 

Your annual premium pension: £3,535 from age 60. Her Alpha pension is the current one.

The Normal Pension age in alpha is equal to State Pension age, so your wife's alpha pension will be payable without reduction from age 68 (unless she purchased EPA).

Note that the statements simply use the last 12 months of salary to calculate Premium entitlement, and not the definition of final salary detailed in the scheme rules. The calculation of premium final salary looks back over 13 years of inflation-adjusted earnings, and it is very common for this defintion to be much higher than last 12 months of salary if there has not been a promotion. The difference is so significant that it can be optimal to switch to the Partnership scheme at some point prior to retirement to lock in a higher past salary by creating a deferred premium award which is calculated using the higher past salary. 

Having a good understanding of Civil Service pension helps a lot to use it to its full effect, not just around things like final salary definition, but also Added Pension and EPA and option to switch to Partnership.

My workplace DBC is £98k. 

What is a DBC scheme?

I'd like us both to retire around 58, with £30k/yr present value. H

That is very low, especially in the context of combined salaries in excess of £80,000.

The Retirement Living Standards cite £34,000 as a moderate living standard for a couple, and that is net. Also, in the next 15 years you would expect living standards to increase more rapidly than inflation (maybe...) so the target should be higher than what you think you would need to live on now.

Are we better off adding payments to my wifes pension ..... either the premium, alpha or a SIPP (goodness knows which one of those), or to keep over paying into mine?

Premium cannot be added to. Learn about Added Pension and EPA and Partnership, and also the AVC scheme which is unusually modern with a decent range of investment options and very low costs.

Hello helpful forumites, I'm a little lost in all of this retirement planning.

My wife and I are 43. I work in the private sector, my wife is in the civil service scheme.
My SIPP pot is £157k. My workplace DBC is £98k. Contribution from me + employer is £3.5k/month.
My wife works 4 days a week. Her statement says: Your annual alpha pension: £2,500from 65, 

Your annual premium pension: £3,535 from age 60. Her Alpha pension is the current one.

Also check your State Pension entitlements, specifically when in the future you will each get a full State Pension (and for any issues with past records). 

My head is very confused with all of this. Thanks in advance for any advice out there.

The first step is to fully check all entitlements and understand State Pension, Civil Service pension and DC decumulation options, then review income target, then devise a plan (such as those articulated above) for how to use each pension from age 58 until death (which you should prudently plan to be age 90, with clear plans if one of you lives to age 95 or even longer).

Note that you can defer State Pension and Alpha (not Premium - you would always take that at age 60) and receive an actuarially enhanced pension. That may be helpful to smooth pension entitlements and/or get more DB / State Pension rather than DC to reduce investment risk whilst securing more inflation-linked income (ie use DC earlier in retirement whilst deferring and enhancing DB/State Pension). There are also some niche-options about buying out actuarial reduction which could be relevant close to retirement.