Civil Service Alpha- how to contribute to the max

Danni1975

Hello

I'm about to start a new civil service job and will be in Alpha. Salary is £65k.

I'm 51 and would like to retire at 60. I'm hoping to pay the maximum into my pension and understand I can top up the DB element by buying extra pension and paying extra for early retirement and I can also pay AVCs into a DC scheme.

Does anyone have any experience of this? In particular I'd like to know how much extra I can pay into the DB element and whether it makes a difference if I do this as added pension or early retirement payment. I'd also like to know how much I can pay in AVCs before I hit the £60k annual limit (which I understand includes employer contribution- not sure how I calculate this for a DB pension).

Are the CS pension staff helpful with this stuff?

Thank you!

Danni1975

Sorry, one more question- I have £150k saved in a Sipp- can I transfer any of this into Alpha?

hugheskevi

I'm hoping to pay the maximum into my pension and understand I can top up the DB element by buying extra pension and paying extra for early retirement and I can also pay AVCs into a DC scheme.

Does anyone have any experience of this? 

All the various additional options are set out in Section 2 of the Scheme Guide. They work exactly as set out, many people do one or more of the options (although far more do none).

In particular I'd like to know how much extra I can pay into the DB element and whether it makes a difference if I do this as added pension or early retirement payment. I'd also like to know how much I can pay in AVCs before I hit the £60k annual limit (which I understand includes employer contribution- not sure how I calculate this for a DB pension).

Are the CS pension staff helpful with this stuff?

Added Pension and EPA have limits on purchase (note limit is the annual pension purchase, not the capital value of the purchase which will be much higher), although they are quite generous and unlikely to be a significant limiting factor for you. If they are a limiting factor, you can puchase Added Pension up to slightly below the limit, then purchase EPA, as EPA just requires some of the limit to be available in order for you to purchase it.

Added Pension and EPA are effectively the same thing in most regards (slight differences about ill-health and survivor benefits, and more importantly also the Annual Allowance treatment with EPA not producing a pension input).

You will need to calculate your expected pension input yourself - the scheme administrator will not get involved in any of that, they will simply tell you your pension input for past years, either if you exceed the £60K limit or request that information. Details of how to calculate pension input in a DB scheme are at this link. Similarly you will need to make all the decisions about which options to purchase and how much, the Scheme Administrator will simply enact your requests, they will not provide any information beyond what is in the Scheme Guide.

Danni1975 said:

Sorry, one more question- I have £150k saved in a Sipp- can I transfer any of this into Alpha?

You can transfer it in within 1 year of joining scheme employment. Section 01C of the Scheme Guide details the process.

marlot

Get on with it as soon as you start.  I did a transfer in, and civil service pensions were so slow at every stage.  I missed the 12 month deadline.

I had to launch a formal appeal, and get the deadline extended.

michaels

Max transfer in is the pot that buys an annual pension of 50% of your salary, your 150k will not buy you enough for that to be a problem.  Any transfer in does not count towards your annual allowance.  If 150k is your only other retirement asset then I would be tempted to keep it to increase flexibility.

On the website there is an added pension calculator, you can use this to calculate the cost of transferrring in as the rate is the same.  As an indication, 32 year solder than you, I paid about 245k for 19k pa pension last year.

Each year your compulsory pension payment (7.35%) will buy you 2.32% of your income as a pension so in 9 years you should get to about 21%.  As mentioned above if taking early EPA and added pension have the same impact on the amount payable with EPA having the advantage that it does not count towards your AA.  However I think the max total of added pension is something like £7k pa of pension so there is a cap.  It is 'net pay' so whilst you will save the income tax you will still pay NI on any extra contributions.  You can then pay AVCs (using the CS scheme or a sipp).  You pretty much get the chance to set a level of contribution when you join then every year with your commitment being made early in March for the next tax year.

In terms of annual allowance, for the DB bit of your pension, it is calculated as 16 x the increase in pension which comes from both your contributions and a uplift by the September inflation rate (more complicate din future years but that is how it works in year 1).  This uplift will be payable on any transfer in but will not be subject to any AA calculation

r6mile

Others have covered the rules on added pension, transfers in, and EPA. As @michaels has discussed if you are looking to retire at 60 you may want to consider keeping the SIPP as it is so as to have the flexibility of a DC pot. You may consider using this to help you cover ages from 60 to Alpha retirement age, so that your Alpha is not actuarially reduced for taking it early.

Or another option would be to join the AVC scheme, and potentially transfer the SIPP into that as it has pretty low charges and a decent fund selection. I have just joined the AVC scheme, and one advantage it has is that you can vary your contribution levels as often as you like (and even make payments directly to L&G, although this will involve then reclaiming any HR tax due back from HMRC). Whereas for added pension changes can only be applied at the start of the tax year.

player1_2

michaels said:

In terms of annual allowance, for the DB bit of your pension, it is calculated as 16 x the increase in pension which comes from both your contributions and a uplift by the September inflation rate (more complicate din future years but that is how it works in year 1).  

In future years I think the calculation is (the increase in pension which comes from both your contributions and a uplift by the September inflation rate minus the previous years pension value as stated in the Annual Benefit Statement) x 16  

Danni1975

This is all really helpful, thank you. I've never been in a DB scheme before and am finding it quite confusing- keep being unsure whether figures are per annum sums or total sums!

Universidad

A few additional tips:

1) If you want to pay for added pension, EPA, or both in this year you can do that if you arrange it within three months of beginning the role, to start from the day you began work. If you know what your aim is, this is probably a good idea, as it will help test out your finances without a year's commitment. 

Note that normally you can only change your monthly EPA/Added pension contributions for 1st April each year.

2)  On 65K if you are collecting child benefit you will be due to pay it all back - there is a taper between 50 and 60K. 

If you bring your adjusted income below 50K with pension contributions (doesn't need to be salary sacrifice, which AFAIK the civil service does not do) then you will remain eligable for child benefit, and (Scotland aside) not be paying the higher rate tax - this is super, super efficient.

(As a general note for anyone reading on this point - if you have a student loan and claim child benefit, then between 50 and 60K your effective marginal tax rate is approaching 80%. Pension contributions won't help with the student loan, which is calculated on gross, but the point is that you don't get a lot of benefit out of that 10K.)

3) If you take EPA and Added Pension, note that the EPA does not apply to the Added Pension that you buy, just the regular pension that you earn. This is relevant if you're planning to retire early, as you need to factor that in to what your reductions will look like.

For example, I'm on EPA -3, but I'm also buying Added Pension

That means that to retire 10 years before my State Pension Age, the Added Pension portion of my pension would be reduced to 0.6x, but the EPA portion would only be reduced to about 0.69x (with current Early Retirement Factors, which are subject to changes over time)

4) A choice in approach to Early Retirement which has been touched on but not discussed in detail, is the choice between taking your Alpha pension at (or near) State Pension Age, and then filling in the years before that from a personal pension - or alternatively, putting everything into your Alpha pension and retiring early, and accepting the actuarial reduction. (Or some combination).

There's no right answer, but one thing to think about is that from the state pension age you probably have your state pension coming to you, which means that in many cases you will be wealthier from this age, than when you are younger, which is the opposite of what would be useful for an early retirement, in most cases.

So having a personal pension, or some other investment cash, from an earlier age can be useful in stablising your income over the longer term.

Here's a thread on one way to manage that with some stability from @michaels.

michaels

One thing to be aware of with alpha is that the commutation factor for any tax free lunp sun is very poor - 12x.  This means that it is not worth taking a TFLS which means effectively all your alpha will be taxed