Civil service pension - EPA vs added pension

helsbels92

Hi all, 

Trying to wrap my head around the civil service pension. I've only been in the civil service for 3 years. I'm 41 and have a state pension age of 68. I'm in the alpha scheme so relatively straightforward (hah). Currently earn £35000 approx.

I know there are a bagillion different posts around the same thing but I'm struggling to understand all the nuances of it all. 

I have been looking at EPA in order to reduce my pension age, but honestly it is so so expensive, and apparently gets more expensive as time goes on. So I'm not sure I can afford that way. I would basically almost be paying my pension amount again on top.

I've read on this forum that doing added pension instead might be a better way, but you just take the hit of the 4-5% reduction but on a higher amount you've paid in.

Can anyone shed any light on to which might be the better way of getting retirement earlier? I really don't think I shall be fit to work until 

helsbels92

Apologies - pressed enter by mistake and it posted. 

I was going to end with - I really don't think I would be fit to work until 68! Many thanks for any help you can give. 

ewaste

I believe it works out to be around the same actuarial cost regardless of whether you use EPA or Added Pension. Based on previous threads Added Pension tends to be favoured as it's more flexible if you then work later than intended or SPA increases etc.

EPA looks expensive because you're essentially paying Employee and Employer contributions to buy out the reductions. It generally illustrates how good Alpha is for the relatively low Employee contribution especially the older you are. 

r6mile

Another option might be to use the AVC scheme (or a separate personal pension). If you do want to retire before 68, obviously you will take a hit through actual reduction but at that point you could use the AVC scheme to "top-up" your Alpha pension. This could give you flexibility (in case your plans change), and of course you can vary your contributions into this as often as you like.

And of course keep in mind that at 68 you will get your State Pension anyway.

Universidad

EPA isn't expensive, the rest of your pension is an astoundingly good deal.

Each year you pay about 5.5% of your salary to get 2.32% of that salary paid to you every year, for the rest of your life. Your employer pays about 27%. 

That's nearly 5x as much that your employer puts in as you do, on top of your salary. And the benefits earned are absolutely great - the accrual rate is class leading.

For EPA, nobody else is helping out financially, it's all on you. So you pay another 4% ish of your salary to earn that same pension for an extra three years.

The real question is whether you could do anything better with the money in that time.

You're basically paying (example numbers) about 1400 pounds to claim back an inflation protected 2400 pounds. And the money you're paying for that with is very tax efficient.

You *could* do better with a personal pension, but then again you could also do worse - that's investments for you.

Meanwhile the Alpha pension is a guaranteed income, no matter what the ups and downs of the market.

Given there's nothing more expensive than certainty, Alpha seems like a good deal to me!

horsewithnoname

helsbels92 said:

Apologies - pressed enter by mistake and it posted. 

I was going to end with - I really don't think I would be fit to work until 68! Many thanks for any help you can give. 

You should also look at buying added pension, and there are also additional voluntary contributions. The MyCsp site isn’t the best or most understandable, but with a bit of persistence you can find the info you want. 

The thing with EPA is that it only applies to part of your pension, and if the state pension age goes up, so does your epa. 

Universidad

horsewithnoname said:

The thing with EPA is that it only applies to part of your pension, and if the state pension age goes up, so does your epa. 

This is true, but if you want to retire earlier with added pension, then if the state pension age goes up, so do the actuarial reductions for the age you had planned to retire at...

Given we're comparing the two options, there's not a lot in it financially.

The primary difference (for people contributing very significant amounts) is that EPA has no impact on the Annual Allowance (because it doesn't change the amount of annual pension you are earning).

michaels

There is a max of £8400 for added pension and EPA.  How does EPA feed into this calculation?

Is the £8400 based on the value of added pension when it is purchased or is it the current value (including CPI uplifts)?

Thanks

Universidad

michaels said:

There is a max of £8400 for added pension and EPA.  How does EPA feed into this calculation?

IIRC there's a bit of weirdness where you can't buy EPA if you are at the maximum Added Pension, but any less than the maximum and you can.

This gets talked about a bit but I expect it's fairly rare because of how much you'd need to be contributing to hit 8400, and by how much you'd exceed the AA if you did.

The thread I recall reading is this one.

michaels

Universidad said:

michaels said:

There is a max of £8400 for added pension and EPA.  How does EPA feed into this calculation?

IIRC there's a bit of weirdness where you can't buy EPA if you are at the maximum Added Pension, but any less than the maximum and you can.

This gets talked about a bit but I expect it's fairly rare because of how much you'd need to be contributing to hit 8400, and by how much you'd exceed the AA if you did.

The thread I recall reading is this one.

I thought 8400 was a total limit not an annual one?

NedS

helsbels92 said:

Hi all, 

Trying to wrap my head around the civil service pension. I've only been in the civil service for 3 years. I'm 41 and have a state pension age of 68. I'm in the alpha scheme so relatively straightforward (hah). Currently earn £35000 approx.

I know there are a bagillion different posts around the same thing but I'm struggling to understand all the nuances of it all. 

I have been looking at EPA in order to reduce my pension age, but honestly it is so so expensive, and apparently gets more expensive as time goes on. So I'm not sure I can afford that way. I would basically almost be paying my pension amount again on top.

I've read on this forum that doing added pension instead might be a better way, but you just take the hit of the 4-5% reduction but on a higher amount you've paid in.

Can anyone shed any light on to which might be the better way of getting retirement earlier? I really don't think I shall be fit to work until 

As others have said, financially there is little difference between buying Added Pension and EPA, and as you say you can use added pension to mitigate (some of) the actuarial reduction of taking your pension early (maybe you build up a 10% higher pension which is then reduced by 15% for taking it 3 years early offsetting much of the reduction)

An advantage of buying added pension in your circumstances is that you can choose exactly how much you can afford to contribute each year rather than be told this is what it will cost for an EPA of 1, 2 or 3 years. So if you think you may struggle to afford EPA, the added pension route would at least allow you to contribute what you can afford.

Obviously by contributing less each month you will get a lower final pension at whatever age you choose to take it, but at least it's flexible in allowing you to contribute a monthly amount you can afford (unfortunately you cannot change the amount mid-year)