Civil Service Added pension Q&A

helsbels92

Hi all, 

I've decided to ask this as I'm hoping for more detail about doing Added Pension for a Civil Service Pension. However my hope is that bringing together everything that everyone knows in one post, hopefully it will help others too.

I know the following things about added pension: 

If I pay the same amount, for instance monthly, it ends up being worth less pension as I get older. 

I can only start payments on 1st April and equally can only end them on 31st March. 


However what I don't know about civil service added pension is:

If I am in the alpha scheme which is a defined benefits pension, how does my added pension work with that? Does it become it's own little defined contributions pot?

If it becomes a defined contribution pot, who manages that? Do CSP invest it, or is it just taken out of the amalgamated CSP pot for all?

Also, although I know I can't stop payments until 31st March, can I "up" payments in the middle? Or I suppose similarly can I make my contributions less?

Thank you for any information you can give me. And if you have any other questions about added pension, please add them in here and hopefully someone can answer. 

michaels

It adds to your DB in the same way as your standard x% contribution except that as there is no matching employer contribution you earn much less annual DB pension for the same contribution.

The exact amount can be calculated using the alpha added pension calculator available to all on the mycsp website.  If you want to work out how age impacts the value of your contributions just muck about with your age in the calculator.

When you first join you can set up an added pension contribution any time in the year, otherwise you need to make any changes for the next financial year by about the start of March.

There is also an option to instead pay extra into a pension that is a standalone DC pension managed by a fund manager very like a sipp.  Either way contributions are made on a net pay basis, taken from gross salary before tax is taken rather than tax relief being applied.

helsbels92

Thanks @michaels. So it gets swallowed up the same as Defined Benefits (DB) pension going into the "big pot for all", but when it comes to retirement they know how much I have added in, and reallocate back to me essentially. So no investing like a defined contribution (DC) it seems like. 

I've tried using the calculator but honestly, it's not great and it doesn't explain exactly what the numbers mean. Such as I understand you are limited to put in £8400 in total as Added Pension (as of 01/04/2023) however I don't understand how that equates to the limit number it comes up with on the calculator as it doesn't completely make sense to me. 

Would you agree that a lump sum earlier (I'm 41 and been in CSP for 3 years) buys you more pension than a monthly contribution over time because what you pay is worth less in pension as you get older? This is what I think I am reading, but again the calculator doesn't make it clear.

Also do you know if the payments can be adjusted mid year - even if they can't be started until 1st April and stopped until 31st March.

Thanks for responding

michaels

It is definitely DB not DC - you pay £x to purchase £y per year of pension from your state pension age

The cost for each £y of pension can be calculated in the calculator, for me it is about £13 now to buy £1 per year in retirement.  I think this goes up the closer you get to retirement as you then have less chance of dying before drawing the pension.

The £8400 limit is the amount of £y total you can buy so you can increase your basic pension by a max of £8,400 which at £13 per £1 bought would cost me 8400 x 13 = £110k but I think there are limits such as not contributing more than your salary, the £60k annual allowance limit (which is a bit complicated but basically calculated at 16x your increase in DB pension over the year - standard plus added)

Putting in a lump sum/more when younger will by more annual pension per pound spent but against that if you had the money invested it would also grow over time so you might have more to by pension later if you waited and invested the money instead.

Afaik in the year of joining you have some scope to select a regular contribution amount but after that you set it at the start of Match and can't change it for the next 12 months.

pathsofdarkness

helsbels92 said:

I can only start payments on 1st April and equally can only end them on 31st March. 

There are two ways to end the Added Pension contributions in a scheme year: (1) You leave the Civil Service, or (2) you opt out of the Alpha scheme which automatically stops the Added Pension contributions. I know this because I did the latter for a one month period.

helsbels92 said:

If I am in the alpha scheme which is a defined benefits pension, how does my added pension work with that? Does it become it's own little defined contributions pot?

If it becomes a defined contribution pot, who manages that? Do CSP invest it, or is it just taken out of the amalgamated CSP pot for all?

Alpha Added Pension is a second Defined Benefit pension, alongside your main Alpha pension. There is no investment in the stock market but instead you get a guaranteed income for life upon reaching Normal Retirement Age (I'm 42 years old and so for me this will be 68).

helsbels92 said:

Also, although I know I can't stop payments until 31st March, can I "up" payments in the middle? Or I suppose similarly can I make my contributions less?

No, the Alpha Addend Pension contribution can not be changed from what you originally put in your application form. However, you can make a one-off lump sum payment in addition to your regular monthly contribution. One-off as in you can only make this lump sum payment one time during the entire scheme year.

helsbels92 said:
I've tried using the calculator but honestly, it's not great and it doesn't explain exactly what the numbers mean. Such as I understand you are limited to put in £8400 in total as Added Pension (as of 01/04/2023) however I don't understand how that equates to the limit number it comes up with on the calculator as it doesn't completely make sense to me. 

Buying Alpha Added Pension which guarantees you £8,400 per year for life upon reach Normal Retirement Age would easily cost you in excess of £100k. 

helsbels92 said:

Would you agree that a lump sum earlier (I'm 41 and been in CSP for 3 years) buys you more pension than a monthly contribution over time because what you pay is worth less in pension as you get older? This is what I think I am reading, but again the calculator doesn't make it clear.

Yes. The older you get, the more expensive it becomes to buy Alpha Added Pension. However, that lump sum can't be too large otherwise you'll exceed the Annual Allowance and incur a tax charge. 

helsbels92

FYI I found a really useful calculator which the Civil service did NOT supply:

Civil Service Alpha Pension Calculator (civilservicepensioncalculator.co.uk)

But you can do several variations on it with added pension, and reductions etc. Its fantastic. I'm so glad I found it!

michaels

Another question, there was a lot of talk about the CS pension early payment commutation factors (which will also impact added pension costs?) being reviewed/changed this year but afaik there is not sign of the revised rates being published (they are in local govt, will the CS ones be the same?).  Does anyone have an update?

Universidad

michaels said:

Another question, there was a lot of talk about the CS pension early payment commutation factors (which will also impact added pension costs?) being reviewed/changed this year but afaik there is not sign of the revised rates being published (they are in local govt, will the CS ones be the same?).  Does anyone have an update?

No, but I've been looking out for an updated Added Pension 2024 excel calculator for some months...

helsbels92

michaels said:

Another question, there was a lot of talk about the CS pension early payment commutation factors (which will also impact added pension costs?) being reviewed/changed this year but afaik there is not sign of the revised rates being published (they are in local govt, will the CS ones be the same?).  Does anyone have an update?

When you say they are being reviewed/changed - do you mean reduced or increased? 

michaels

helsbels92 said:

michaels said:

Another question, there was a lot of talk about the CS pension early payment commutation factors (which will also impact added pension costs?) being reviewed/changed this year but afaik there is not sign of the revised rates being published (they are in local govt, will the CS ones be the same?).  Does anyone have an update?

When you say they are being reviewed/changed - do you mean reduced or increased? 

My understanding is that the reduction will decrease/the amount payable increase but only of order about 1.5% for retirement at 55 and obviously less the later it is taken.

It is not commutation factors (which are the term for lump sum) but reduction factors.

Universidad

helsbels92 said:

michaels said:

Another question, there was a lot of talk about the CS pension early payment commutation factors (which will also impact added pension costs?) being reviewed/changed this year but afaik there is not sign of the revised rates being published (they are in local govt, will the CS ones be the same?).  Does anyone have an update?

When you say they are being reviewed/changed - do you mean reduced or increased? 

ERFs / actuarial reduction for early retirement should reduce your pension by less.

Added pension will be more expensive.

Thread here: https://forums.moneysavingexpert.com/discussion/6446697/change-to-cost-of-voluntary-pension-benefits-and-early-retirement-in-public-sector/p1