Civil Service Added pension Q&A

Universidad

The Added Pension Calculator for 2024 is up!

https://www.civilservicepensionscheme.org.uk/knowledge-centre/tools-and-calculators/pension-calculators/

It's a big difference, along the lines predicted: 

Using the 2023 calculator for someone my age a 1000 pound monthly payment buys 1100 pounds annual self and dependents pension.

Using the 2024 calculator for someone my age a 1000 pound monthly payment buys 900 pounds annual self and dependents pension.

The wording on the website is "This calculator can only be used to calculate the cost of buying added pension via a lump sum contribution for the 2023/24 scheme year" for the 2023 calculator and "This calculator can be used to calculate the cost of buying added pension via a lump sum and monthly contribution for the 24/25 scheme year" for the 2024 calculator.

I wonder if this means that they are not doing a mid-year change in the Added Pension calculations... it seems to imply that a lump sum could still be purchased at the old rate.

michaels

With a lump sum contribution, does it have to come out of savings eg already taxed income or could it come from salary? 

Could you make monthly lump sum payments to the end of the FY? (Although knowing how long this takes to set up it might not be many months left)

Edit

Added Pension - Civil Service Pension Scheme

Only one per year so if from salary max is post tax income for one month.

However if from savings then you can claim tax relief on a tax return.  I think this means relief is limited to tax paid unlike a SIPP contribution where tax relief is payable automatically even if no income tax is actually paid (for example if it takes net income to below the personal allowance).  Can anyone confirm this? Thanks

hugheskevi

michaels said:

However if from savings then you can claim tax relief on a tax return.  I think this means relief is limited to tax paid unlike a SIPP contribution where tax relief is payable automatically even if no income tax is actually paid (for example if it takes net income to below the personal allowance).  Can anyone confirm this? Thanks

Correct. 

Note that relief can be claimed via an in-year Tax-Coding adjustment (easiest, at least it is once HMRC officials understand rules around unrelieved contributions), or writing to HMRC at the end of the tax year, it is not necessary to complete a tax return just for this.

michaels

hugheskevi said:

michaels said:

However if from savings then you can claim tax relief on a tax return.  I think this means relief is limited to tax paid unlike a SIPP contribution where tax relief is payable automatically even if no income tax is actually paid (for example if it takes net income to below the personal allowance).  Can anyone confirm this? Thanks

Correct. 

Note that relief can be claimed via an in-year Tax-Coding adjustment (easiest, at least it is once HMRC officials understand rules around unrelieved contributions), or writing to HMRC at the end of the tax year, it is not necessary to complete a tax return just for this.

Thanks

For me I am gong to contribute another 10k from income below the personal allowance this year, if it goes into my sipp it is grossed up to £12.5k whereas if I put it into alpha I won't be able to clam tax relief.  Current added pension rates it will get £759 pension per year.  Same contribution next year only gives £655.  SIPP money will also be eligible for TFLS whereas commutation rates mean effectively alpha contribution won't be.

Leaning towards the SIPP

More calcs:
£759 taxed at 20% = £607. £655 taxed at 20% = £524
£12,500 growing at 2% pa (real terms) for 12 years with a 4% swr = £634 taxed at 15% (tfls) = 539

Perhaps the lump sum to Alpha (this year) still makes sense?

But do my calcs make sense?!

hugheskevi

michaels said:

hugheskevi said:

michaels said:

However if from savings then you can claim tax relief on a tax return.  I think this means relief is limited to tax paid unlike a SIPP contribution where tax relief is payable automatically even if no income tax is actually paid (for example if it takes net income to below the personal allowance).  Can anyone confirm this? Thanks

Correct. 

Note that relief can be claimed via an in-year Tax-Coding adjustment (easiest, at least it is once HMRC officials understand rules around unrelieved contributions), or writing to HMRC at the end of the tax year, it is not necessary to complete a tax return just for this.

Thanks

For me I am gong to contribute another 10k from income below the personal allowance this year, if it goes into my sipp it is grossed up to £12.5k whereas if I put it into alpha I won't be able to clam tax relief.  Current added pension rates it will get £759 pension per year.  Same contribution next year only gives £655.  SIPP money will also be eligible for TFLS whereas commutation rates mean effectively alpha contribution won't be.

Leaning towards the SIPP

More calcs:
£759 taxed at 20% = £607. £655 taxed at 20% = £524
£12,500 growing at 2% pa (real terms) for 12 years with a 4% swr = £634 taxed at 15% (tfls) = 539

Perhaps the lump sum to Alpha (this year) still makes sense?

But do my calcs make sense?!

Yes, considerations are all the correct things to be thinking, and the maths makes sense.

You might also want to consider effect of delaying drawing Civil Service pension and/or State Pension in your planning, as living from DC income and delaying either or both has the effect of converting DC pension into DB, just at a later date.

Dazed_and_C0nfused

If you go via the added pension LP sum that might open up the opportunity to apply for Marriage Allowance.

Won't benefit you personally but as part of a couple you will have up to £252 tax reduction.

And you will have increased headroom for taxable interest.

pathsofdarkness

hugheskevi said:

You might also want to consider effect of delaying drawing Civil Service pension and/or State Pension in your planning, as living from DC income and delaying either or both has the effect of converting DC pension into DB, just at a later date.

Just an aside to say that I genuinely can't believe I have never considered this option before, what an interesting idea!

I've only ever thought about using my CSAVC to retire a a few years early and bridge the gap until I reach SPA of 68.

I'm going to have to think about this for my own retirement planning (in addition to the Additional Pension I'm already doing and the EPA-3 I'll eventually switch to in a few years),

michaels

hugheskevi said:

michaels said:

hugheskevi said:

michaels said:

However if from savings then you can claim tax relief on a tax return.  I think this means relief is limited to tax paid unlike a SIPP contribution where tax relief is payable automatically even if no income tax is actually paid (for example if it takes net income to below the personal allowance).  Can anyone confirm this? Thanks

Correct. 

Note that relief can be claimed via an in-year Tax-Coding adjustment (easiest, at least it is once HMRC officials understand rules around unrelieved contributions), or writing to HMRC at the end of the tax year, it is not necessary to complete a tax return just for this.

Thanks

For me I am gong to contribute another 10k from income below the personal allowance this year, if it goes into my sipp it is grossed up to £12.5k whereas if I put it into alpha I won't be able to clam tax relief.  Current added pension rates it will get £759 pension per year.  Same contribution next year only gives £655.  SIPP money will also be eligible for TFLS whereas commutation rates mean effectively alpha contribution won't be.

Leaning towards the SIPP

More calcs:
£759 taxed at 20% = £607. £655 taxed at 20% = £524
£12,500 growing at 2% pa (real terms) for 12 years with a 4% swr = £634 taxed at 15% (tfls) = 539

Perhaps the lump sum to Alpha (this year) still makes sense?

But do my calcs make sense?!

Yes, considerations are all the correct things to be thinking, and the maths makes sense.

You might also want to consider effect of delaying drawing Civil Service pension and/or State Pension in your planning, as living from DC income and delaying either or both has the effect of converting DC pension into DB, just at a later date.

Interesting thought - where would I find the 'reverse reduction factors'?

One downside of this seems to be that the DC pot is heritable to my kids but the DB would die with me/DW?

hugheskevi

michaels said:

hugheskevi said:

michaels said:

hugheskevi said:

michaels said:

However if from savings then you can claim tax relief on a tax return.  I think this means relief is limited to tax paid unlike a SIPP contribution where tax relief is payable automatically even if no income tax is actually paid (for example if it takes net income to below the personal allowance).  Can anyone confirm this? Thanks

Correct. 

Note that relief can be claimed via an in-year Tax-Coding adjustment (easiest, at least it is once HMRC officials understand rules around unrelieved contributions), or writing to HMRC at the end of the tax year, it is not necessary to complete a tax return just for this.

Thanks

For me I am gong to contribute another 10k from income below the personal allowance this year, if it goes into my sipp it is grossed up to £12.5k whereas if I put it into alpha I won't be able to clam tax relief.  Current added pension rates it will get £759 pension per year.  Same contribution next year only gives £655.  SIPP money will also be eligible for TFLS whereas commutation rates mean effectively alpha contribution won't be.

Leaning towards the SIPP

More calcs:
£759 taxed at 20% = £607. £655 taxed at 20% = £524
£12,500 growing at 2% pa (real terms) for 12 years with a 4% swr = £634 taxed at 15% (tfls) = 539

Perhaps the lump sum to Alpha (this year) still makes sense?

But do my calcs make sense?!

Yes, considerations are all the correct things to be thinking, and the maths makes sense.

You might also want to consider effect of delaying drawing Civil Service pension and/or State Pension in your planning, as living from DC income and delaying either or both has the effect of converting DC pension into DB, just at a later date.

Interesting thought - where would I find the 'reverse reduction factors'?

One downside of this seems to be that the DC pot is heritable to my kids but the DB would die with me/DW?

Depending on what your plans are, it could be less of an actuarial reduction for commencing the pension closer to Normal Pension Age than you planned, or it could be an enhancement for commencing the pension after Normal Pension Age.

Factors for late commencement are set out in the late retirement factors section of the actuarial factors page.

Civil Service pension comes with a 5 year guarantee (ie if you die within 5 years of commencement, a lump sum is paid out such that the pension paid at least 5 years worth of payments). There is also the survivor pension, which is 37.5% of the pension due at Normal Pension age when you commenced the pension (ie ignores early or late retirement adjustment), uprated by inflation. So it isn't a good inheritance vehicle - you would just be setting aside pension payments to pass to children, so it would also be within the estate. 

AdamS_CivilServant

This is very useful information - thanks to all the informed posters. Do you think this makes the Civil Service alpha scheme 'EPA' and the Civil Service alpha scheme 'added pension' less desirable, e.g. when comparing against SIPP?

We're in a fortunate financial position - I'm 39 years old, earn ~£85k at the Civil Service, and my wife is in a similar position. Ideally we'd like to work at Civil Service until we retire early (e.g. 60 years old). We don't generally have high expenses (quite frugal lifestyles) so this seems possible. Every year we put £20k each into S&S ISAs (investing mainly in passive S&P500 tracker), and then any supplemental savings have been used to chip away at mortgage (still £400k). However, I recently realised that it was bad financial practice to pay off mortgage now (we still have a nice low interest rate, and will do for 3-4 years more, and at some point will probably sadly receive a big lump sum from inheritance which I'd use to pay off mortgage). So instead we've been trying to decide whether to instead put extra money (beyond the £40k in ISAs per year) in SIPP, or adding to our CS pensions with EPA / added pension, or maybe using a lifetime ISA.  

I've seen some very useful points from hugheskevi and others, in other threads. One that resonated with me said "The main consideration is what annual income you will need after State Pension age, and whether you think you will have at least that amount when you retire. If not, Added Pension becomes very attractive. Once that point is achieved, the SIPP is very attractive." Based on that, our plan was to both get an EPA (minus 3 years), and then to put any leftover savings (beyond the £40k per year in ISA) into SIPP (paying attention to annual pension allowance). Then, if we retire at 60, we can hopefully use ISA and SIPP savings, until the CS pension kicks in at 65yo (if 68 years old is retirement age, and I have the minus 3 years EPA).

With these recent changes, do you think it would be better not to get the EPA, and to instead put all savings (beyond the £40k in ISA) into SIPP?  It seems to me that the CS additional offers (EPA and Added Pension) are basically getting no employer contribution any more, and so better to have the flexibility (and earlier possible payout) from the SIPP. Or to use a lifetime ISA etc.