Civil Service Pension and EPA

Pensioner2b

Can anyone confirm that my thoughts on EPA are correct.

I am 60, I can only do a 1+1 EPA, my NPA is 67 but it is my intention to retire (stop work) at around 64. The calculator says that I need to pay 4% of my salary per year into the EPA's. When I spoke to Civil Service Pensions they confirmed that my pension would be paid at the rate as if I retired at 66. I don't understand though how paying 4% of my salary for 2 years allows me to then take an extra couple of £k per year for the rest of my life. 

So if I retire at 67 my projected pension is £12800, at 66 it is approx. £11,500 but if I retire at 64 my pension would be approx. £8k but then because of the EPA is topped up to £11,500. These are not exact figures but ballpark and I know they will be slightly less as some of my pension is made up from Nouvos pension. 

I also read though that you could not take the EPA portion before the age of 65. It is all very confusing and tbh when you speak to the pension people they don't seem to know their subject but go off and read what it says on the website which I can do anyway if it made any sense.
 

hugheskevi

Pensioner2b said:

I am 60, I can only do a 1+1 EPA 

Do you mean you can only take out an EPA contract to reduce the Normal Pension age on your future alpha accruals by one year due to the cost? Or do you think there is some other limit?

When I spoke to Civil Service Pensions they confirmed that my pension would be paid at the rate as if I retired at 66. I don't understand though how paying 4% of my salary for 2 years allows me to then take an extra couple of £k per year for the rest of my life. 

So if I retire at 67 my projected pension is £12800, at 66 it is approx. £11,500 but if I retire at 64 my pension would be approx. £8k but then because of the EPA is topped up to £11,500. 

I think you are missing that the EPA only affects future accrual of alpha pension, not past pension accrual.

I also read though that you could not take the EPA portion before the age of 65

You can take the pension whenever you like. If you take it before the EPA age, the actuarial reduction applied to EPA pension is calculated from the EPA age, rather than the Normal Pension age (ie, the reduction is lower).

Pensioner2b

I think because of my age I can only do -2 not -3 years EPA. I am definitely missing the point about the EPA because I don't really understand your comment.

hugheskevi

I think because of my age I can only do -2 not -3 years EPA

That is correct, EPA cannot reduce the age from which pension is paid unreduced below 65. It is usually called EPA-2 for a person with a Normal Pension age of 67 though, not a "1+1 EPA."

I am definitely missing the point about the EPA because I don't really understand your comment.

If you were to decide to pay EPA, it would only apply to the pension you build up whilst making the EPA payment, ie, the pension you accrue after age 60. 

Hence a large part of your pension would remain unchanged and be payable without reduction from the same age it is now. 

So you would end up with some alpha pension payable without reduction from age 67 (all the alpha pension built up before age 60) and some alpha pension payable without reduction from age 65 (the pension built up after age 60).

Yorkie1

To illustrate Hugheskevi's excellent points:

I'm 53. I've got Classic and Alpha contributions. I only started EPA (-2 y) this financial year, and intend to work another 7 years until I'm 60. At that point I plan to:

• Take the Classic at age 60, and leave the Alpha pension unclaimed
• Take the Alpha at age 65, which will consist of unreduced pension for the entitlement accrued in the years I pay EPA contributions, and reduced pension for the years I didn't pay EPA contributions

Each year of contributions, you essentially accrue a separate amount of pension, which are all added together over time (and uplifted by inflation), and if necessary individually reduced for early payment.

An alternative course of action which was suggested to me, which took a while for me to get my head around, was to invest in Added pension instead of EPA; the contributions came out about the same, and if you claimed the pension at 65, the sums were about the same for unreduced EPA or reduced Added pension.