Civil Service Alpha Added Pension worth it for 23 yr old?

money_mad_2

New Civil Service starter, salary 30k, want to start good pension habits. Is paying for Added Pension in Alpha a good idea? If so, what percentage would people advise - 5% - more, less? Also has small, but growing SIPP and saving in a LISA. What should priorities be? All opinions and advice welcome, thank you.

El_Torro

The most important thing to remember is that this is a great pension and you should definitely be part of it. It will be a long time before you see the benefits but future you will be very grateful for it. 

Whether you should pay more than the minimum depends on your individual circumstances. Maybe building up a deposit for a property in a LISA (and elsewhere) will be more beneficial for you. A 23 year old thinking about pensions already is great, but don't forget that there are a lot of other shorter term priorities on the horizon.

Emmia

Whilst extra into the CS pension is a great idea it will be locked up there until you retire. 

Personally at 23  I'd stick with the standard Alpha contributions (you have a long time to 'save' for that pension), and pile the extra away into your LISA or a Stocks and Shares ISA ready for property purchase, or to perhaps allow you to retire early and live off savings until your pension(s) kick in.

Edit: Given how good Alpha is, I'd probably de prioritise the SIPP in favour of LISA / ISA / cash buffers.

hugheskevi

money_mad_2 said:

New Civil Service starter, salary 30k, want to start good pension habits. Is paying for Added Pension in Alpha a good idea? If so, what percentage would people advise - 5% - more, less? Also has small, but growing SIPP and saving in a LISA. What should priorities be? All opinions and advice welcome, thank you.

Extra pension contributions are best when you benefit from things like higher rate income tax relief, salary sacrifice, avoiding Child Benefit taper, etc. You don't at the moment.

Given your age, salary and frozen tax thresholds, higher rate tax is very likely to happen in the coming years. Until that happens I'd be using LISAs and S+S ISAs along with cash savings.

r6mile

Agreed - more pension is always good but at your salary level (basic rate taxpayer) and age it’s less of a no brainer, if you don’t own a property then I would prioritise the LISA alongside some cash savings to build a buffer.

m_c_s

One aspect often forgotten about with CS pensions like Alpha is that they come with excellent death benefits - think of it as a form of life insurance. This can be extremely beneficial if you are married, in a partnership and/or have dependant children.
On death Alpha provides both a lump sum payment (that may be paid to a person, people or organisation you choose to nominate) and pensions for your eligible dependants (spouse / civil partner / partner / dependent children). The amount of pension that is payable depends on the pension you have built up and your pay at the time you die. Whether you are in service or not. So the more you build up the greater benefit you would provide to your dependants. You can add dependants to your list of beneficiaries as you acquire them ( marriage, births etc)
You are young but life throws a lot of things at you through the course of a 30 or 40 year career inside or outside of the Civil Service!

Oppenheimer

If paying for Added Pension means you cannot get a roof over your head, pay for food or go on holiday then don't do it.

However, I think over the next 45 years Alpha will look and feel very different - very likely less generous.  My experience of Defined Benefit pensions over 30 years is that they become more expensive for employer and employee, benefits get reduced and then the scheme is closed.

I would be buying Added Pension if I were you - you could do £100 per month, imagine what that could build up over 45 years.

PS I do Added Pension both monthly deduction and lump sum and gives my accumulated pension a boost.  Especially when increased by CPI each year - 10.1% in 2023 and 6.7% in 2024.

Emmia

Oppenheimer said:

If paying for Added Pension means you cannot get a roof over your head, pay for food or go on holiday then don't do it.

However, I think over the next 45 years Alpha will look and feel very different - very likely less generous.  My experience of Defined Benefit pensions over 30 years is that they become more expensive for employer and employee, benefits get reduced and then the scheme is closed.

I would be buying Added Pension if I were you - you could do £100 per month, imagine what that could build up over 45 years.

PS I do Added Pension both monthly deduction and lump sum and gives my accumulated pension a boost.  Especially when increased by CPI each year - 10.1% in 2023 and 6.7% in 2024.

I think what is more likely is that alpha like previous schemes e.g. classic and premium is closed, and a new scheme is introduced, with a different accrual rate, retirement ages etc., 

FrankRizzo

Oppenheimer said:

PS I do Added Pension both monthly deduction and lump sum and gives my accumulated pension a boost.  Especially when increased by CPI each year - 10.1% in 2023 and 6.7% in 2024.

Sorry if this is a silly question - is this Added Pension via DB or DC?

NedS

FrankRizzo said:

Oppenheimer said:

PS I do Added Pension both monthly deduction and lump sum and gives my accumulated pension a boost.  Especially when increased by CPI each year - 10.1% in 2023 and 6.7% in 2024.

Sorry if this is a silly question - is this Added Pension via DB or DC?

The term "Added Pension" when referring to the CS Alpha scheme is buying more DB pension. AVCs is the DC scheme for additional contributions.

https://www.civilservicepensionscheme.org.uk/your-pension/managing-your-pension/increase-your-pension/

So without meaning to reply for @Oppenheimer, I would expect they mean Added Pension via DB (in Alpha).

Universidad

money_mad_2 said:

New Civil Service starter, salary 30k, want to start good pension habits. Is paying for Added Pension in Alpha a good idea? If so, what percentage would people advise - 5% - more, less? Also has small, but growing SIPP and saving in a LISA. What should priorities be? All opinions and advice welcome, thank you.

If you want to increase your Alpha pension in a small, defined way without having to think about it or revisit the decision often, EPA might be a good choice. Financially works out pretty much identical to Added Pension for the amount you contribute, but its effect is to reduce your normal pension age by 1, 2, or 3 years. Stays in play until you tell them to stop (which you can only do annually, take note).

Having a (currently) default retirement age of 65 rather than 68 might be more satisfying to you than just seeing the pension amount go up a bit, even if they are almost equivalent financially. 

And with Added Pension there's always the question of "how much more could/should I put in?", while EPA just asks for a set % of your salary (though it does change year by year).

With a pension as good as Alpha, you may find there's not a huge amount of value in making lots of extra pension contributions until you hit the higher tax rate, and then it really comes into its own.

The LISA is probably a great saving priority outside of the pension box. 

But also, don't forget to live life with the money you've got. Now I'm middle-aged there's a lot of stuff I never thought I'd stop doing, but life has its seasons and some of the stuff I managed to do as a young man I don't think I will do again, but it lives on as fond memories that I'd hate not to have.

I did win a prize for a very middle aged hobby last week, which I'm made up about, so I'm not telling you life ends at 30, just be aware things don't stay the same forever, and enjoy each season of life while you can. 25 year old me would be shaking his cocky head with embarrassment.