Is it worth buying more APB with Teachers Pension Scheme or indeed any Civil Service Pension?

IAMIAM

It used to cost me £196.60 per month (before tax) for a year for an extra £250 per annum at age 68, I buy yearly contracts.

If I was to purchase it again for another year, it will cost me £247.60 per month (before tax) for a year for another extra £250 per annum at age 68. 

With inflation increases , 20 years to go etc, is it worthwhile or should I not bother as £3k per annum before tax for an extra £250 a year in pension in 20 years time.....doesn't seem worth it?

Am I right to think this way, as I presume every civil service pension is now the same.

katejo

IAMIAM said:

It used to cost me £196.60 per month (before tax) for a year for an extra £250 per annum at age 68, I buy yearly contracts.

If I was to purchase it again for another year, it will cost me £247.60 per month (before tax) for a year for another extra £250 per annum at age 68. 

With inflation increases , 20 years to go etc, is it worthwhile or should I not bother as £3k per annum before tax for an extra £250 a year in pension in 20 years time.....doesn't seem worth it?

Am I right to think this way, as I presume every civil service pension is now the same.

I can't comment on Civil Service additional payments but I found similar results with SAUL (university admin grades). I paid AVC'S until my 60th last year. I looked into starting a new AVC but it wasn't worth it. Someone on this forum told me that employers are no longer required to support AVCs in the way they previously did. 

hugheskevi

With such a long time to go, and the effective return on Added Pension being CPI+1.7%, you would have a high probability of being better off investing in a DC pension and then drawing that down whilst delaying drawing your DB pension.

That will mean the DB pension is higher than it would otherwise have been, either due to a lower actuarial reduction for early commencement, or an actuarial enhancement for drawing it after Normal Pension age.

This means you get DC returns pre-commencement, then the certainty of a DB pension in retirement. There is investment risk involved of course, but that can be managed to individual preference via asset allocation, and over a 20 year period should be the better outcome.

Oppenheimer

IAMIAM said:

It used to cost me £196.60 per month (before tax) for a year for an extra £250 per annum at age 68, I buy yearly contracts.

If I was to purchase it again for another year, it will cost me £247.60 per month (before tax) for a year for another extra £250 per annum at age 68. 

With inflation increases , 20 years to go etc, is it worthwhile or should I not bother as £3k per annum before tax for an extra £250 a year in pension in 20 years time.....doesn't seem worth it?

Am I right to think this way, as I presume every civil service pension is now the same.

I personally think it is worth it.

£3,000 now to get £250 guaranteed and index linked from 68 until your death.  Say you live for 20 years you will get 20 x £250 = £5,000.

This is not taking into consideration indexation.  Even if you limit indexation to 2% each and every year from 48 to 88 your return will be a LOT more than £5,000.

Just my thoughts.

Universidad

There are two principal reasons why the public sector pension schemes are so good, in my opinion. 

The first is that they offer near certainty about what your income will look like in retirement, free of investment risk. The second is that they are very good value for money, in terms of what you put in versus what you can expect to take back out.

The second point does not apply so much, if at all, to additional pension, because you effectively have to cover the full cost of the pension (there is no corresponding employer contribution).

For that reason, my own personal feeling on the matter is that Additional Pension probably represents good value for someone like me - who values certainty - if they are not yet confident that they have enough guaranteed retirement income at some minimal level. 

However, if you are in a position where you are confident that you are in a good position for retirement, and looking to improve your outcome overall, then a DC pension is likely (over sufficient time) to perform better than the Additional Pension (at the current price of additional pension).

I have in just the last year moved from being in the one position to the other - but the recent increase in the price of additional pension was the last nudge that I needed.

IAMIAM

Universidad said:

There are two principal reasons why the public sector pension schemes are so good, in my opinion. 

The first is that they offer near certainty about what your income will look like in retirement, free of investment risk. The second is that they are very good value for money, in terms of what you put in versus what you can expect to take back out.

The second point does not apply so much, if at all, to additional pension, because you effectively have to cover the full cost of the pension (there is no corresponding employer contribution).

For that reason, my own personal feeling on the matter is that Additional Pension probably represents good value for someone like me - who values certainty - if they are not yet confident that they have enough guaranteed retirement income at some minimal level. 

However, if you are in a position where you are confident that you are in a good position for retirement, and looking to improve your outcome overall, then a DC pension is likely (over sufficient time) to perform better than the Additional Pension (at the current price of additional pension).

I have in just the last year moved from being in the one position to the other - but the recent increase in the price of additional pension was the last nudge that I needed.

Very well put, thanks for this

NedS

Universidad said:

There are two principal reasons why the public sector pension schemes are so good, in my opinion. 

The first is that they offer near certainty about what your income will look like in retirement, free of investment risk. The second is that they are very good value for money, in terms of what you put in versus what you can expect to take back out.

The second point does not apply so much, if at all, to additional pension, because you effectively have to cover the full cost of the pension (there is no corresponding employer contribution).

For that reason, my own personal feeling on the matter is that Additional Pension probably represents good value for someone like me - who values certainty - if they are not yet confident that they have enough guaranteed retirement income at some minimal level. 

However, if you are in a position where you are confident that you are in a good position for retirement, and looking to improve your outcome overall, then a DC pension is likely (over sufficient time) to perform better than the Additional Pension (at the current price of additional pension).

I have in just the last year moved from being in the one position to the other - but the recent increase in the price of additional pension was the last nudge that I needed.

Completely agree with @Universidad's comments above, and in particular the sections highlighted in bold.

With 10 years to retirement age, and having reached the point where we will now have essential spending adequately covered by guaranteed DB/SPA income, I too have switched my focus to my SIPP for any further addition pension contributions having hammered the DB Added Pension over the last few years.