CS AVCs... general planning thoughts

Marmot

Hi, just wondering if I could get some thoughts on some planning I'm trying to do and it's partially pension related so thought I'd start by asking here.

I work for the civil service and from December will be moving up a grade to a new better salary - I'm trying to work out the best plan for the additional income I'll have coming in.  Here's a bit of background info:

• Age 53 (54 in May 2025)
• Civil Service Alpha pension - amount accrued by April 2025 just over £12,000
• On new salary I'll be accruing approx £1200 pension each year (when it's a full year accruing at that salary).
• Currently have no DC provision

Bit more background info/things I'm trying to factor in:

• Mortgage balance £102,000
• On fixed rate (4.47%) expiring July 2025. (term 17 years currently)
• Plan to over pay £9000 (currently in high-interest savings account) when remortgage to bring outstanding balance to £90,000, will probably then take a 5 year fix with 16 year term.  But this will mean that my age at end of mortgage is 70.  So I want to end this earlier than that.

Single income household, one dependent (11 years old), will most likely be going to university in 2031

State pension up to date and only a couple of more years to pay to bring it up to full amount.

With new salary I’ll have £600+ more income each month than I’m used to and I’m trying to decide what to do with some of that money.

My initial thoughts are to:

• start paying CS AVCs (to begin building up a DC pot) so I 'might' be able to retire earlier than SPA
• decide most effective way to get the mortgage finished earlier?  I guess a lot depends on what rate I get on my next mortgage…
• think about university costs and how best to manage those if still have mortgage

Any thoughts gratefully received :-)

Marmot

Oppenheimer

Some food for thought.

I am a similar age with wife and children.

I joined the civil service autumn 2022 and have built up defined benefit pensions (across different employments) of £23,000 as at April 2024.

Another four years of working/national insurance contributions and I expect to be able to receive a full state pension in due course.

I have also recently been promoted, so, over and above the normal Alpha contributions, I pay £500 per month for added pension and £500 per month for the Legal & General AVC.

I am "filling my boots" with defined benefit pension while I can.

I want to retire at 60 and so think I will have built up a total defined benefit pensions of approx £33,000 at that time.  

I will use the AVC (and Mrs Oppenheimer) as a bridge between 60 until these income streams kick in.

We have a two income household which means I can aggressively save at this time (and for the first time in my life).

Why don't you split the £600 into £300 added pension and £300 AVC and get the best of both worlds.

That way you will have decent defined benefit pension to service a mortgage in later life if that becomes the case.

Re child at university - study locally and stay at home (if possible) - why should you/family members get in thousands of pounds worth of debt for this.  Most European kids stay at home while at college/university.

Good luck.

SarahB16

Marmot said:

Hi, just wondering if I could get some thoughts on some planning I'm trying to do and it's partially pension related so thought I'd start by asking here.

I work for the civil service and from December will be moving up a grade to a new better salary - I'm trying to work out the best plan for the additional income I'll have coming in.  Here's a bit of background info:

• Age 53 (54 in May 2025)
• Civil Service Alpha pension - amount accrued by April 2025 just over £12,000
• On new salary I'll be accruing approx £1200 pension each year (when it's a full year accruing at that salary).
• Currently have no DC provision

Bit more background info/things I'm trying to factor in:

• Mortgage balance £102,000
• On fixed rate (4.47%) expiring July 2025. (term 17 years currently)
• Plan to over pay £9000 (currently in high-interest savings account) when remortgage to bring outstanding balance to £90,000, will probably then take a 5 year fix with 16 year term.  But this will mean that my age at end of mortgage is 70.  So I want to end this earlier than that.

Single income household, one dependent (11 years old), will most likely be going to university in 2031

State pension up to date and only a couple of more years to pay to bring it up to full amount.

With new salary I’ll have £600+ more income each month than I’m used to and I’m trying to decide what to do with some of that money.

My initial thoughts are to:

• start paying CS AVCs (to begin building up a DC pot) so I 'might' be able to retire earlier than SPA
• decide most effective way to get the mortgage finished earlier?  I guess a lot depends on what rate I get on my next mortgage…
• think about university costs and how best to manage those if still have mortgage

Any thoughts gratefully received :-)

Marmot

I am in the LGPS pension scheme and pay LGPS AVCs every month however I'm not sure if the CS AVCs work in the same way but I presume they do (i.e. you take your AVC pot tax free (subject to limits) when you begin drawing down your pension).  

I'm going to suggest something which is different to what you are proposing. 

Option 1 (my preference) 

If I were you I would instead use your AVC pot to pay off any outstanding mortgage only when you retire and not be in any hurry to pay off your mortgage. I would also not use the £9,000 against your mortgage but instead live off that money but increase your AVC contributions.  I like the mortgage with the 16 year term but rather than take it out for £90,000 I would take a mortgage of £99,000 (i.e. you are not reducing it using the £9,000 savings you have).  

The Civil Service is generally viewed as being very safe job wise (i.e. unlikely to be made compulsory redundant) so instead whilst you are working increase the CS AVCs and then use the AVC pot to pay off your mortgage only when you retire (don't be in any hurry to overpay your mortgage).  

Obviously you will need to keep an eye on your mortgage balance and the AVC balance but for every £1,000 you put into your AVC pot if you take it as net pay this would only give you c.£600 (estimate) to be used to pay off your mortgage so you can see how much better it is to make AVC contributions rather than paying off your mortgage in a hurry before retirement. 

I'm not entirely sure what your salary is (and I'm not asking) but do ensure your pension and AVC contributions mean you only pay 20% income tax and don't fall into the 40% tax bracket.  

I know a lot of people wish to pay their mortgages off as soon as possible and I can understand that and for some people in less secure employment I can see the rationale but in your situation I would be happy having a mortgage term that currently ends when you are seventy (in reality you will pay it off when you draw down your AVC pot) as you know you will have the CS AVC pot to be used to pay off the balance.  

Option 2 

Another alternative if you don't like the suggestion above is to use the £9,000 against your mortgage and put the full £600/month into AVCs (as this can all be taken tax free at drawdown subject to limits) and then in five years (when your five year fix ends) you can reassess where you are with your mortgage and your AVC pot but subject to there not being huge market crashes use your AVC pot to pay off your mortgage would work out the cheaper option for you but you must be disciplined and keep an eye on your mortgage balance and AVC pot size to ensure you make sufficient AVC contributions to pay off any outstanding mortgage balance with it.  

Wishing you all the best.   

Dazed_and_C0nfused

I don't think civil service operate the same way as LGPS re the TFLS, it would just be the normal 25% of any DC pot built up.

LGPS seems an outlier in this respect.

hugheskevi

SarahB16 said:

Marmot said:

Hi, just wondering if I could get some thoughts on some planning I'm trying to do and it's partially pension related so thought I'd start by asking here.

I work for the civil service and from December will be moving up a grade to a new better salary - I'm trying to work out the best plan for the additional income I'll have coming in.  Here's a bit of background info:

• Age 53 (54 in May 2025)
• Civil Service Alpha pension - amount accrued by April 2025 just over £12,000
• On new salary I'll be accruing approx £1200 pension each year (when it's a full year accruing at that salary).
• Currently have no DC provision

Bit more background info/things I'm trying to factor in:

• Mortgage balance £102,000
• On fixed rate (4.47%) expiring July 2025. (term 17 years currently)
• Plan to over pay £9000 (currently in high-interest savings account) when remortgage to bring outstanding balance to £90,000, will probably then take a 5 year fix with 16 year term.  But this will mean that my age at end of mortgage is 70.  So I want to end this earlier than that.

Single income household, one dependent (11 years old), will most likely be going to university in 2031

State pension up to date and only a couple of more years to pay to bring it up to full amount.

With new salary I’ll have £600+ more income each month than I’m used to and I’m trying to decide what to do with some of that money.

My initial thoughts are to:

• start paying CS AVCs (to begin building up a DC pot) so I 'might' be able to retire earlier than SPA
• decide most effective way to get the mortgage finished earlier?  I guess a lot depends on what rate I get on my next mortgage…
• think about university costs and how best to manage those if still have mortgage

Any thoughts gratefully received :-)

Marmot

I am in the LGPS pension scheme and pay LGPS AVCs every month however I'm not sure if the CS AVCs work in the same way but I presume they do (i.e. you take your AVC pot tax free (subject to limits) when you begin drawing down your pension).  

CS AVCs are different. The CS AVCs can be taken independently of the main pension, and so can be taken at any age (subject to minimum pension age), but only has the standard 25% lump sum with the rest being taxable.

SarahB16 said:

Marmot said:

Hi, just wondering if I could get some thoughts on some planning I'm trying to do and it's partially pension related so thought I'd start by asking here.

I work for the civil service and from December will be moving up a grade to a new better salary - I'm trying to work out the best plan for the additional income I'll have coming in.  Here's a bit of background info:

• Age 53 (54 in May 2025)
• Civil Service Alpha pension - amount accrued by April 2025 just over £12,000
• On new salary I'll be accruing approx £1200 pension each year (when it's a full year accruing at that salary).
• Currently have no DC provision

Bit more background info/things I'm trying to factor in:

• Mortgage balance £102,000
• On fixed rate (4.47%) expiring July 2025. (term 17 years currently)
• Plan to over pay £9000 (currently in high-interest savings account) when remortgage to bring outstanding balance to £90,000, will probably then take a 5 year fix with 16 year term.  But this will mean that my age at end of mortgage is 70.  So I want to end this earlier than that.

Single income household, one dependent (11 years old), will most likely be going to university in 2031

State pension up to date and only a couple of more years to pay to bring it up to full amount.

With new salary I’ll have £600+ more income each month than I’m used to and I’m trying to decide what to do with some of that money.

My initial thoughts are to:

• start paying CS AVCs (to begin building up a DC pot) so I 'might' be able to retire earlier than SPA
• decide most effective way to get the mortgage finished earlier?  I guess a lot depends on what rate I get on my next mortgage…
• think about university costs and how best to manage those if still have mortgage

Any thoughts gratefully received :-)

Marmot

I'm not entirely sure what your salary is (and I'm not asking) but do ensure your pension and AVC contributions mean you only pay 20% income tax and don't fall into the 40% tax bracket.  

New salary of approx £52,000 based on stated accrual, with a taxable income from salary alone of  approx £49,000 after taking into account contributions to the alpha Civil Service pension scheme.

Marmot

Oppenheimer said:

Some food for thought.

I am a similar age with wife and children.

I joined the civil service autumn 2022 and have built up defined benefit pensions (across different employments) of £23,000 as at April 2024.

Another four years of working/national insurance contributions and I expect to be able to receive a full state pension in due course.

I have also recently been promoted, so, over and above the normal Alpha contributions, I pay £500 per month for added pension and £500 per month for the Legal & General AVC.

I am "filling my boots" with defined benefit pension while I can.

I want to retire at 60 and so think I will have built up a total defined benefit pensions of approx £33,000 at that time.  

I will use the AVC (and Mrs Oppenheimer) as a bridge between 60 until these income streams kick in.

We have a two income household which means I can aggressively save at this time (and for the first time in my life).

Why don't you split the £600 into £300 added pension and £300 AVC and get the best of both worlds.

That way you will have decent defined benefit pension to service a mortgage in later life if that becomes the case.

Re child at university - study locally and stay at home (if possible) - why should you/family members get in thousands of pounds worth of debt for this.  Most European kids stay at home while at college/university.

Good luck.

Thanks, useful to hear how someone else is approaching it and given me good food for thought.  I hadn't really thought about Added Pension before.  I think the thing that makes me hesitate about adding more DB is because I don't have a spouse that pension would only have a limited life for my dependent (until they leave tertiary education).  So is it worth me ploughing more into that as if I were to snuff it relatively prematurely the DB would then be gone.  But this had made me think about whether I put more into the AVCs and then potentially use the 25% tax free as a chunk of money to throw at any remaining mortgage balance...  And then with the AVCs there is at least a pot of money to be left beyond me.  Thanks again.

Marmot

Thanks for all the comments, useful thoughts.  Yes with the CS AVCs can only get 25% out tax free.  I think I'll plug some numbers into a DC pension calculator and see what I 'might' have in say 10 years if I put in certain amounts and see whether the 25% tax free from that could be used against the mortgage.