Civil service alpha pension and mat leave

ChickAt94

Hi,

I am embarrassed to say I really understand very little about my civil service pension and am now trying to educate myself this year.

I went on maternity leave twice for 2 years in total, each time inc 3 months on SMP and 3 months unpaid. I am now wondering if I should have topped my pension up in some way to make up for this? Or if there is even an option to do so now via a lump sum of sort?

Thanks in advance.

hugheskevi

You have several ways to enhance the value of your Civil Service pension:

• Added Pension
• EPA
• AVCs (Defined Contribution)
• Separate pension contributions, eg, to a SIPP
• Possibly LISA as an alternative

Forget about any notions of topping up to make up for a specific period - everyone's pension is different due to varying past pensionable earnings and service length, it is unlikely that anyone has the perfect amount of pension at any given time that then needs to be made good for things like maternity leave.

You should be working out what you think you need at retirement, what you have already accrued, what you will accrue between now and retirement, and putting in place plans to address any shortfall.

Emmia

YasMinMia94 said:

Hi,

I am embarrassed to say I really understand very little about my civil service pension and am now trying to educate myself this year.

I went on maternity leave twice for 2 years in total, each time inc 3 months on SMP and 3 months unpaid. I am now wondering if I should have topped my pension up in some way to make up for this? Or if there is even an option to do so now via a lump sum of sort?

Thanks in advance.

https://www.civilservicepensionscheme.org.uk/faqs/increase-your-pension/how-can-i-pay-more-into-my-pension/#:~:text=There are different ways to,Service Additional Voluntary Contribution Scheme.

You could try looking at the CS Pensions website. You have the option of topping up in various ways,  or buying additional pension.

ChickAt94

Thank you both. I've spent a bit of time now on these forums and the CSP website to try and understand the options. I have to say the CSP website makes a lot more sense after reading some of the scenarios worked out by forumites here first! 

I had not clocked there were 3 internal CSP options to top up. Nor that when you do top up they're not matched by the employer. Doh!

It's all still hazy but a plan is coming together and I would appreciate any thoughts on whether this makes sense.

I am 40, and have built up an alpha benefit of about £8000 and my salary is now approx £66k. I am considering options to leave the civil service in the next year or two to the private sector which is what first spurred me to consider if I have optimised my pension here before I do that. My expectation is i would have to start a SiPP then. I think the earliest realistic retirement possible for me is 60 given children's age etc. I do not have another pension, but started maximising my LISA for the last 2 years. 

1) I had made a hasty decision in April to "top up" following advice from another colleague back from matleave and did not realise my small contribution was being put into a separate AVC pot which is returning a paltry 2%ish. So now I need to figure out how to take that out and put it elsewhere. I guess I need to find a SIPP or such wrapper to transfer the money into. L&G have easily available info for how to bring money into the pot, but not much about how to take it out! I have found a form on CSP to atleast stop future payments.

2) What to do with my current pension: it feels like getting Added Pension should be my priority for if I want to increase my ability to draw out a lump sum at 60 and reduce the inevitable impact on the benefit from 68. This seems preferable to a EPA as this can only be accessed at 65 at the earliest for me. AP feels more flexible. Is that right?

3) My reading of things is that I can't start monthly AP payments until 1 April 2025 now though. I think making enough to reduce my 40% tax band by upping my pension contributions by as close to £15,924/yr as possible ie incraes comtribution from standard 7.35 to 24%. But I can still make a one off lump sum payment now before April and then start monthly AP. Is that right? I probably could put one months salary in to a lump sum.

4) I think the early retirement modeller seems to assume I stay in my current role until I retire so it doesn't work out what my expected pension could be if I left the CS and stopped paying in tomorrow, but wished to draw on it as a deferred pensio in 20 years time. I read on CSP that reductions are about 4% for every year before 68 that I draw my pension. I've modelled that on a spreadsheet so that from age 60, with a £8000 benefit now ans 4% reduction each year for 8 years, I get down to £5771. If I put in a lump sum of £4000 the calculator says I earn £349 added to my alpha benefit. The same spreadsheet calculation gets me to £6022 benefit pa from age 60. I have no idea if these assumptions are reasonable! Also I don't understand how the 25% tax free from pot is calculated for a DB scheme and so have not been able to consider that in my crude modelling. Any ideas?

I've probably gone down random rabbit holes by accident. So any redirection is very much welcomed!

hugheskevi

ChickAt94 said:

I do not have another pension, but started maximising my LISA for the last 2 years. 

It is unusual to prefer a LISA contribution to a pension contribution benefitting from higher rate tax relief - was there a reason for this?

ChickAt94 said:

1) I had made a hasty decision in April to "top up" following advice from another colleague back from matleave and did not realise my small contribution was being put into a separate AVC pot which is returning a paltry 2%ish. So now I need to figure out how to take that out and put it elsewhere. I guess I need to find a SIPP or such wrapper to transfer the money into. L&G have easily available info for how to bring money into the pot, but not much about how to take it out! I have found a form on CSP to atleast stop future payments.

If you do not like the default fund, L+G offer many other funds, do any of those suit your objectives?

ChickAt94 said:

2) What to do with my current pension: it feels like getting Added Pension should be my priority for if I want to increase my ability to draw out a lump sum at 60 and reduce the inevitable impact on the benefit from 68. This seems preferable to a EPA as this can only be accessed at 65 at the earliest for me. AP feels more flexible. Is that right?

Taking a lump sum at 60 at a commutation rate of 12:1 would usually be a very poor financial decision. 

You can take your pension whenever you want, there is no difference in flexibility between AP and EPA. It is unclear exactly what you are intending - if you want lump sum at 60 from alpha, you would need to also take income, you cannot separate the lump sum from income.

The return on Added Pension is CPI+1.7% but effectively without a tax free lump sum, if the AVC scheme's return (plus a tax free lump sum) is unsatisfactory, are you content with this?

ChickAt94 said:

3) My reading of things is that I can't start monthly AP payments until 1 April 2025 now though. I think making enough to reduce my 40% tax band by upping my pension contributions by as close to £15,924/yr as possible ie incraes comtribution from standard 7.35 to 24%. But I can still make a one off lump sum payment now before April and then start monthly AP. Is that right? I probably could put one months salary in to a lump sum.

Yes that is correct.

ChickAt94 said:

4) I think the early retirement modeller seems to assume I stay in my current role until I retire so it doesn't work out what my expected pension could be if I left the CS and stopped paying in tomorrow, but wished to draw on it as a deferred pensio in 20 years time. I read on CSP that reductions are about 4% for every year before 68 that I draw my pension. I've modelled that on a spreadsheet so that from age 60, with a £8000 benefit now ans 4% reduction each year for 8 years, I get down to £5771. If I put in a lump sum of £4000 the calculator says I earn £349 added to my alpha benefit. The same spreadsheet calculation gets me to £6022 benefit pa from age 60. I have no idea if these assumptions are reasonable! Also I don't understand how the 25% tax free from pot is calculated for a DB scheme and so have not been able to consider that in my crude modelling. Any ideas?

The latest early retirement factors are at this link, you can check exactly what they are (though they will change in the future).

You commute alpha pension into tax free lum sum at the commutation rate of £12 of tax free lump sum per £1 of alpha pension commuted. It is a terrible rate, and usually best avoided if commencing pension at a relatively young age.

ChickAt94

Thanks very much for your response. 

1) lisa choice - down to ignorance im afraid.

2)  AVCs - there are others, I'll diversify and see, it's not the biggest amount so interesting to see what happens to it.

3) Lump sum - i think i can make a lump sum of upto £9k from my bank account. I cant see that exceeding the £60k annual limit even taking jnto account my 7.24% contributions monthly now. I'll see if im in a position to make amother lump sum this time next year. As this is from taxed income, how do I claim the tax back? It says direct from HMRC on the CSP, but when I look on HMRC the self assessed tax form doesn't seem to be for that. Does anyone know what form I have to use?

4) I have to make an application to increase my monthly payments from 1 April 2025 after I've paid this lump sum to get as close to reducing my 40% tax payments.

5) I was thinking originally of taking early retirement and drawing down as well as claiming a lump sum, but i see what you mean now about it being very unattractive. Also regarding EPA vs added pension, my impression was that EPA could only be accessed from 65, while if I just did added pension, then I could start to draw down earlier than 65 if that was vaguely feasible by the time I get to say 60-64. That's what I meant about flexibility.

hugheskevi

3) Lump sum - i think i can make a lump sum of upto £9k from my bank account.

You can make a much larger contribution if you wish - the £9K limit is the annual amount of Added Pension payable (excluding increases) you can purchase. The cost of £9K of Added Pension would be something like £150,000 depending on age. Hence you can contribute hundreds of thousands toward Added Pension, not a mere £9,000.

As this is from taxed income, how do I claim the tax back? It says direct from HMRC on the CSP, but when I look on HMRC the self assessed tax form doesn't seem to be for that. Does anyone know what form I have to use?

Main tax return, Tax Reliefs section (page 6), box 3 "Payments to your employer’s scheme which were not deducted from your pay before tax – this will be unusual - read the notes"

regarding EPA vs added pension, my impression was that EPA could only be accessed from 65, while if I just did added pension, then I could start to draw down earlier than 65 if that was vaguely feasible by the time I get to say 60-64. That's what I meant about flexibility.

EPA can be accessed at any age (subject to minimum pension age). It just means that the actuarial reduction is calculated from a lower age. For example, if you took the pension at age 62 then the EPA portion would have a 3-year actuarial reduction and the 'normal' alpha pension would have a 6 year actuarial reduction.

sammyjammy

Not sure if anyone has addressed it but the Alpha pension doesn't come with an automatic lump sum, hence the 12:1 reduction from your pension, there is also no 25%m that only applies to Defined contribution pensions.

ChickAt94

hugheskevi said"

regarding EPA vs added pension, my impression was that EPA could only be accessed from 65, while if I just did added pension, then I could start to draw down earlier than 65 if that was vaguely feasible by the time I get to say 60-64. That's what I meant about flexibility.

EPA can be accessed at any age (subject to minimum pension age). It just means that the actuarial reduction is calculated from a lower age. For example, if you took the pension at age 62 then the EPA portion would have a 3-year actuarial reduction and the 'normal' alpha pension would have a 6 year actuarial reduction.

Hm does that mean it might be worthwhile me getting an EPA then? Given I intend to leave the civil service in a couple of years, I buy EPA3 for 2 years, then when I get to 65 what is it that will be available? The pot of the 2 years of EPA payment? The calculator just says i would have to pay 4.3% of income, what i don't understand is how much it gets me at 65. Or does it just get me access to my £8k pension at 65 without reductions? That doesn't seem right! 

hugheskevi

ChickAt94 said:

hugheskevi said"

regarding EPA vs added pension, my impression was that EPA could only be accessed from 65, while if I just did added pension, then I could start to draw down earlier than 65 if that was vaguely feasible by the time I get to say 60-64. That's what I meant about flexibility.

EPA can be accessed at any age (subject to minimum pension age). It just means that the actuarial reduction is calculated from a lower age. For example, if you took the pension at age 62 then the EPA portion would have a 3-year actuarial reduction and the 'normal' alpha pension would have a 6 year actuarial reduction.

Hm does that mean it might be worthwhile me getting an EPA then? Given I intend to leave the civil service in a couple of years, I buy EPA3 for 2 years, then when I get to 65 what is it that will be available? The pot of the 2 years of EPA payment? The calculator just says i would have to pay 4.3% of income, what i don't understand is how much it gets me at 65. Or does it just get me access to my £8k pension at 65 without reductions? That doesn't seem right! 

It gets you the annual amount of alpha pension you earn whilst paying EPA payable without reduction from an earlier EPA age rather than the standard State Pension age.

So if you accrue £1,500 of alpha pension per year, and you choose to pay EPA for -3 years for two years, then the £3,000 of pension you accrue during those two years is payable without reduction from age 65 (assuming State Pension age is 68).

It really is very simple, there is nothing complicated about it, don't overthink it.

ChickAt94

Actually thinking about this EPA thing, I think what you're saying is that if I tried to draw my pension at say 60, then the 2 year amount I paid by EPA3 would only be reduced by actuarial rates from 65. The rest would be reduced from 68.