Civil Service Alpha additional contributions timing

Slinky

My OH has worked for CS since 2020 and is currently aged 62.5. He's planning on stopping work at 65 but not drawing on his CS pension at that time. He is a 40% taxpayer.

He is considering making additional contributions to his CS pension, but has missed the cutoff date to put a lump sum into this current tax year. He could sign up for monthly contributions starting 1st April, but is there any benefit in doing this, or would he get the same result by leaving the lump sum invested elsewhere until nearer the end of the next tax year? He's aware he may have to pay the gross or possibly gross minus 20% tax in and claim the 40%/20% tax back rather than it being done via payroll.

A contribution of about £17.5K gross will give him about an extra £1K a year from age 67.

TIA for any help.

Marcon

Slinky said:

My OH has worked for CS since 2020 and is currently aged 62.5. He's planning on stopping work at 65 but not drawing on his CS pension at that time. He is a 40% taxpayer.

He is considering making additional contributions to his CS pension, but has missed the cutoff date to put a lump sum into this current tax year. He could sign up for monthly contributions starting 1st April, but is there any benefit in doing this, or would he get the same result by leaving the lump sum invested elsewhere until nearer the end of the next tax year? He's aware he may have to pay the gross or possibly gross minus 20% tax in and claim the 40%/20% tax back rather than it being done via payroll.

A contribution of about £17.5K gross will give him about an extra £1K a year from age 67.

TIA for any help.

Depends where it's invested, but highly unlikely to give such a massive return that it would fund an extra £1,000 a year from age 67 until his death.

Slinky

Marcon said:

Slinky said:

My OH has worked for CS since 2020 and is currently aged 62.5. He's planning on stopping work at 65 but not drawing on his CS pension at that time. He is a 40% taxpayer.

He is considering making additional contributions to his CS pension, but has missed the cutoff date to put a lump sum into this current tax year. He could sign up for monthly contributions starting 1st April, but is there any benefit in doing this, or would he get the same result by leaving the lump sum invested elsewhere until nearer the end of the next tax year? He's aware he may have to pay the gross or possibly gross minus 20% tax in and claim the 40%/20% tax back rather than it being done via payroll.

A contribution of about £17.5K gross will give him about an extra £1K a year from age 67.

TIA for any help.

Depends where it's invested, but highly unlikely to give such a massive return that it would fund an extra £1,000 a year from age 67 until his death.

Sorry, I don't think I explained that very well.  At the moment the money sitting is in my name in a savings account earning interest as I'm a non-taxpayer. We are married. He could invest it into the CS scheme at any time next year where it would buy him the extra £1K a year. If there is no additional benefit in putting a lump sum into the CS scheme in April 2025, we may as well leave it in the interest bearing account until as late as possible next tax year.  The other option was drip feeding across the year via payroll, and using the money from the interest bearing account to make up the shortfall of the reduction in his net pay.  It's not entirely clear from what he's read as to whether this 'additional contribution' works as a money purchase scheme with cost averaging rather than a defined benefit.

hugheskevi

Slinky said:

Marcon said:

Slinky said:

My OH has worked for CS since 2020 and is currently aged 62.5. He's planning on stopping work at 65 but not drawing on his CS pension at that time. He is a 40% taxpayer.

He is considering making additional contributions to his CS pension, but has missed the cutoff date to put a lump sum into this current tax year. He could sign up for monthly contributions starting 1st April, but is there any benefit in doing this, or would he get the same result by leaving the lump sum invested elsewhere until nearer the end of the next tax year? He's aware he may have to pay the gross or possibly gross minus 20% tax in and claim the 40%/20% tax back rather than it being done via payroll.

A contribution of about £17.5K gross will give him about an extra £1K a year from age 67.

TIA for any help.

Depends where it's invested, but highly unlikely to give such a massive return that it would fund an extra £1,000 a year from age 67 until his death.

Sorry, I don't think I explained that very well.  At the moment the money sitting is in my name in a savings account earning interest as I'm a non-taxpayer. We are married. He could invest it into the CS scheme at any time next year where it would buy him the extra £1K a year. If there is no additional benefit in putting a lump sum into the CS scheme in April 2025, we may as well leave it in the interest bearing account until as late as possible next tax year.  The other option was drip feeding across the year via payroll, and using the money from the interest bearing account to make up the shortfall of the reduction in his net pay.  It's not entirely clear from what he's read as to whether this 'additional contribution' works as a money purchase scheme with cost averaging rather than a defined benefit.

The same purchase factor applies for the full scheme year, so you get the same amount of AP for a purchase in May as you do for a purchase in February. 

You can keep funds invested longer if purchasing by lump sum late in year. But then you will have a wait for tax relief (you might be able to get some relief through Tax Coding) and the hassle of engaging with HMRC whereas purchase through payroll gives instant relief.

Slinky

hugheskevi said:

Slinky said:

Marcon said:

Slinky said:

My OH has worked for CS since 2020 and is currently aged 62.5. He's planning on stopping work at 65 but not drawing on his CS pension at that time. He is a 40% taxpayer.

He is considering making additional contributions to his CS pension, but has missed the cutoff date to put a lump sum into this current tax year. He could sign up for monthly contributions starting 1st April, but is there any benefit in doing this, or would he get the same result by leaving the lump sum invested elsewhere until nearer the end of the next tax year? He's aware he may have to pay the gross or possibly gross minus 20% tax in and claim the 40%/20% tax back rather than it being done via payroll.

A contribution of about £17.5K gross will give him about an extra £1K a year from age 67.

TIA for any help.

Depends where it's invested, but highly unlikely to give such a massive return that it would fund an extra £1,000 a year from age 67 until his death.

Sorry, I don't think I explained that very well.  At the moment the money sitting is in my name in a savings account earning interest as I'm a non-taxpayer. We are married. He could invest it into the CS scheme at any time next year where it would buy him the extra £1K a year. If there is no additional benefit in putting a lump sum into the CS scheme in April 2025, we may as well leave it in the interest bearing account until as late as possible next tax year.  The other option was drip feeding across the year via payroll, and using the money from the interest bearing account to make up the shortfall of the reduction in his net pay.  It's not entirely clear from what he's read as to whether this 'additional contribution' works as a money purchase scheme with cost averaging rather than a defined benefit.

The same purchase factor applies for the full scheme year, so you get the same amount of AP for a purchase in May as you do for a purchase in February. 

You can keep funds invested longer if purchasing by lump sum late in year. But then you will have a wait for tax relief (you might be able to get some relief through Tax Coding) and the hassle of engaging with HMRC whereas purchase through payroll gives instant relief.

Thanks very much for this. Is it likely that the cost to buy the extra £1K is likely to go up?

hugheskevi

Slinky said:

hugheskevi said:

Slinky said:

Marcon said:

Slinky said:

My OH has worked for CS since 2020 and is currently aged 62.5. He's planning on stopping work at 65 but not drawing on his CS pension at that time. He is a 40% taxpayer.

He is considering making additional contributions to his CS pension, but has missed the cutoff date to put a lump sum into this current tax year. He could sign up for monthly contributions starting 1st April, but is there any benefit in doing this, or would he get the same result by leaving the lump sum invested elsewhere until nearer the end of the next tax year? He's aware he may have to pay the gross or possibly gross minus 20% tax in and claim the 40%/20% tax back rather than it being done via payroll.

A contribution of about £17.5K gross will give him about an extra £1K a year from age 67.

TIA for any help.

Depends where it's invested, but highly unlikely to give such a massive return that it would fund an extra £1,000 a year from age 67 until his death.

Sorry, I don't think I explained that very well.  At the moment the money sitting is in my name in a savings account earning interest as I'm a non-taxpayer. We are married. He could invest it into the CS scheme at any time next year where it would buy him the extra £1K a year. If there is no additional benefit in putting a lump sum into the CS scheme in April 2025, we may as well leave it in the interest bearing account until as late as possible next tax year.  The other option was drip feeding across the year via payroll, and using the money from the interest bearing account to make up the shortfall of the reduction in his net pay.  It's not entirely clear from what he's read as to whether this 'additional contribution' works as a money purchase scheme with cost averaging rather than a defined benefit.

The same purchase factor applies for the full scheme year, so you get the same amount of AP for a purchase in May as you do for a purchase in February. 

You can keep funds invested longer if purchasing by lump sum late in year. But then you will have a wait for tax relief (you might be able to get some relief through Tax Coding) and the hassle of engaging with HMRC whereas purchase through payroll gives instant relief.

Thanks very much for this. Is it likely that the cost to buy the extra £1K is likely to go up?

Factors increase with each year of age (ie cost per £1K is higher for older members than it is for younger members). The actuarial factors are set out on this page. Alternatively just choose a date of birth one year younger on the Added Pension cost calculator. 

Separately, the scheme discount rate is reviewed from time to time and that can lead to a step-change in cost across all ages. Currently the discount rate is CPI+1.7%. There is no announced change of this at the current time.

Slinky

We've decided to leave the money in the interest bearing account, and that he'll buy 2 year's worth with a lump sum just before his next birthday in case the cost goes up when he's another year older.