CS Alpha - early reduction factors

Yorkie1

I've been looking at what I think are the reduction factors for taking Alpha early:
Factors Guidance Hub | CSPS_GB

My NPA / SPA is currently 67. I have also been buying EPA -2, but not for the whole duration of Alpha, so I will have two parts with different nominal retirement dates (age 65 and 67) but which must be taken together. The plan is to take all Alpha at age 65, with the pension accrued during the non-EPA years reduced for early payment accordingly.

On my spreadsheet, I had got 0.892 as the multiplier factor for the non-EPA Alpha pension. But that was input some time ago and, looking at the factors from the current spreadsheet (I think tab x-404), it looks like 0.897 now. 

Have I got that right? Thanks.

hugheskevi

That looks right.

You will be able to buy-out the actuarial reduction when you commence your pension at age 65 should you wish, with the cost of the buy-out benefitting from tax relief.

Yorkie1

hugheskevi said:

That looks right.

You will be able to buy-out the actuarial reduction when you commence your pension at age 65 should you wish, with the cost of the buy-out benefitting from tax relief.

Many thanks for confirming.

I don't quite understand the buy-out comment, though. I don't remember hearing of this before.

On current procedures (it's 10 years away in reality), at the point you ask to take your pension at 65, do you ask for a figure for buying out the reduction, and then make a lump sum payment (perhaps net of basic rate tax??) somehow? Or would the cost be deducted in another way?

hugheskevi

When you get a retirement quote you can elect to make a one-off payment to buyout the reduction. In this case, as you would be taking it at age 65 rather than age 67, the cost of buy out would be slightly below 2 years of the annual pension with normal pension age of 67 (set out in table x-704).

You would need to make the full payment (probably by debit card), with no tax relief, and then reclaim the relief from HMRC.

It is useful for those who might be retiring from full-time work and paying higher rate tax, given you get the money back within a short time.

Yorkie1

Fantastic, thanks. Looking at my adjusted spreadsheet (that extra 0.005 will buy at least three extra packs of Ryvita!!), I can't see myself being in higher rate territory once in retirement, either at 60 when I take Classic, or 65 when I add Alpha into the equation, or even at SP age (on current values, at least).

Dazed_and_C0nfused

Yorkie1 said:

Fantastic, thanks. Looking at my adjusted spreadsheet (that extra 0.005 will buy at least three extra packs of Ryvita!!), I can't see myself being in higher rate territory once in retirement, either at 60 when I take Classic, or 65 when I add Alpha into the equation, or even at SP age (on current values, at least).

Just so you are aware the tax relief due on that type of direct payment is limited by the amount of tax you have paid in the same tax year, there is no guarantee of getting basic rate relief even, like you would with a relief at source contribution.

Might not be a problem but not everyone realises this limitation.

Wobble101

I’ve read this with interest as I’m in a similar position to @Yorkie1 but retiring earlier (60). I’d not been aware of the option to buy out the reduction so will read the guidance on this with interest. In my case I wasn’t planning to take my Alpha pension until I was a few years into retirement, to minimise the reduction. 

Regarding the tax claim, @Dazed_and_C0nfused mentioned this is limited by the tax you’ve paid that year - could you elaborate on that? What are the key issues here - or is there a link you could point me towards?

Dazed_and_C0nfused

Wobble101 said:

I’ve read this with interest as I’m in a similar position to @Yorkie1 but retiring earlier (60). I’d not been aware of the option to buy out the reduction so will read the guidance on this with interest. In my case I wasn’t planning to take my Alpha pension until I was a few years into retirement, to minimise the reduction. 

Regarding the tax claim, @Dazed_and_C0nfused mentioned this is limited by the tax you’ve paid that year - could you elaborate on that? What are the key issues here - or is there a link you could point me towards?

The key issue is that there is no automatic tax relief like there is with relief at source contributions.

Say you make a gross contribution like mentioned in this thread and have paid £500 in tax on your total taxable income.  The maximum tax relief due would be £500.  Even if you paid a gross contribution of say £10,000.

It won't be an issue for most people but there have been posters in the past who mistakenly thought HMRC would give 20% tax relief irrespective of the tax paid, as happens with relief at source contributions.

michaels

Dazed_and_C0nfused said:

Wobble101 said:

I’ve read this with interest as I’m in a similar position to @Yorkie1 but retiring earlier (60). I’d not been aware of the option to buy out the reduction so will read the guidance on this with interest. In my case I wasn’t planning to take my Alpha pension until I was a few years into retirement, to minimise the reduction. 

Regarding the tax claim, @Dazed_and_C0nfused mentioned this is limited by the tax you’ve paid that year - could you elaborate on that? What are the key issues here - or is there a link you could point me towards?

The key issue is that there is no automatic tax relief like there is with relief at source contributions.

Say you make a gross contribution like mentioned in this thread and have paid £500 in tax on your total taxable income.  The maximum tax relief due would be £500.  Even if you paid a gross contribution of say £10,000.

It won't be an issue for most people but there have been posters in the past who mistakenly thought HMRC would give 20% tax relief irrespective of the tax paid, as happens with relief at source contributions.

In such a case you would probably be better off paying into a sipp rather than buying out the reduction.

Wobble101

Dazed_and_C0nfused said:

Wobble101 said:

I’ve read this with interest as I’m in a similar position to @Yorkie1 but retiring earlier (60). I’d not been aware of the option to buy out the reduction so will read the guidance on this with interest. In my case I wasn’t planning to take my Alpha pension until I was a few years into retirement, to minimise the reduction. 

Regarding the tax claim, @Dazed_and_C0nfused mentioned this is limited by the tax you’ve paid that year - could you elaborate on that? What are the key issues here - or is there a link you could point me towards?

The key issue is that there is no automatic tax relief like there is with relief at source contributions.

Say you make a gross contribution like mentioned in this thread and have paid £500 in tax on your total taxable income.  The maximum tax relief due would be £500.  Even if you paid a gross contribution of say £10,000.

It won't be an issue for most people but there have been posters in the past who mistakenly thought HMRC would give 20% tax relief irrespective of the tax paid, as happens with relief at source contributions.

So the amount you could reclaim is basically capped at the amount of tax you’d paid that year? That’s helpful to know - thank you.  

Dazed_and_C0nfused

Wobble101 said:

Dazed_and_C0nfused said:

Wobble101 said:

I’ve read this with interest as I’m in a similar position to @Yorkie1 but retiring earlier (60). I’d not been aware of the option to buy out the reduction so will read the guidance on this with interest. In my case I wasn’t planning to take my Alpha pension until I was a few years into retirement, to minimise the reduction. 

Regarding the tax claim, @Dazed_and_C0nfused mentioned this is limited by the tax you’ve paid that year - could you elaborate on that? What are the key issues here - or is there a link you could point me towards?

The key issue is that there is no automatic tax relief like there is with relief at source contributions.

Say you make a gross contribution like mentioned in this thread and have paid £500 in tax on your total taxable income.  The maximum tax relief due would be £500.  Even if you paid a gross contribution of say £10,000.

It won't be an issue for most people but there have been posters in the past who mistakenly thought HMRC would give 20% tax relief irrespective of the tax paid, as happens with relief at source contributions.

So the amount you could reclaim is basically capped at the amount of tax you’d paid that year? That’s helpful to know - thank you.  

Yes.  One or two people posting on here have been caught out by that in the past, expecting a fixed %, like you would get with RAS contributions.