CSPS: Using Scheme Pays to pay a tax charge; what to think about?

pandejengibre

Hi all,

This is my first pos. I've got a tax charge on my civil service pension CSPS for this year of £3000, which I can either pay from my own funds or use the Scheme Pays to pay it. I'm keen to check that I'm thinking properly about it all before making a decision and finding it very hard to get anything resembling advice from the workplace! 

I'm a 40yo f, I have both nuvos and alpha pension pots having worked in the CS for 16 years. I can either pay the bill myself or accept a permanent reduction to one of the pots. I am presuming:

- If I can pay the charge (I can this year) then it's a good use of money as it will guarantee an inflation-linked extra amount to my pension. 
- But if in future years I can't pay the charge (this might happen as I'll be overseas quite a lot and may well get bigger bills) then using Scheme Pays shouldn't worry me too much- I'll still be up overall, and if the bill is much bigger than it would prevent me e.g. from investing in my ISA.
- I should use Scheme Pays to reduce my alpha pot (with retirement age of 68/SPA) not my nuvos pot which has a retirement age of 65. 

I have an ISA, LISA and JISAs for my three kids, all invested in low-cost index tracker funds. Also could helpfully overpay mortgage. So there are plenty of other pots I could put that £3K into. This year the tax bill doesn't really make a huge difference to my ability to feed those other pots, but if it goes up then I'm keen to ensure I am thinking through all elements clearly.

Many thanks in advance!

Marcon

pandejengibre said:

Hi all,

This is my first pos. I've got a tax charge on my civil service pension CSPS for this year of £3000, which I can either pay from my own funds or use the Scheme Pays to pay it. I'm keen to check that I'm thinking properly about it all before making a decision and finding it very hard to get anything resembling advice from the workplace! 

They aren't being difficult. They are not allowed to give financial advice, which is what you are hoping for - they can only give information.

pandejengibre said:

I'm a 40yo f, I have both nuvos and alpha pension pots having worked in the CS for 16 years. I can either pay the bill myself or accept a permanent reduction to one of the pots. I am presuming:

- If I can pay the charge (I can this year) then it's a good use of money as it will guarantee an inflation-linked extra amount to my pension. 
- But if in future years I can't pay the charge (this might happen as I'll be overseas quite a lot and may well get bigger bills) then using Scheme Pays shouldn't worry me too much- I'll still be up overall, and if the bill is much bigger than it would prevent me e.g. from investing in my ISA.
- I should use Scheme Pays to reduce my alpha pot (with retirement age of 68/SPA) not my nuvos pot which has a retirement age of 65. 

I have an ISA, LISA and JISAs for my three kids, all invested in low-cost index tracker funds. Also could helpfully overpay mortgage. So there are plenty of other pots I could put that £3K into. This year the tax bill doesn't really make a huge difference to my ability to feed those other pots, but if it goes up then I'm keen to ensure I am thinking through all elements clearly.

Many thanks in advance!

This post is likely to help: https://forums.moneysavingexpert.com/discussion/6589313/public-sector-adjustment-calculation-scheme-pays

hugheskevi

pandejengibre said:

I have both nuvos and alpha pension pots having worked in the CS for 16 years. 
...

This year the tax bill doesn't really make a huge difference to my ability to feed those other pots, but if it goes up then I'm keen to ensure I am thinking through all elements clearly.

Are you making voluntary pension contributions? With a nuvos/alpha combination, you should not have an Annual Allowance charge based on standard pension contributions unless your income is in excess of £160,000 pa. In that case, financial advice is likely to be beneficial.

pandejengibre

Marcon said:

pandejengibre said:

Hi all,

This is my first pos. I've got a tax charge on my civil service pension CSPS for this year of £3000, which I can either pay from my own funds or use the Scheme Pays to pay it. I'm keen to check that I'm thinking properly about it all before making a decision and finding it very hard to get anything resembling advice from the workplace! 

They aren't being difficult. They are not allowed to give financial advice, which is what you are hoping for - they can only give information.

pandejengibre said:

I'm a 40yo f, I have both nuvos and alpha pension pots having worked in the CS for 16 years. I can either pay the bill myself or accept a permanent reduction to one of the pots. I am presuming:

- If I can pay the charge (I can this year) then it's a good use of money as it will guarantee an inflation-linked extra amount to my pension. 
- But if in future years I can't pay the charge (this might happen as I'll be overseas quite a lot and may well get bigger bills) then using Scheme Pays shouldn't worry me too much- I'll still be up overall, and if the bill is much bigger than it would prevent me e.g. from investing in my ISA.
- I should use Scheme Pays to reduce my alpha pot (with retirement age of 68/SPA) not my nuvos pot which has a retirement age of 65. 

I have an ISA, LISA and JISAs for my three kids, all invested in low-cost index tracker funds. Also could helpfully overpay mortgage. So there are plenty of other pots I could put that £3K into. This year the tax bill doesn't really make a huge difference to my ability to feed those other pots, but if it goes up then I'm keen to ensure I am thinking through all elements clearly.

Many thanks in advance!

This post is likely to help: https://forums.moneysavingexpert.com/discussion/6589313/public-sector-adjustment-calculation-scheme-pays

Thank you- that link was indeed helpful!

pandejengibre

hugheskevi said:

pandejengibre said:

I have both nuvos and alpha pension pots having worked in the CS for 16 years. 
...

This year the tax bill doesn't really make a huge difference to my ability to feed those other pots, but if it goes up then I'm keen to ensure I am thinking through all elements clearly.

Are you making voluntary pension contributions? With a nuvos/alpha combination, you should not have an Annual Allowance charge based on standard pension contributions unless your income is in excess of £160,000 pa. In that case, financial advice is likely to be beneficial.

Thanks for your reply- yes, high income. Your comment in the thread linked above is very helpful (copied below in italics).

I have the calculations for how much my alpha and nuvos would be reduced per year if I used Scheme Pays and it's a matter of £350ish per year if I use Scheme Pays from alpha for this bill. I presumed that if I paid the charge myself (without having clocked the pre/post-tax advantage point you make) then locking in an inflation-guaranteed £350 would be worth it if I lived for say 20 years after retirement (obviously not guaranteed!!) and that in that context the £3K bill, given I have the cash, would seem trifling. So that £350 which I would be losing in favour of £3K cash now, would equate to £350 + CPI + 1.7% (if I have understood your point below correctly) every year after my alpha pension age, is that right? I wasn't aware of the 1.7% rate, but perhaps I have misunderstood it. I thought the £350 would simply rise with CPI. 

Many thanks for your help!

Scheme Pays has a tax advantage as the payment is made from pre-tax money, whereas if you pay it yourself it will be from post tax funds. However, an interest rate applies (CPI+1.7%) which some find prohibitive when compounded over many years. 

If you want to pay yourself, then the payment is due immediately with no option to pay over time, as it is a tax liability. 

hugheskevi

pandejengibre said:

hugheskevi said:

pandejengibre said:

I have both nuvos and alpha pension pots having worked in the CS for 16 years. 
...

This year the tax bill doesn't really make a huge difference to my ability to feed those other pots, but if it goes up then I'm keen to ensure I am thinking through all elements clearly.

Are you making voluntary pension contributions? With a nuvos/alpha combination, you should not have an Annual Allowance charge based on standard pension contributions unless your income is in excess of £160,000 pa. In that case, financial advice is likely to be beneficial.

Thanks for your reply- yes, high income. Your comment in the thread linked above is very helpful (copied below in italics).

I have the calculations for how much my alpha and nuvos would be reduced per year if I used Scheme Pays and it's a matter of £350ish per year if I use Scheme Pays from alpha for this bill. I presumed that if I paid the charge myself (without having clocked the pre/post-tax advantage point you make) then locking in an inflation-guaranteed £350 would be worth it if I lived for say 20 years after retirement (obviously not guaranteed!!) and that in that context the £3K bill, given I have the cash, would seem trifling. So that £350 which I would be losing in favour of £3K cash now, would equate to £350 + CPI + 1.7% (if I have understood your point below correctly) every year after my alpha pension age, is that right? I wasn't aware of the 1.7% rate, but perhaps I have misunderstood it. I thought the £350 would simply rise with CPI. 

Many thanks for your help!

Scheme Pays has a tax advantage as the payment is made from pre-tax money, whereas if you pay it yourself it will be from post tax funds. However, an interest rate applies (CPI+1.7%) which some find prohibitive when compounded over many years. 

If you want to pay yourself, then the payment is due immediately with no option to pay over time, as it is a tax liability. 

The £350 p/a debit does increase in line with only CPI each year once the debit is put in place, and as that is what alpha increases by, it is simply taking a chunk off your accrued alpha pension (although things like survivor benefits are not affected by the debit, so it is not quite the same as actually removing some alpha accrual).

The CPI+1.7% is the discount rate used to calculate the £350 p/a debit. The discount rate is essentially the assumed rate of return, which in this context is akin to an interest rate. The higher the discount rate, the lower the debit, and vice-versa - the same as the principles of bond pricing.