Civil Service Premium & Alpha scheme member

Joff1965

Hi,

I have been in the Civil Service since 11/2004 and was originally in the Premium scheme but was transferred into the Alpha scheme. Like others I’m tied up in the McCloud judgement. I turned 60 in July 25 and so have 3 options, continue working, part retire or continue working. I also at 60 started to receive a private sector index linked DB pension. My premium/alpha pension last year was £23k/5k or pre-McCloud £13.5k in each scheme. I think I lose 5% for each year I take Alpha early so if I worked it out ok it is around age 62/63 that the early Alpha adoption from 2015 is worth more. With Capita having a backlog I can’t get any advice and most advice online seems to cover retiring early not after 60.

My salary plus private pension less CS pension contributions will exceed £100k next year so I start to lose my zero tax allowance. I would appreciate some help.

1. Premium scheme - I assume that I am forgoing any pension if I don’t retire/part retire until my actual retirement date unlike the previous schemes?
2. Part retirement - no plans to take this option
3. Retirement - I plan to retire between 63/64 around the tax year end a pension of £38k from the CS net of any reduction for taking the Alpha pension early.
4. I may be offered a voluntary exit scheme (VES) in the next 12 months.

So close to retirement is it worth making additional contributions to not lose my zero tax band and get tax back on them?

If offered a VES would it be better taking this in the current or next tax year and/or putting the over £30k into my pension or being so close to retirement investing the money net of tax?

Are there other tax implications I should consider continuing to work full time and retiring “early” at 63/64?

Thanks for any help.

hugheskevi

My premium/alpha pension last year was £23k/5k or pre-McCloud £13.5k in each scheme. I think I lose 5% for each year I take Alpha early so if I worked it out ok it is around age 62/63 that the early Alpha adoption from 2015 is worth more.

Is that the amount that would be paid with actuarial reduction, or at Normal Pension age? If it is at NPA then it is unusual to see such a large difference between the options.

With Capita having a backlog I can’t get any advice and most advice online seems to cover retiring early not after 60.

You wouldn't get any advice from Capita even if you did speak to them. At best you would be provided with factual information to specific technical questions you put to them, eg, how is my Premium pension treated after age 60 if I continue in work and do not claim it? Even then you may well not get anything helpful back.

Premium scheme - I assume that I am forgoing any pension if I don’t retire/part retire until my actual retirement date unlike the previous schemes?

Yes, and classic is not different in this regard - if you had remained full time in alpha and continued past 60 you would also forfeit the classic pension due until such time that you claimed the pension.

Part retirement - no plans to take this option

You are working a good chunk of the week just in return for accruing alpha pension. Many in your position would look to positions in local govt or maybe the NHS.

So close to retirement is it worth making additional contributions to not lose my zero tax band and get tax back on them?

Probably. Even though you are likely to be a higher rate taxpayer in future years, paying 30% tax (25% tax free, 75% taxed at 40%) is a lot better than paying 60% tax on income between £100-125K.

If offered a VES would it be better taking this in the current or next tax year and/or putting the over £30k into my pension or being so close to retirement investing the money net of tax?

It would be very surprising for a VES to be paid this tax year if an offer hasn't even been made yet. typically it would be at least 10 days to consider offer, then 3 months notice. Even if you were to respond immediately, waive notice, and your management agreed, it would still be unlikely your HR were in a position to instruct payroll to make the payment by mid March. Some could, but it is extremely unlikely. Anyhow, if you already have close to £100K taxable income this year, it woud seem better to have it paid next year anyway, or at least, no worse.

Are there other tax implications I should consider continuing to work full time and retiring “early” at 63/64?

You appear to be a higher rate taxpayer in all future years whatever you do. So you can avoid the higher tax above £100K as a minimum. But you are also probably incentivised to put higher rate income into a pension too, that is a 17% uplift (£70/£60) due to the lump sum.

There is also buying out alpha pension reduction to consider too.

But if you are happy forfeiting somewhere between £13.5K and £23K of pension income each year rather than taking the Premium pension, tax savings probably aren't too much of a concern.

Joff1965

Thanks for your reply.

Yes the figures quotes are NPA. As I only joined in 2004 and got promoted (now £45k more pa income than when I started with over half the increase since 2020) the difference seems right in my estimation bearing in mind austerity and marking time for several years.

On the remainder, thank you.

I think EPA can only bring things forward up to 3 years so I’d be tied to 64 on the Alpha part if I took that route. I’d like flexibility so maybe not an option.

The VES if offered won’t be in this tax year, I just wanted to understand if I had understood that I should either stall to the next year to reduce tax or again look to add to my pension.

I’m currently saving a deposit for my son to buy a house (how can this generation ever find a deposit in the SE?) hence not part retiring so I’ll just add any annual sum to my pension to stay below £100k even if the eventual benefits are small they come to me not tab. whoever thought with frozen thresholds a clerical grade civil servant would be worried about higher threshold implications.

Thank you again for your review and confirming the hours of internet searches can up with the right answer.

hugheskevi

Yes the figures quotes are NPA. As I only joined in 2004 and got promoted (now £45k more pa income than when I started with over half the increase since 2020) the difference seems right in my estimation bearing in mind austerity and marking time for several years.

Apologies, I said above the difference quoted would be unusual if the figures are as at NPA. I meant to put that the difference would be surprising if they are after actuarial reduction. You can't compare figures as at NPA given Premium is payable from 60 and alpha from 67. You should look at comparisons taking into account actuarial reductions so as to be largely comparing like with like (there are some differences between survivor benefits, but those are very minor in the overall value of the pension).

I think EPA can only bring things forward up to 3 years so I’d be tied to 64 on the Alpha part if I took that route. I’d like flexibility so maybe not an option.

EPA is different to buy-out. EPA reduces the age at which benefits are paid without reduction by up to 3 years, with a maximum reduction to age 65. It only applies to the newly accruing pension for which EPA contributions are paid.

Buy-out is done when the pension is commenced before Normal Pension age, with a lump sum contribution made on an actuarially neutral basis so that the pension is put into payment without reduction for early payment. This can be helpful to make large contributions in final year of employment, as using buy-out does not count as a pension input, so contributions of even hundreds of thousands can be made with tax relief but no Annual Allowance implications.

I’m currently saving a deposit for my son to buy a house (how can this generation ever find a deposit in the SE?) hence not part retiring

Not sure I understand that - if you part-retired and claimed your Premium pension, setting part-time hours so as to avoid abatement, your net income would be higher than it is currently (as you do not pay National Insurance on pension income). You would accrue less alpha pension, so your long term pension income would be a bit lower, but as it is you are working a decent chunk of each week solely for pension accrual.

indiasign

I was also going to suggest revisiting the partial retirement question

I took my Premium pension a couple of years ago at 60 and dropped a day to avoid abatement, keeping my overall income pretty much the same. But I also viewed it as a way to ease myself in to the concept of retirement, and get some idea of what I was going to do with my time.

As a result, my garden has never had as much attention in the previous 20 years, and my rudimentary photography skills are improving (slightly!) 🙂

Joff1965

OK thank you. this has been incredibly helpful to explain options. On that info I’ll look again at the part retirement as you say it looks like it’s only a small reduction overall, less tax and better work life balance.

In looking at pensions I have created a spreadsheet with last years pension, used the discount for early retirement, Alpha yearly growth etc to have a comparison year by year from 59-67 using early and late inclusion in Alpha so have figures with the only unknowns being pay increases from July 2028 and CPI. The one thing I forgot was that the Premium pension grows after being taken hence it may be an option as long as I can structure my job to avoid abatement.

My garden and golf clubs could certainly do with the time…🙃

horsewithnoname

if you went for partial retirement you could exchange pension for tax free lump sum - if you don’t actually need your full pension in your retirement, it might be a way to get a lump sum for your son’s house deposit?
you can check the lump sum available for premium and alpha on the lump sum calculator linked to on this page https://www.civilservicepensionscheme.org.uk/memberhub/knowledge-centre/tools-and-calcs/pension-calculators/

Joff1965

Thanks for that @horsewithnoname at present I think I can save the deposit in 3 years so better that than take the £8.5k hit to my annual pension which with index linking is a much bigger amount over the time I’ll hopefully have in retirement. Always an option though if I want or need to retire unexpectedly.