Voluntary Contributions or Topping up Alpha?

Sumarokov · 5 August 2018 at 7:05PM

Hello. I have a bit of a complicated situation and I am hoping that some of the better minds on here can offer some useful advice, hints or pointers. I am 47 and my pension is as follows:

1. 4 years of full contributions, 19 years to contribute before 5 April 2037, 28 years when you did not contribute enough.

2. You can get your State Pension on DATE 2038. Your forecast is £108.01 a week, £469.65 a month or £5,635.81 a year.

3. I have until 5 April 2023 to pay voluntary contributions to make up for gaps between April 2006 and April 2016. They are basically £700 a year (I have the savings to manage this, because I put money aside when I was working overseas).

My basic plan is to make the contributions outlined in [3]. However, is there a site (or anyone on here) that can recalculate by how much this would up my state pension, so I can check that it is REALLY worth it???

Finally, I have just started a civil service job. I have worked one full year and contributed to Alpha (and plan to do so for the next 20 years). Obviously, right now my "annual alpha pension" is low (£371).

Are there any benefits to be had from upping my Alpha contributions, rather than paying the voluntary contributions to my state pension? Or maybe doing both?

Happy to provide any other information needed and grateful for any pointers/advice.

Sumarokov · 5 August 2018 at 7:35PM

Beginning with 2006-07 and ending in 2016-17, the amounts are:

£689 + £689 + £689 + £689 + £626.60 + £655.20 + £689 + £704.60 + £722.80 + £733.20 + £733.20

Or a total to "buy" eleven years of £7,620.60

molerat · 5 August 2018 at 7:37PM

Those prices will increase considerably after April 2019, something around £785 each so another £1K, and increase each year.

Sumarokov · 10 August 2018 at 11:33PM

I am finding it hard to understand my Alpha pension. Not so much things like when to start receiving it, but what my "annual alpha pension" is likely to be after 20 years of contributions? I have tried and not been unable to find this information at source.

Tom99 · 11 August 2018 at 12:34AM

Sumarokov wrote: »

Beginning with 2006-07 and ending in 2016-17, the amounts are:
£689 + £689 + £689 + £689 + £626.60 + £655.20 + £689 + £704.60 + £722.80 + £733.20 + £733.20
Or a total to "buy" eleven years of £7,620.60

[FONT=Verdana, sans-serif]Buying all 11 years for £7,620.60 will get you an extra state pension of £51.65 per week or £2,693 pa.[/FONT]
[FONT=Verdana, sans-serif]That's a cost now 2.83x the annual index linked pension pa you will get.[/FONT]
[FONT=Verdana, sans-serif]There is no way topping up Alpha would match that.[/FONT]
[FONT=Verdana, sans-serif]For a male in Alpha buying for retirement in 2038 then £2,693pa would cost a lump sum now of £25,881. So that's a factor of 9.61 or nearly three and a half times as much as paying the missing NI years to increase you state pension.[/FONT]
[FONT=Verdana, sans-serif]What you would get for your money should be exactly the same ie and extra £2,693pa index linked to CPI with no refund if you die before collecting it in 2038.[/FONT]
[FONT=Verdana, sans-serif]The state pension triple lock may even result in an increase above CPI which would make it even better value.[/FONT]

marlot · 11 August 2018 at 7:50AM

Sumarokov wrote: »

I am finding it hard to understand my Alpha pension. Not so much things like when to start receiving it, but what my "annual alpha pension" is likely to be after 20 years of contributions? I have tried and not been unable to find this information at source.

Each year you work gives 2.32% of that year's salary for each year of retirement.

As an example, if you earn £50,000 this year (and you work just the one year), you'll get £1160 each year of your retirement.

If you work a second year, you'll get another £1160 in retirement. Plus the £1160 from last year's work.

After 20 years, you'll have 20 of these 'slices' - so around £23,200 a year for each year of your retirement.

But its slightly better than this - because each year the government increases the slices that you've banked by inflation.

shepthedog18 · 11 August 2018 at 12:43PM

Hi,
Excuse a question from an Alpha newbie. This is the first pension I have contributed to.
Based on my salary my contributions are 5.45%, which in my case is £171 per month (£2052 in the last year).
As I understand it from my annual benefit statement, my benefit added this year is 2.32%, i.e. £798.

I may be looking at this too simplistically, but to pay £2052 for a return of £798 does not seem like good value??
Any help or advice much appreciated.

Linton · 11 August 2018 at 12:51PM

shepthedog18 wrote: »

Hi,
Excuse a question from an Alpha newbie. This is the first pension I have contributed to.
Based on my salary my contributions are 5.45%, which in my case is £171 per month (£2052 in the last year).
As I understand it from my annual benefit statement, my benefit added this year is 2.32%, i.e. £798.

I may be looking at this too simplistically, but to pay £2052 for a return of £798 does not seem like good value??
Any help or advice much appreciated.

That is £798/year for the whole of your retirement!

Silvertabby · 11 August 2018 at 1:05PM

Linton beat me to it.

You are paying £2,052 for £798 x number of years you will live in retirement. Based on the average 20 years, that's £15,960.

You wouldn't believe the number of people who make this mistake!

kidmugsy · 11 August 2018 at 1:08PM

shepthedog18 wrote: »

I may be looking at this too simplistically, but to pay £2052 for a return of £798 does not seem like good value?

Think of it as an investment that will pay 40% p.a., on and on and on. And index-linked to boot.

kidmugsy · 11 August 2018 at 1:11PM

A general point: discussions on this board would often be clearer if people habitually distinguished a lump of money, e.g. £2,000, from a flow of money, e.g. £2,000 p.a.

Voluntary Contributions or Topping up Alpha?

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