Civil Serviced Added Pension

[indiesearcher]

Hi,

Last night I was looking at Lifetime ISA but was advised here to look at making additional pension payments via my civil service Alpha scheme. I just can't get my head around their advice online!

Scenario;

I'm 38 with my alpha pension accruing nicely. I am a higher rate tax payer, but only just over the threshold - my annual salary including allowances is £54,000.

My student loan, currently costing £280 per month, will come to an end in March and I'm wondering what to do with that work extra income before I get too used to in in my bank account!

Would buying extra pension bring my pay down enough to bring me under the 40% tax bracket? That could be helpful and worthwhile - is there a calculation I can do to figure this out?

And if I buy added pension, is it subject to the same treatment and accrual as the other contributions I make?

TIA

Not on topic, but just out of interest, what kind of job do you do in the civil service to earn 54k, I'm interested in working in the public sector but have found a lot of the roles pay poorly.

Grade 7 at an arms length body. Communications role, in London.

What are your current contributions? I used to earn slightly more than that as a Civil Servant and the pension contributions took me under £50k. It was the alpha scheme so would think the contribution rates would be the same.

There’s a calculator on this page

www.civilservicepensionscheme.org.uk/knowledge-centre/tools-and-calculators/pension-calculators/

And yes. Additional Voluntary Contributions, EPA or added pension will all reduce net income in the same way (as will any other pension contributions).

Thank you @indiesearcher

Thanks everyone.

I used the website 'the salary calculator' last night which I was able to play around with the numbers on.

Looks like i only pay 40% tax on a small amount, but I can lose that all together by topping up my pension with £130 added pension per month - thanks for that too I wouldn't have realised I can do that.

Does anyone know what happens to the added pension contributions though? I can't seem to find out what they actually translate to in retirement!

@indiesearcher - did you ever get any answer to your question as to what extra contributions translate to in retirement?

I decided to pay extra into my Alpha pension. The calculator wasn't working when I was trying to use it so I just went ahead and filled out the form and submitted anyway. I thought I was bumping it up to what I was already contributing, to 10%. Turns out I had opted to pay an extra 10% on top of the 4.6% (?).

Anyway, took a big ole monthly pay cut but I thought I'd ride it out, wait for the Annual Pension Statement and see if it was worthwhile, whether I should contribute more, or maybe less. The payments started in April, so wasn't on the Aug statement, which was for the previous financial year. The next August rolls around (paid in for 17 months by this time) and there is some almighty fk up and is not showing any extra contributions at all! My employer blames HRMC, HRMC refers me back to my employer, who eventually acknowledges they are to blame. I got an email saying how the fk up happened and that it had to go to the Secretary of State or the King of the World or some Big Kahuna, and that it would be corrected in the next year's Annual Statement! So I will have had to wait nearly 2.5 years to see if I made a good decision or not! I obviously sent off a snot-o-gram saying this wasn't good enough, need to make financial decisions and life plans based on those facts and figures. Eventually was told that the process to rectify the issue was in train and as soon as it is sorted, a statement will be issued.

But nothing yet, and I'm starting to doubt if it will even by sorted by August! So, the point of this response to you is to advise you that I would love to help you with your query, and I should be able to offer an informed opinion on how it will translate in retirement, but I can't.

There is a brilliant civil service pension calculator online, that someone on Reddit made. It is SO much better than the official calculator, as you can put in all kinds of scenarios - added pension, EPA, reduced hours, whether you want to retire early etc - you can just keep tweaking all the parameters and it gives you all the possible outcomes.

It's only for the Alpha scheme.

https://civilservicepensioncalculator.co.uk/

Best to use it in conjunction with this post which contains some extra info and tips: https://www.reddit.com/r/UKPersonalFinance/comments/10r5asz/civil_service_alpha_pension_calculator/

You need to know your accrued pension to date figure to get started.

@indiesearcher I've been buying £500 of added pension per month for the last two years (I'm 53 and only joined the CS when I was 49 so not long left to make the most of having a defined benefit pension). But I think I'm going to stop it this April.

I don't have a clear enough picture of whether it's advantageous enough, compared to putting the same amount into a SIPP or ISA for example.

When you buy added pension in Alpha, you're buying it on slightly different terms than the main pension:

The main Alpha pension is based on an accrual rate of 2.32% of your pensionable earnings per year. Added pension doesn't have an accural rate. It's based on 'actuarial factors' instead, which are things like how old you are, and assumptions about your life expectancy. That's why in any given year, a 30 year would accrue a different amount of added pension to a 55 yr old buying the same amount. The older you are, the less added pension you can buy for the same contribution.

Another reason why added pension contributions don't provide the same "value for money" as the main pension is because you're not benefitting from the employer contribution - the CS contributes a LOT to the main Alpha fund (think it's around 28%?). With added pension, you bear the full cost of the additional benefit.