Most people I know have employer DC pensions, so I've found it surprisingly hard to get advice on my DB pension. It's the alpha scheme from Civil Service Pensions, which I know a few other people on here are members of too. I've been lucky enough to have saved money from lockdown and want to throw some in that direction but I'm bewildered by all the different options and I’ve gone as far as I can in understanding the documentation on offer. I am a single woman in my mid 20s with no plans to have children, but I think the options are broadly similar for other people. As I see it, I have six main options.
Three convenient options via payroll deductions to Civil Service Pensions:
A) Buy a larger monthly pension through 'added pension',
B) Buy a earlier access to the pension through 'Early Pension Age',
C) Buy into a Legal & General DC scheme through 'Additional Voluntary Contributions'
And three off my own bat:
D) Buy a private pension,
E) Invest in trackers within a SIPP,
F) Invest in trackers within a S&S ISA
These are my half-baked thoughts on those options. (Any one of which might be a massive misunderstanding on my part!)
I realise that all of this comes down to personal preferences, but I'd be really grateful if anyone could point out anything I've said in points 1 to 7 that doesn't make sense. And were there any factors that influenced you that I've not considered? Thank you!
Edit: Thank you everyone for pointing me towards the LISA. I had overlooked it and it's a far better option than I'd realised. I think I've always seen advice against it because it's worse than salary sacrifice or higher rate tax relief, but in the absence of those two options it's actually quite attractive.
Three convenient options via payroll deductions to Civil Service Pensions:
A) Buy a larger monthly pension through 'added pension',
B) Buy a earlier access to the pension through 'Early Pension Age',
C) Buy into a Legal & General DC scheme through 'Additional Voluntary Contributions'
And three off my own bat:
D) Buy a private pension,
E) Invest in trackers within a SIPP,
F) Invest in trackers within a S&S ISA
These are my half-baked thoughts on those options. (Any one of which might be a massive misunderstanding on my part!)
- The Alpha pension is already very generous and ought to more than provide for my basic needs in old age. I can therefore afford greater risk with any additional long term investments I make.
- One big risk of Alpha is its link to the state pension age. I fear that this age could rise significantly before I get there.
- A and B are roughly actuarially equivalent to each other, with B slightly preferable to me because it's jam today over jam tomorrow. The rates on offer aren't bad, but nor are they anything special, especially for someone like me who is a long way off retiring.
- More importantly, A and B both share the link to the state pension age mentioned above. Since I want to limit my further exposure to this risk, and hedge against it if possible, these are not good options for me.
- C and D rely on me trusting a pension manager to stock-pick for me. I don't want this and would rather take a passive approach.
- C, D and E would all be more attractive if I paid higher rate tax and enjoyed the 40% relief. As a basic rate tax payer the 20% tax relief is no great advantage because…
- …with option F, I can pay my post-tax income into an ISA and then withdraw it tax free in retirement (as opposed to pension income which is subject to tax). This comes with the advantage of being able to access the money sooner should I, for example, decide to buy a house.
I realise that all of this comes down to personal preferences, but I'd be really grateful if anyone could point out anything I've said in points 1 to 7 that doesn't make sense. And were there any factors that influenced you that I've not considered? Thank you!
Edit: Thank you everyone for pointing me towards the LISA. I had overlooked it and it's a far better option than I'd realised. I think I've always seen advice against it because it's worse than salary sacrifice or higher rate tax relief, but in the absence of those two options it's actually quite attractive.