I am in civil service Alpha scheme.
Although I have been paying an additional pension amount of 10% over and above the standard 5.45%, I am going to be going into higher rate tax (Scotland) 42%.
I could pay a lump sum of £2500 into my pension for this year and that would take me below the threshold and save me about £1100 in tax by my calculations.
But when I do the civil service calculator it tells me my £2500 will buy me £172 per annum added pension at 67 (I am 56).
Looks to me that this money would be better off in an investment for 9 years albeit I then don’t get the tax saving on this? And it would give me more flexibility with what to do with it.
Or should I be looking at it that it’s actually only £1400 net that it’s costing me?
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That's doesn't sound very generous of them, are you sure it's right? Isn't it 11 years not 9?
So I suppose it'd gives you £1400 to invest, per year, at today's prices.
AI says
With 5% compound interest, starting with £1,400 and then adding £1,400 at the end of each year for 11 years, the pot would grow to about **£20,884**. With 3% compound interest you’d end up with about **£18,469**. Your input would have totalled £15,400.
If you look solely at this years' £1400 and ignore the future pay-ins this year at 5% compound interest over 11 years, £1,400 would be worth about **£2,394**. 3% £1938
Do you have cash ISA's in Scotland? Or a stocks and shares one if you're braver. That's the easiest way to avoid a tax bill. Also (in England at least) you can get £1k of interest tax free for now, but that could easily change (more likely down than up!) in future.
My personal view, which isn't advice!!, is that stocks and shares are going to crash quite significantly sometime soon. You'd have struggled to get much below a 10% return on many funds over the past year The FTSE is at an all-time high now (over 10k) and the excitement over AI seems to be abating - and stocks are pretty high too. Then there are other "known unknowns" - what will Trump do next, how will Russia/China impact stuff, will Rachel magic our economy onto a better footing etc etc.
I remember many years back doing a funds switch in my work pension one time and losing about 5% within weeks - due to dreadfully unfortunate timing. A long term view is that eventually it comes back but would've been better for my sanity if nothing else if I'd left well along and hadn't done the switch in the first place!!
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Smokie yeah, typo, 11 years. (Maybe my mind can't cope with it being so far away)!
Got ISAs so this is about my PAYE tax as opposed to tax on interest received. (Scotland has the same banks and ISA laws as England).
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Is that £172 index linked?
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>> Is that £172 index linked?
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That is a very good question. It will almost certainly have some inflation protection if not full CPI.
My instinct, without the benefit of facts, is to make the pension contribution.
Another factor might be the effect on TV and the tax free lump sum.
Last edited by: Manatee on Tue 6 Jan 26 at 13:06
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Thanks to frozen allowances, I now find I have 'too much' pension. I have a drawdown pot but anything material I take out of it now will be taxed at 40%. Not too much to spend of course.
It's fair to say I did not expect this. Nor for that matter did I expect that it would be included in my estate for IHT if I survive another year or so.
Having said all that, I still haven't actually lost out by making the pension contributions back in 2010-12 to mop up some 40% tax liability. I did after all get 25% of it back tax free.
FWIW trying to work out the most profitable choice based on a guess about how long you will live is far too simplistic. What matters is that your plan works whether you live to 65 or 95. If you live to 95 you might be very happy to have banked a £1000 or two of inflation proof income. If you were, heaven forfend, to die at 65 it wouldn't matter much
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Assuming the pension is largely inflation proofed, adding to your existing scheme is low risk provided you can afford to be without the income. You may even be able to drawdown 25% tax free at some point in the future.
Investing outside your pension scheme means you immediately lose the benefit of the 40% tax relief which unless you are supremely gifted in your choice of other investments you are unlikely to make up.
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>>Investing outside your pension scheme means you immediately lose the benefit of the 40% tax relief which unless you are supremely gifted in your choice of other investments you are unlikely to make up.
Agreed, and the tax free lump sum would weigh in the balance too - but both 'capital' and returns will be taxed when they are returned as pension. And as we have seen pensions can be attacked.
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>> Agreed, and the tax free lump sum would weigh in the balance too - but
>> both 'capital' and returns will be taxed when they are returned as pension. And as
>> we have seen pensions can be attacked.
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Agree that the fairly generous treatment of pensions cannot be relied upon.
Income while working is normally greater than pensions in retirement.
For many it is entirely possible that you may get 40% tax relief on pension contributions, but pay only 20% tax when the pension income kicks in.
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>> Income while working is normally greater than pensions in retirement.
My final-salary pension matches my old net pay after mortgage deductions. Mortgage-free now, plus state pension to come in three years' time, means financial security.
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>> >> Income while working is normally greater than pensions in retirement.
>> My final-salary pension matches my old net pay after mortgage deductions.
Indeed, our household disposable income is the same as when we were working.
*two state pensions, two final salary pensions,
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Life would be so much simpler if we knew when we were going to die!
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Yeah its index linked "At the start of each scheme year, this total accrued pension amount is adjusted (revalued) in line with the CPI to maintain its real value against inflation."
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There are many different schemes that used to be easy to work out a final salary pensions.
25 years service - was 25/80ths, 25/60ths and for a favoured few 25/50ths.
MPs sitting for 25 years would be 25/30ths
There are major issues in Scotland for Pensions supervised by the Scottish Government
Until about 10 years ago it was final salary caluculation.
It is now career average calculation BUT people who have retired in the last 10 years will have a mixture of Old Scheme and New Career average. As this rolls on the problems get bigger
There are a huge number today who have retired and are awaiting the final calculation of their pension - some passing away wiithout everything being sorted out. There is a forecasted difference of £1,700 million due but how much it is to the individual Policeman, Fire fighter etc etc is not known.
Another Scottish Super Council mess!
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Never mind, the UK Govt has changed pensions administrator for civil service schemes and by all accounts, it’s a complete disaster.
Now with Capita Pensions Solutions. Who previously paid multi million pound fines for data breaches of over half their clients. Who cabinet office highlighted the known issues back in June 2025 that they would not be able to take on the transition in Dec 2025.
Oh and they have closed the previous portal so no access to that.
No annual benefit statements available nor a retirement modeller.
Hopefully it’s resolved when I need to retire!
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I am afraid Crapita are well known for failures
They took over the Administration of Legacy Life Insurers (Many Scottish) with limited success.
They ported the Life Insurers' data from legacy systems, many were IBM mainframe, to the Crapita System - they then had serious data breaches and were fined. Policyholder details were available for sale on Dark Websites
The MoD recruitment administration is deemed appalling to begin with and deemed poor even now years after going live.
Crapita
Promise everything
Win the contract
Higher paid/long serving staff disappear in a few years - experience walks out the door.
Employ new staff on minimum wage - high turnover of staff as they squeeze the budgets.
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Surely someone else has noticed? Why do they keep getting awarded more work I wonder...
Talking of which I see Fujitsu are wriggling about why they've not coughed up to the postmasters compo scheme, despite promises, and despite additional Govt work coming their way.
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>> Surely someone else has noticed? Why do they keep getting awarded more work I wonder...
I suspect that they're very good at addressing whatever scoring criteria are used at the time bids are assessed and contracts awarded.
The mystery is why those criteria don't examine previous contracts and ongoing performance....
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>> Surely someone else has noticed? Why do they keep getting awarded more work I wonder...
They have an almost unique trust pilot rating. 95% (the lowest available) 1, 5% 2. Nothing above 2 out of 5.
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Pension query - smokie
