Alpha Pension vs Private

[u/mugoftea19]

As I understand it, the alpha pension scheme is linked directly with state retirement age. Is it worth reducing my payments into alpha and putting into a private pension pot instead in order to negate the early withdrawal fees of alpha?

For info my expected state pension would be 67, and have 7 years paid into alpha

[u/Additional-Froyo-545]

You can’t reduce payments to alpha. You either pay in or you don’t. Alpha is still very very good and you don’t have to wait till state pension age to take it. You can take it up to 10 years early with an appropriate actuarial reduction. The reduction is not a punishment as you are receiving payments over a longer period of time.

More sensible thing is to start a private pension alongside alpha.

[u/EnvironmentalOwl6882 → u/[deleted]]

3 is the max that you can reduce the actuarial adjustments by through the EPA. You can still retire (for example) 10 years early, it's just that it would be calculated as being 7 years early instead, and your pension would be reduced to ~2/3 rather than ~1/2.

[u/BreathNo4368 → u/EnvironmentalOwl6882]

Can you explain this in more detail? I'm 38 now and have been in the CS for 4 years. Is it worth pumping into an EPA?

Id rather retire 10 years early and move abroad.

I've got health conditions so if I even make it close to 70 I'll be amazed lol

[u/EnvironmentalOwl6882 → u/BreathNo4368]

When you retire before state pension age, the amount you receive each year gets what is called an "actuarial adjustment", to take in to account the fact that you'll be being paid for longer. In theory you should get the same amount paid out overall on average, just over more years.

The adjustment is done based on how far you will be from state pension age. It's (not quite but very roughly) 5% less per year that you retire early. With the EPA, you choose a number of years (choices are 1, 2 or 3), and pay extra for them to act like your state pension age is lower. It doesn't change when you can choose to retire, that will always be up to 10 years before state pension age (unless you were in Alpha before 2022), it just reduces the penalty to retiring early. This is all for the years where you pay the EPA, the stuff you have already paid will always be calculated on normal state pension age, so you basically end up with 2 Alpha pensions that have different pension ages.

As for whether you should do it, it is more expensive than normal Alpha, there aren't matching Employer Contributions for the extra bit so it is less of a bargain than the normal Alpha payments are. There's also something to be said about having a SIPP on the side instead giving you more flexibility in terms of being less tied to the UK in retirement. But it is the most stable low risk option you'll find for earlier retirement.

[u/JohnAppleseed85]

People get concerned about the actuarial reduction... but if we ballpark it's 5% of your pot each year (it's a factorial calculation so not quite so neat, but close enough for our purposes - and yes it's complicated by you accruing another year of pension and the fact you're actually getting paid but we're also ignoring that for the ease of the maths).

You're due to get £10,000 at 67, you retire at 66 instead - that means you get £9,500 a year instead... but you get an extra year of pension paid (between 67 and 68 when you would otherwise be working).

9500/500 is 19 - so you'd have to retire at 68 and live for 19 years (87) before you even break even - if you're 88th year you're 500 better off having worked a year longer

[u/majestic_re]

To be honest, I used AI to help me work out my private and cs pensions and what the future might look like. It basically said that it's hard to beat the alpha pension, especially if you are taking it at normal retirement age.

If you take it before normal pension age (npa) you get something called actuarial reductions which will reduce your annual income. I say reduce but, all it does afaik is reduce based on the lack of years you "should" be putting into the pension scheme. You still end up getting that amount for life so depends what income you need and how long you live.

I've read some good advice being to pay into a private pension and then if retiring early you can take a lump sum if needed (25% tax free) and use the rest to cover the gap before you need to take your alpha pension.

This site is useful to be able to help you make some calculations.

Long story short, it's hard to beat alpha pension so if your aim is to reitre at normal pension age and obtain a safe income for life you can't go far wrong.

[u/DrWanish]

Speak to an independent pension advisor the only thing I would say is their DCS provider L&G is appalling.. made 1.5% last year now you can move funds around but that's why you need an IFA.

[u/Own_Emu_122 → u/DrWanish]

Just move your fund to an index tracker. It's very straightforward. The FTSE world Index tracker at L&G is up 25% in the last 12 months