Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • tibbles209
    • By tibbles209 15th May 17, 10:42 PM
    • 45Posts
    • 123Thanks
    tibbles209
    Options to bridge from early retirement until NHS pension
    • #1
    • 15th May 17, 10:42 PM
    Options to bridge from early retirement until NHS pension 15th May 17 at 10:42 PM
    Hello,

    I am a 27 year old junior doctor in Scotland earning approx 44k/year of which 29k is pensionable. I am enrolled in the NHS 2015 defined benefit scheme which can be drawn at state pension age (so at least 68+ for me). I would like to retire no later than 60. I am aware that I can draw my NHS pension early but with heavy reductions, and I would like to avoid doing this.

    I am trying to plan to accumulate a pot that I can use to bridge me for up to 10 years between early retirement and my NHS pension and am currently trying to figure out where the best place to save this pot would be.

    I have been considering;
    -NHS early retirement buy out option - this allows me to buy out the reduction of up to 3 years pension payments, allowing me to take my full NHS pension from age 65. This would cost me an additional 3.72% of my pensionable pay, and I am finding it difficult to figure out if this is a good deal and should be factored into my plan.

    -NHS Group Additional Voluntary Contributions (with Standard Life) to build a pension pot, however this plan does not allow flexible drawdown. The summary suggests you can either buy a pension income with your pot, or take a 25% tax free lump sum and then buy a smaller pension income. The main draw of this plan is how easy it would be, as the contributions are deducted from my pre-tax salary which would avoid having to claim back the higher rate tax relief manually as I go on to become a higher rate tax payer. However this does not seem a good fit for what I am trying to achieve as my secondary pension is not intended to provide lifelong income, just up to 10 years of a bridge. How easy/viable is it to save into a scheme like this, and then transfer into a scheme which allows flexible drawdown prior to drawing my pension?

    SIPPs - I have been looking at these and they certainly seem to be the most obvious fit for what I am looking for, but I have no investing experience and do not feel very confident at the moment about choosing my own investments. I am however keen and motivated to learn, so if anyone can point me in the direction of a good place to start learning about these I would be grateful.

    Other personal pensions/stakeholder pensions etc. - From what I can find out these are more simple as they do not require the degree of self management of a SIPP, but generally have higher charges which can have a significant impact on the final balance. Are there other benefits to these that I am not aware of?

    Lifetime ISAs - main things putting me off these are the equivalent of basic rate tax relief only (I am likely to be a higher rate tax payer for most of my working life), the fact that I could only access it from age 60 so if I decided I wanted to retire at 58 I would need a plan C to bridge that gap.

    I am new to the whole pensions thing and having read around a bit my head is slightly spinning so I would be glad if some of the more experienced people here could help me out with what the most sensible place to save my pension would be.

    Thanks!
    Last edited by tibbles209; 15-05-2017 at 10:45 PM.
Page 1
    • AnotherJoe
    • By AnotherJoe 15th May 17, 10:45 PM
    • 6,574 Posts
    • 7,011 Thanks
    AnotherJoe
    • #2
    • 15th May 17, 10:45 PM
    • #2
    • 15th May 17, 10:45 PM
    SIPPs - I have been looking at these and they certainly seem to be the most obvious fit for what I am looking for, but I have no investing experience and do not feel very confident at the moment about choosing my own investments. I am however keen and motivated to learn, so if anyone can point me in the direction of a good place to start learning about these I would be grateful.
    Originally posted by tibbles209
    Moneyvator Oopsy, no "y". Thanks to Colsten for correction - Monevator.com
    Last edited by AnotherJoe; 16-05-2017 at 7:47 AM.
    • xylophone
    • By xylophone 16th May 17, 12:39 AM
    • 21,665 Posts
    • 12,461 Thanks
    xylophone
    • #3
    • 16th May 17, 12:39 AM
    • #3
    • 16th May 17, 12:39 AM
    The Pru NHS AVC would be available to you?

    https://www.pru.co.uk/rz/nhs/avcs/

    Currently you can take the money you have built up in your AVC pot from age 55 - either before, at the same time as, or after you take your NHS Pension Scheme benefits. It really is up to you. When you decide you want to take your money from your AVC pot you can choose from a wider range of cash and income options than ever before. Have a look at 'Taking your benefits' to find out more about these options.
    • tibbles209
    • By tibbles209 16th May 17, 7:01 AM
    • 45 Posts
    • 123 Thanks
    tibbles209
    • #4
    • 16th May 17, 7:01 AM
    • #4
    • 16th May 17, 7:01 AM
    Thanks for that AnotherJoe, I will start there

    xylophone - as far as I can tell the Pru NHS AVC seems to be for the England & Wales scheme only, the Scotland scheme seems to just offer the Standard Life AVC
    • colsten
    • By colsten 16th May 17, 7:01 AM
    • 8,535 Posts
    • 7,125 Thanks
    colsten
    • #5
    • 16th May 17, 7:01 AM
    • #5
    • 16th May 17, 7:01 AM
    Moneyvator
    Originally posted by AnotherJoe
    I think you mean Monevator.

    Congrats to the OP for thinking about this now, as they stand a real chance to make their retirement dream come true if they start now.
    • justme111
    • By justme111 16th May 17, 8:19 AM
    • 2,625 Posts
    • 2,524 Thanks
    justme111
    • #6
    • 16th May 17, 8:19 AM
    • #6
    • 16th May 17, 8:19 AM
    To calculate whether plan A is benefitial you would need to do estimate how much your pension would be ( let's say you have pensionable pay of 54 k, for each ear in service (let's say from 30 to 68 - 38 years of service- you would accrue 1/54 of it - £1000×38=£38 k.) So in total in those 3 years you retire early you would draw 38×3=114 k. You would have to contribute for it 3.72% of your 50 k yearly , ie £1872. If you were to contribute this money into personal pension assuming growth of 4% above inflation putting it into compound interest calculator you would get £167 k. Allowing for 1% charges it would be 132 k. Obviously growth is a guess and I am not sure about private pension charges and your exact numbers. The calculation above shows it is more benefitial to use private pension in money terms but what of growth is not good - NHS pension has security. On another hand it has dangers of further changed conditions. You may want to find out whether this buy out portion uprated by 1.5%dinamising factor or not. The above is just an illustration of how it could be calculated. I am not sure I have not missed anything important, other contributors would correct me I hope if I have. If I were you I would not bother with this option - too much fuff to calculate it for only 3 years and using it would be adding even more into NHS basket without having any other. I would open a simple SIPP with any mainstream provider with a multi asset fund in it (charge 0.45 % at HL I believe) and contributed till I have about 50 k in it. Then I would either know more about the topic or consulted an IFA or both.
    • Triumph13
    • By Triumph13 16th May 17, 12:44 PM
    • 986 Posts
    • 1,147 Thanks
    Triumph13
    • #7
    • 16th May 17, 12:44 PM
    • #7
    • 16th May 17, 12:44 PM
    The elephant in the room here is the Lifetime Allowance - which is currently leading many doctors to take early retirement. If the rules don't change (big if) then if you retire at 60 taking your pension at SPA then if your pensionable salary averages a bit under £80k over that period then you will have used up your entire lifetime allowance. (33 years in a 1/54th scheme, CARE with revaluation at CPI +1.5% vs announced LTA indexation of CPI).
    If that is the case then saving into AVCs or a SIPP ceases to look attractive as all the tax benefits are likely to get gobbled up by the LTA charge.
    The extra contributions to go unreduced at 65 don't have this problem so may be worth looking into. Other than that I'd be looking at ISAs and LISAs in your shoes if you plan to work full time until 60 - unless you fancy taking a bet that higher rate relief and the LTA are both going to be abolished, in which case go the SIPP route now.
    • bostonerimus
    • By bostonerimus 16th May 17, 1:13 PM
    • 374 Posts
    • 197 Thanks
    bostonerimus
    • #8
    • 16th May 17, 1:13 PM
    • #8
    • 16th May 17, 1:13 PM
    If you want to bridge a gap between retirement and pension then you need savings in an ISA, a regular investment account, the bank or a source of income say from a rental or even part time work.......although are you then truly retired. You need accounts that are immediately available. Having a detailed budget and spending discipline is important.

    I retired at 52, three years before my pension started. I had some savings in the bank, some fund investments that I could readily access and income from a rental property so I could cover my expenses.
    • kidmugsy
    • By kidmugsy 16th May 17, 1:48 PM
    • 9,333 Posts
    • 6,125 Thanks
    kidmugsy
    • #9
    • 16th May 17, 1:48 PM
    • #9
    • 16th May 17, 1:48 PM
    At £44k p.a. you pay basic rate income tax. So open a LISA in March 2018.

    Once you are earning enough to be exposed to Higher Rate income tax, open a personal pension of some kind - perhaps a SIPP.

    This suggestion applies only if you have already accumulated a suitably large emergency cash fund, which would best be held in high interest current accounts backed up by regular saver accounts.
    • sleepless saver
    • By sleepless saver 16th May 17, 1:53 PM
    • 2,657 Posts
    • 2,388 Thanks
    sleepless saver
    At £44k p.a. you pay basic rate income tax. So open a LISA in March 2018.

    Once you are earning enough to be exposed to Higher Rate income tax, open a personal pension of some kind - perhaps a SIPP.

    This suggestion applies only if you have already accumulated a suitably large emergency cash fund, which would best be held in high interest current accounts backed up by regular saver accounts.
    Originally posted by kidmugsy
    In Scotland it's now £43000 for higher rate tax. http://www.gov.scot/Topics/Government/Finance/scottishapproach/Scottishincometax2017-18
    • Rheumatoid
    • By Rheumatoid 16th May 17, 2:20 PM
    • 355 Posts
    • 1,119 Thanks
    Rheumatoid
    His gross taxable pay needs to be over the higher rate threshold I believe before he will be able to benefit much more from a SIPP than a basic rate payer. So he will need to be earning a fair bit over threshold due to his NHS pension contributions reducing his gross taxable pay.
    16 Panel (250W JASolar) 4kWp, facing 170 degrees, 40 degree slope, Solis Inverter, Geo Solo II Monitor. Installed 29/9/2015 - £4700 (Norfolk Solar Together Scheme)
    Year target (PVGIS-CMSAF) = 3880kWh - Installer estimate 3452 kWh; Year 1 Actual = 4152kWh
    • stoozbet
    • By stoozbet 16th May 17, 10:30 PM
    • 21 Posts
    • 10 Thanks
    stoozbet
    Hi Tibbles209, I'm an IFA working for the company recommended by the BMA.

    As already highlighted by other posters the key issue for you will be the lifetime allowance. If you work full time and follow a normal career path you will exceed the current limit.

    ERRBO is very worthy of your consideration if you are dead set on retiring early. The reason I like it is because is simply brings forward your pension benefits (up to 3 years), it doesn't actually increase the pension payable. The way that the lifetime allowance is assessed is you pension income multiplied by 20. Quite clearly a pension at age 65 is more valuable to you than a pension at age 68 however these two pensions are valued exactly the same for lifetime allowance purposes.

    So ERRBO is the only way of funding a pension (and therefore getting tax relief at your highest marginal rate) without giving yourself an increased lifetime allowance value or annual allowance input.

    Once caveat with ERRBO is you buy your pension from normal pension age minus up to 3 years. So currently that would be 65 but if state pension age changes then your ERRBO would track upwards in step.

    That said most of my clients use ISA's to "bridge the gap". At your age LISA is a must.

    From the goals you have stated a possible plan could be to fund your early retirement, use ISA's to fund your retirement from 58-60 & then LISA from 60-65 then ERRBO from 65+.
    • kidmugsy
    • By kidmugsy 16th May 17, 10:51 PM
    • 9,333 Posts
    • 6,125 Thanks
    kidmugsy
    Originally posted by sleepless saver
    Dear God, and people vote for this!


    Still, the OP won't pay HRT if she's on £44k and also contributing to a DB pension. But soon, perhaps, she will be.
    • bigadaj
    • By bigadaj 17th May 17, 7:01 PM
    • 9,172 Posts
    • 5,860 Thanks
    bigadaj
    Hi Tibbles209, I'm an IFA working for the company recommended by the BMA.

    As already highlighted by other posters the key issue for you will be the lifetime allowance. If you work full time and follow a normal career path you will exceed the current limit.

    ERRBO is very worthy of your consideration if you are dead set on retiring early. The reason I like it is because is simply brings forward your pension benefits (up to 3 years), it doesn't actually increase the pension payable. The way that the lifetime allowance is assessed is you pension income multiplied by 20. Quite clearly a pension at age 65 is more valuable to you than a pension at age 68 however these two pensions are valued exactly the same for lifetime allowance purposes.

    So ERRBO is the only way of funding a pension (and therefore getting tax relief at your highest marginal rate) without giving yourself an increased lifetime allowance value or annual allowance input.

    Once caveat with ERRBO is you buy your pension from normal pension age minus up to 3 years. So currently that would be 65 but if state pension age changes then your ERRBO would track upwards in step.

    That said most of my clients use ISA's to "bridge the gap". At your age LISA is a must.

    From the goals you have stated a possible plan could be to fund your early retirement, use ISA's to fund your retirement from 58-60 & then LISA from 60-65 then ERRBO from 65+.
    Originally posted by stoozbet
    Are you really?

    Interested parties normally need permission to post and I'd expect a disclaimer on your footer explaining your situation.
    • central
    • By central 17th May 17, 7:52 PM
    • 158 Posts
    • 79 Thanks
    central
    I'm a GP but I keep an eye here as I'm interested in pensions. If I were you I would invest into an ISA monthly every year, with a global equity fund or a selection of funds.

    HL will have a good range of fund selections that you could plug into. Essentially at your age equity funds are the way to go as you have the time to withstand the ups and downs in the markets. If I had taken this advice when I was your age I would be more weathly than I am..
    Last edited by central; 17-05-2017 at 7:57 PM. Reason: clarification
    • atush
    • By atush 18th May 17, 12:40 PM
    • 15,965 Posts
    • 9,692 Thanks
    atush
    While I agree at this posint a S&S isa nd Lisa later are a good idea (and perhaps a Sipp later- all of these come up against your lack of investing knowledge/experience.

    The website mentioned is a good one (look up the articles on compounding returns and pound/cost averaging).

    At the age of 27, and many decades before retirement plus a DB pension- i'd go 100% equities at this point. And a low cost global tracker.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

2,265Posts Today

8,313Users online

Martin's Twitter
  • Today's twitter poll: It's been everywhere, so why not here. Which Hogwart's house should you've been in (Ive put key traits to help)...

  • Quick favour if uv graduated within around the last year. I could do with pic of a student loan statement (no personal info) inc interest

  • RT @ValeOfLevenCU: Why not sign up to @MartinSLewis https://t.co/kxMBedCNNw weekly email for free, impartial tips? #ThriftyThursday http?

  • Follow Martin