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  • FIRST POST
    • jscol
    • By jscol 11th Jun 17, 4:29 PM
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    jscol
    Additional NHS Pension or SIPP?
    • #1
    • 11th Jun 17, 4:29 PM
    Additional NHS Pension or SIPP? 11th Jun 17 at 4:29 PM
    My wife and I are both in our early forties and have two children. At present we have a small to moderate amount of savings and investments and we are now thinking more about pensions. I’ve contributed to my pension scheme all my working life and I suspect I will come close to the LTA before retirement.
    My wife earns presently works as a nurse. Although she contributes to the NHS pension scheme she has been part time for a number of years, had time off when the kids were young and therefore hasn't made huge pension contributions and therefore we’d be keen to boost her pension. I’d initially been thinking about a SIPP in her name as I understood we could top it up as and when we had some spare cash. I was also quite interested in SIPPs because I understand that the funds can potentially be passed onto beneficiaries if not used. However, I now understand that there is the possibility my wife can make additional contributions to her NHS pension. I suppose we’ve both been told that public sector pensions are always good and that makes us a little bit more hesitant to start a SIPP.
    If I die first I know that my wife will get a widow’s pension from my employer (also public sector.) Therefore, I think it’s quite possible that money invested in a SIPP might not need to be used and could be passed onto our children in a tax efficient manner.
    I realise this is a slightly vague query but does anyone have any thoughts / advice as to what would help us make up our minds as to what the best approach would be? I realise we may need to get proper financial advice to help us decide what to do but would appreciate any thoughts.
Page 1
    • AnotherJoe
    • By AnotherJoe 11th Jun 17, 4:35 PM
    • 7,392 Posts
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    AnotherJoe
    • #2
    • 11th Jun 17, 4:35 PM
    • #2
    • 11th Jun 17, 4:35 PM
    The advantage of a seperate SIPP is precisely that, its separate. So, any changes that are made to NHS pension dont affect you, if she wishes to retire earlier she can use the SIPP money to bridge the gap.
    • stoozie1
    • By stoozie1 11th Jun 17, 5:10 PM
    • 344 Posts
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    stoozie1
    • #3
    • 11th Jun 17, 5:10 PM
    • #3
    • 11th Jun 17, 5:10 PM
    generally the NHS schemes offer more secure, good value lifetime income, but an important factor is which NHS scheme(s) your wife's existing pension is in, as this would make a difference to the advice given IMHO.
    • justme111
    • By justme111 11th Jun 17, 10:40 PM
    • 2,820 Posts
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    justme111
    • #4
    • 11th Jun 17, 10:40 PM
    • #4
    • 11th Jun 17, 10:40 PM
    If they are in early 40s then whatever contributions she makes now will be into 2015 care scheme with retirement age of 67+ (state retirement age). Look up the numbers ( what you would pay into additional NHS scheme to get what ) , compare it with average SIPP results and make your guess/choice.
    • jscol
    • By jscol 11th Jun 17, 10:40 PM
    • 14 Posts
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    jscol
    • #5
    • 11th Jun 17, 10:40 PM
    • #5
    • 11th Jun 17, 10:40 PM
    Thanks for comments.

    My wife has contributed to the 1995 (final salary scheme) for the equivalent of 7.5 years but is now a member of the 2015 (career average earnings scheme).

    I assume if she pays additional contributions it would count towards the later scheme but I don't absolutely know.

    I do like the idea that a SIPP is separate and gives flexibility.
    • ScoobyZ
    • By ScoobyZ 11th Jun 17, 11:43 PM
    • 364 Posts
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    ScoobyZ
    • #6
    • 11th Jun 17, 11:43 PM
    • #6
    • 11th Jun 17, 11:43 PM
    Thanks for comments.

    My wife has contributed to the 1995 (final salary scheme) for the equivalent of 7.5 years but is now a member of the 2015 (career average earnings scheme).

    I assume if she pays additional contributions it would count towards the later scheme but I don't absolutely know.

    I do like the idea that a SIPP is separate and gives flexibility.
    Originally posted by jscol
    Hi, I'm the the NHS Scheme, late forties and been in for just over 8 years. I'm no expert but read a lot about Pensions.

    First Additional Contributions won't go into you 2015 scheme (The advice above is incorrect) unless paying into the ERRBO. The contributions will go into a Pension with either Standard Life or Prudential. I think the cost are a bit more than say a bestinvest sipp. More info here:

    http://www.nhsemployers.org/news/2017/03/new-resource-to-help-communicate-nhs-pension-scheme-additional-voluntary-contribution-options

    I'm not sure she would be in the 1995, are you sure she isn't in the 2008 scheme is 7.5 years?

    The difference are:

    1995 - Normal Retirement age 60
    2008 - Normal Retirement Age 65
    2015 - Retirement age State Pension Age 67 (for me).

    ERRBO lets you top up your 2015 scheme to bring down the retirement age to 65. I think someone did some maths here and it wasn't really much difference between that and a SIPP. However the SIPP does give more flexibility.

    There was talk of a buy two get one free pension pre brexit. It may happen after the next budget, so assuming she is a 20% tax payer might be worth waiting a few months, if 40% then pay in now.

    http://www.telegraph.co.uk/finance/personalfinance/pensions/11730761/Welcome-to-Britains-new-world-of-buy-two-get-one-free-pension-saving.html

    Personally I am going to get a SIPP to bridge the gap with the aim to retire earlier and give some flexibility. I will probably go with BestInvest and a Vanguard Lifestyle Product.
    Last edited by ScoobyZ; 11-06-2017 at 11:47 PM.
    • jscol
    • By jscol 12th Jun 17, 6:43 AM
    • 14 Posts
    • 2 Thanks
    jscol
    • #7
    • 12th Jun 17, 6:43 AM
    • #7
    • 12th Jun 17, 6:43 AM
    Thanks ScoobyZ.

    I realise now that AVC are very different to the older concept of buying added years in the NHS pension.

    She was a member of 1995 scheme. However having worked part-time for years she only has the equivalent of 7.5 full years in the 1995 scheme. She's also a 20% tax payer.

    The telegraph article you link to sums up the way we feel about this very nicely. Savings into a pension is tax efficient. Given that I think I'm on track to hit the LTA there seems no point doing anything in my name. We have some spare cash just now so as far as I can tell one of the most sensible things we can do is save it in her pension and get the tax relief.

    My understanding is if we put it in a SIPP we can potentially pass it onto our children rather than using it ourselves if we have otherwise adequate funds for our retirement. Presumably this is not an option if we went down the AVC route?
    • stoozie1
    • By stoozie1 12th Jun 17, 8:23 AM
    • 344 Posts
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    stoozie1
    • #8
    • 12th Jun 17, 8:23 AM
    • #8
    • 12th Jun 17, 8:23 AM
    hi, sorry, I didn't word my post very well, and do agree with justme111. The reason I said the advice changes (IMO) depending on which schemes your service is in is that you can't continue to make contributions after age 60 into your 2015 scheme pension, without having to defer (with nil benefit!) your 1995 annual income.

    Which makes the SIPP, in our case, make more sense, as the bridge to cover the 8-10 years of not being able to contribute into your pension at the end of your career.

    If her previous service was in the 2008 scheme, the above advice does not apply.
    Last edited by stoozie1; 12-06-2017 at 8:26 AM.
    • louloubelle79
    • By louloubelle79 12th Jun 17, 12:18 PM
    • 201 Posts
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    louloubelle79
    • #9
    • 12th Jun 17, 12:18 PM
    • #9
    • 12th Jun 17, 12:18 PM
    Hello sorry to jump on this post but got same Q.... I only have 2 years in my nhs pension and want to top up as work part time-what's the best way? To add to nhs or a SIPP but not sure what this is tbh
    Hoping to be mortgage free by 2026 age 47
    Current rate 2.79% fixed for 10 years
    Current mortgage end date: 03/10/2043
    MFW Starting Mortgage Jan 17 - £114,703
    • OldBeanz
    • By OldBeanz 12th Jun 17, 12:29 PM
    • 692 Posts
    • 532 Thanks
    OldBeanz
    While there may be changes in retirement ages and you have not gone into details of salary and how much you expect to retire on there are benefits to taking a SIPP. The expected annual tax allowance is due to rise to £12.5k so with the tax free 25% you can take from a pension that means you can extract £16.6k tax free each year from a SIPP. You will continue to be allowed to do this for the 10 years before SPA. Therefore your wife can retire 10 years before SPA having tax relief on the way in and no tax on the way out. As she is likely to go over her tax allowance once she reaches SPA (SP and NHS) then I would be building up a SIPP. While you are still young and enthusiastic there is definitely a desire towards the end of your fifties to at least go part time.
    • atush
    • By atush 12th Jun 17, 12:33 PM
    • 16,300 Posts
    • 9,968 Thanks
    atush
    Are you in the NHS still? You can still accrue pension years, just more slowly. If you work 50% of the hours, you'll get one years pension for 2 years working.

    The biggest advantage of a SIPP over additional pension is if you retire early. Not many seem to want to work to age 65 or 67, so if you go early you could use the SIPP so that your NHS pension isnt reduced.
    • saucer
    • By saucer 12th Jun 17, 12:50 PM
    • 72 Posts
    • 7 Thanks
    saucer
    As far as I know the main way of paying more into the NHS pension is via 'Additional Pension' which has nothing to do with AVCs. Instead you pay for extra pension in 250 pa chunks. You do this by lump sum or ongoing contract, taken before tax. This is payable at 60 or 65 and rises with inflation. I think they beat anything you could get terms of a return on a normal investment.
    • louloubelle79
    • By louloubelle79 12th Jun 17, 12:53 PM
    • 201 Posts
    • 93 Thanks
    louloubelle79
    Thanks-found the pension calculator on nhs pension site which calculates it for you.
    Hoping to be mortgage free by 2026 age 47
    Current rate 2.79% fixed for 10 years
    Current mortgage end date: 03/10/2043
    MFW Starting Mortgage Jan 17 - £114,703
    • saucer
    • By saucer 12th Jun 17, 12:56 PM
    • 72 Posts
    • 7 Thanks
    saucer
    Here's the calculator
    http://www.nhspensions.nhsbsa.nhs.uk/PensionCalculators/AdditionalPension/index.aspx
    • dunstonh
    • By dunstonh 12th Jun 17, 2:21 PM
    • 89,852 Posts
    • 55,455 Thanks
    dunstonh
    My understanding is if we put it in a SIPP we can potentially pass it onto our children rather than using it ourselves if we have otherwise adequate funds for our retirement. Presumably this is not an option if we went down the AVC route?
    It is an option with the AVC. It is also an option with stakeholder pensions and personal pensions too. SIPP is not the only alternative.
    • claire111
    • By claire111 12th Jun 17, 8:28 PM
    • 190 Posts
    • 46 Thanks
    claire111
    jscol-

    Please check and double check the figures for lump sum purchase of NHS ADDITIONAL PENSION.

    For most people that want an annuity type arrangement they are astonishingly good value.

    It is index linked before and after payment, guaranteed, and you can calculate at what point you would break even (eg. 5 years after commencement of payment , or 7 years etc ) ....after which everything else is free money.

    Obviously you need to decide first if an annuity is right for you...
    • dunstonh
    • By dunstonh 12th Jun 17, 8:49 PM
    • 89,852 Posts
    • 55,455 Thanks
    dunstonh
    claire111 is right. Are you looking at this extra contribution you are planning to be for retirement planning (i.e. income provision) or tax efficiency?

    Pensions can be used for either nowadays.
    • jscol
    • By jscol 13th Jun 17, 9:17 PM
    • 14 Posts
    • 2 Thanks
    jscol
    claire111 - thanks I'll have a very detailed look at these figures. Much appreciated. However if we get an annuity and my wife dies at a relatively young age then what happens to those funds?

    Dunstoh - I suppose we've been seeing saving in my wife's pension as primarily a means of minimising tax. I suppose my pension, her present nhs pension and savings/ investments had been what I'd been imagining using in old age.
  • jamesd
    claire111 - thanks I'll have a very detailed look at these figures. Much appreciated. However if we get an annuity and my wife dies at a relatively young age then what happens to those funds?
    Originally posted by jscol
    The funds were spent to buy the annuity. They vanished on the day of purchase and are gone forever. In exchange the annuity income was purchased, usually at a dire rate compared to alternatives. When buying an annuity you can choose to cut the income paid while alive in exchange for a reduced income to be paid to a spouse, perhaps 66% of that reduced income.

    In general for normal retirement ages and pension pots it's foolish for those with normal life expectancy to buy an annuity. This is because there are alternatives that pay much more income for the same amount of money:

    1. State pension deferral increases the state pension by 5.8% for each year deferred. Roughly, five years of deferring an £8,000 state pension will cost 5 times that £8,000 to replace it, so £40,000, the the state pension when taken will be 29% higher, an extra £2,320 a year of guaranteed, inflation linked income for life. A reasonably comparable annuity might pay under half of that for the same spend. So you can both defer and have twice the income for the money while alive and the survivor keeps theirs after the first death.

    2. Income drawdown could provide something similar from 55 depending on how much income drop you'd be willing to take if investments did unusually badly. It's particularly suitable for people with high levels of guaranteed income. Much to read about it, the examples linked from here may be an interesting starting point. This provides a 100% spousal pension and normally significant inheritance.
    • jscol
    • By jscol 14th Jun 17, 6:04 PM
    • 14 Posts
    • 2 Thanks
    jscol
    Thanks jamesd.

    You've given me a lot to think about. I need to sit down with pen and paper and make sense of these examples.

    One thing I not quite understanding. If my wife pays additional payments to her NHS pension but then dies whilst still working what happens to those additional payments?

    I thought I was fairly financially switched on. No mortgage, no debts, some savings and investments but I know recognise I have been ignoring pension issues.
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