Retiring from the NHS

Turtle

Hi

I've been thinking about us planning for early retirement recently and have this morning been reading through my husband's pension information.

He's in the NHS scheme and a couple of years ago had to make a decision about staying in the 1995 scheme or transferring to the 2008 scheme. He decided to stay in the 1995 scheme as this is better if you want to retire at 60 and not 65 (he's currently 40).

What I couldn't find in the information was whether he could retire at 55 and just defer drawing the pension until 60. If he had to draw the pension at 55 it would be reduced by 24% which is quite a chunk, but wouldn't want to work at this job until he's 60 (or at least that's what he's currently thinking).

I know the pension administrator would be able to answer this for definite but I wondered if anyone had any experience of this?

If any more background is needed please let me know. Thanks in advance for any help.

xylophone

As far as I can see he could resign and then his pension is automatically deferred?

What will he do for income until he can draw his pension?

Does he have 35 years NI contributions?

atush

I don't know the answer, but suspect he can leave at 55 and draw at 60. In the meantime his FS/AS will be increased each year with an index. But he wont get the LS either then, so will need savings/investments to live on in that period.

I suggest S&S Isas for this.

As for any LS, do check if this can be taken from an AVC instead of commuting valuable FS pension. If so, using an AVC from now on would be a good idea.

jamesd

Personal pension income can be taken from age 55. 25% tax free lump sum and then income drawdown at perhaps 5-6% of capital value per year. If there is no 40% tax band to use for pension tax relief after paying into the NHS scheme a S&S ISA is a good alternative and has the major advantage that all of the capital can be depleted, so drawing on it all to boost income until a normal start to the NHS pension.

Plenty of time to plan for this and it should be easy enough to do it without the need to take a reduced NHS pension.

Arranging for mortgage to continue until well after the NHS pension normal start date can also help significantly. Higher mortgage payment money is money that could instead be accumulated to provide for income during the short years. An equity release mortgage could also be use to release capital for spending, with the plan being to repay from the state pensions or some of the higher NHS pension obtained by delaying.

jackyann

Sympathies, turtle.

My experience is that the pension is not theoretically reduced by you not drawing it. BUT both the 1995 & pre-1995 are based on your final year's salary (basic). As pay is going up by about 1% pa this only makes a small difference.

Could he consider part-time (I know this isn't always the answer, it wouldn't have been for me)? My experience is that management are usually sympathetic to this. As each hour is counted, you are still contributing.

Turtle

xylophone wrote: »

As far as I can see he could resign and then his pension is automatically deferred?

What will he do for income until he can draw his pension?

Does he have 35 years NI contributions?

We have other savings accounts / plans in place which I hope will cover the 5 years between 55 and 60.

Re NI - I was wondering about this earlier. When do they start counting from? Do part time jobs from 16 count? If so then nearly 35 years but not quite!

Turtle

atush wrote: »

I don't know the answer, but suspect he can leave at 55 and draw at 60. In the meantime his FS/AS will be increased each year with an index. But he wont get the LS either then, so will need savings/investments to live on in that period.

I suggest S&S Isas for this.

As for any LS, do check if this can be taken from an AVC instead of commuting valuable FS pension. If so, using an AVC from now on would be a good idea.

I'm sorry I'm not sure what all your abbreviations mean. I assume final salary, lump sum and additional voluntary contribution but what is AS?

He doesn't pay any AVC - total contributions are already 24% without. But I don't know what the rules are or how to make the most of what you've got if I'm honest either, I need to research this.

We will have other savings in place which I hope will be enough to cover the 5 years in questions, part time work will certainly not be out of the question if we need to do it or find something that would be enjoyable.

Turtle

jamesd wrote: »

Personal pension income can be taken from age 55. 25% tax free lump sum and then income drawdown at perhaps 5-6% of capital value per year. If there is no 40% tax band to use for pension tax relief after paying into the NHS scheme a S&S ISA is a good alternative and has the major advantage that all of the capital can be depleted, so drawing on it all to boost income until a normal start to the NHS pension.

He doesn't want to take it from 55 though, as the deduction is quite large (24% less than at 60). My concern is to be able to retire at 55 but not start drawing the pension until 60. Is the income drawdown instead of buying an annuity? Is it as simple as saying 5% drawdown on a £300k pot would be £15k pa? I'm not sure what's meant by your comment on the 40% tax relief, but he is a higher rate tax payer.

jamesd wrote: »

Plenty of time to plan for this and it should be easy enough to do it without the need to take a reduced NHS pension. Arranging for mortgage to continue until well after the NHS pension normal start date can also help significantly. Higher mortgage payment money is money that could instead be accumulated to provide for income during the short years.

Currently we have an offset mortage at 1.5%. We are using the mortgage to invest the full amount in ISAs (this is our 3rd year) and then paying this amount off the mortgage each year. To press, this has been in cash ISA as we had some at 3.5%, however this years is only 2% and I am going to transfer this to S&S along with approx half previous years subscriptions as they will be low rates in the next 3 months when our bonus rates end.

We also own a BTL property which was purchased with equity from our home (so is also at 1.5%), this is mortgaged for £71600 and we are only covering the interest. We receive a small rental income of just over £4k a year from this, half of it is paid towards the mortgage on our home and the other half is split between our own savings (everyday ones) and half in savings for tax bills, maintenance etc for the property. The mortgage must be paid back at age 65 however we could look to review this nearer the time.

jamesd wrote: »

An equity release mortgage could also be use to release capital for spending, with the plan being to repay from the state pensions or some of the higher NHS pension obtained by delaying.

I'm wondering if we're going about things in the right way. I believe we are in a good position financially compared to a lot of people our age, but I'm not sure if we're really making the most of what we have. I do wonder if it's worth paying for some advice?

Turtle

jackyann wrote: »

Sympathies, turtle.

My experience is that the pension is not theoretically reduced by you not drawing it. BUT both the 1995 & pre-1995 are based on your final year's salary (basic). As pay is going up by about 1% pa this only makes a small difference.

Could he consider part-time (I know this isn't always the answer, it wouldn't have been for me)? My experience is that management are usually sympathetic to this. As each hour is counted, you are still contributing.

Correct, it is not reduced if you defer drawing it. The final salary it is based on is the highest pay you receive out of the final 3 years of your employment. He hasn't had a pay rise of any kind for nearly 2 years as is at the top of his band.

I think part time would be theoretically possible but I'm not sure he'd really want to do it. Having said that it's still quite a few years away yet and obviously things change!

BobQ

Turtle wrote: »

Correct, it is not reduced if you defer drawing it. The final salary it is based on is the highest pay you receive out of the final 3 years of your employment. He hasn't had a pay rise of any kind for nearly 2 years as is at the top of his band.

I think part time would be theoretically possible but I'm not sure he'd really want to do it. Having said that it's still quite a few years away yet and obviously things change!

Surely if he is aged 40 he will move into the career average scheme so have a pension in two parts, one from the current and another from the future scheme? You can apply to DWP for his contribution record (well he can!)

Re NI - I was wondering about this earlier. When do they start counting from? Do part time jobs from 16 count? If so then nearly 35 years but not quite!

Remember that for some of that time he will have been contracted out of the State Second Pension. Any qualifying year counts. Before 2010 this was based on a minimum income during the year (I think it was 50 times the lower earnings limit for NI contributions).

jackyann

The "career average" is the new (2008) scheme. At every change, one has the opportunity to stay one's existing scheme or move to the new one. Because of other changes it depends whether it is worthwhile or not.
As for State Pension, someone posted recently what constituted a "qualifying year".
I really think best to get a State Pension forecast and speak to NHS pensions.

I often feel that I repeat this, but a lot of my friends are retired NHS / public service. They do a variety of part-time / casual jobs of all kinds.