Scottish NHS pension; additional contribution vs savings account

bettyboo99

Hi,
This is probably a daft question sorry...I have around 10K of savings and would like to retire early from NHS in the next couple of years. There is an option of putting 5K per year extra into NHS pension as additional contribution and Im wondering if I should try to use that as much as possible rather than keep the money in savings account? Advice very welcome! thank you.

jem16

bettyboo99 wrote: »

Hi,
This is probably a daft question sorry...I have around 10K of savings and would like to retire early from NHS in the next couple of years. There is an option of putting 5K per year extra into NHS pension as additional contribution and Im wondering if I should try to use that as much as possible rather than keep the money in savings account? Advice very welcome! thank you.

I'm going to assume you mean buy additional pension as opposed to using AVCs?

However I think you have misunderstood. £5k is the amount of additional pension that you can buy per year but this is not the cost of buying it. The cost will vary depending on your age and normal retirement age.

Additional pension is a great buy but it will not help with allowing you to retire early as you will still suffer an actuarial reduction by leaving early. Far more useful would be to use a personal pension which could be used to cover the time between retiring and taking your pension at the normal retirement age for the scheme.

Perhaps you could give us a bit more information with regards to your age, your normal retirement age and how much service you have with the NHS?

atush

It is generally not a great thing to buy extra pension, then have it reduced thru retiring early as you lose 5% of your entire pension for each year early.

If you want to retire early, why not open a DC personal pension? Which will be boosted by tax relief, and you can take pretty flexibly from next april. this can be taken from age 55 when you like, and you can use it to live on while letting your NHS pension mature to scheme age.

bettyboo99

Thanks for taking time to reply, I wonder if Ive completely misunderstood what they mean by buying additional pension! I was on the SPPA website using their pension calculator. I thought you could buy additional pension by paying in increments of between £250 and £5000 per year. When I put in £5000 additional pension it increased the annual amount paid quite a bit which is why I thought it was possibly a good idea. Im currently approaching 51, work part-time (70%) and would like to retire if possible between 53 and 55, I have 32yrs pensionable service; I dont think I could afford to leave the NHS one to mature and retire early...the 10K wont last long :-)

bettyboo99

Sorry Jem16 meant to add my normal age of retirement would be 60.

atush

Well you cant retire if under 55 anyway, that is the min age. But you could retire at 53 if you saved enough money to live on til 55, then took a DC pension you saved into, then took your DB pension at scheme age.

But you may not be able to do this now unless you have a lot of spare income to save. You may have to wait till 55 and use a personal pension to save into between now and then.

How much spare income do you have to save each month for the next 4 years?

bettyboo99

Thanks atush, under the older scottish nhs pension scheme I am in, I'm apparently still allowed early retirement from 50 albeit with reduced pension. I think Im not allowed to take advantage of the change in govt rules around pensions as its all in a final salary (DB?) so you cant take the pot elsewhere. Sadly looks like might have to stay till 55 then, sigh.

kidmugsy

Apart from anything else, if the £10k is all your savings, you shouldn't tie it all up in a pension - you may need it for an emergency.

Is it possible to retire from the NHS now, since you are over 50, and supplement your pension by some less onerous part time work?

Can you tell us how big your NHS pension would be if you retired now, or at 53, or at 55?

jem16

bettyboo99 wrote: »

Thanks for taking time to reply, I wonder if Ive completely misunderstood what they mean by buying additional pension! I was on the SPPA website using their pension calculator. I thought you could buy additional pension by paying in increments of between £250 and £5000 per year.

I'm afraid you have misunderstood. The amount of £250 to £5000 is the amount of extra pension that you wish to purchase. For example if your NHS pension was due to give you £10,000pa and you wanted more you could elect to buy more pension up to £5k in each year. So if you bought £5,000 worth of additional pension you would have a pension of £15kpa.

When I put in £5000 additional pension it increased the annual amount paid quite a bit which is why I thought it was possibly a good idea.

It would increase it by the amount you wanted to buy. What you then need to do is input your age, normal retirement date and whether you want to buy the pension as a lump sum or monthly payments.

Im currently approaching 51, work part-time (70%) and would like to retire if possible between 53 and 55, I have 32yrs pensionable service; I dont think I could afford to leave the NHS one to mature and retire early...the 10K wont last long :-)

At age 51 it would cost you £79,000 as a lump sum payment to buy an extra £5000pa of additional pension.

I think your only option of retiring early would be to take an actuarial reduced pension but you're going to lose around 5% for each year you leave early so retiring at age 53 would see you lose 35% of your pension.

I'm assuming you don't qualify to retire at age 55 as a member of the special classes?

atush

I think Im not allowed to take advantage of the change in govt rules around pensions as its all in a final salary (DB?) so you cant take the pot elsewhere. Sadly looks like might have to stay till 55 then, sigh.

But you can actually pay into a Defined contribution personal pension for a few years. and get tax relief.

This is completely separate from your NHS pension.

I agree you should not put your entire cash savings into it, but whatever you do put into it will be boosted so worth doing to keep from taking your NHS pension as early. Each year you delay taking it, earns you 5% plus annual increase.