is it worth buying extra years in NHS scheme

EdInvestor

happilass wrote: »

i am a nurse in the NHS i have about 24 years contributions, i had a break to bring up our son and am now back, for last 8 years. I am probably at my career height! now and earn 25000/annum part time. I am 54 this year and hope to retire in 5 years time. Do people think that it would be useful to buy extra years.

What is your NHS retirement date?How much state pension are you expecting and when is that retirement date?

If you plan to retire at age 59, it seems likely there will be a gap before the pensions kick in and you will need to save up money to live on during those gap years.Obviously it would be best to save this money outside the pension, preferably using ISAs @7k a year.

But you really need to check whether your pensions at retirement age will be enough.It could be that retiring at 59 won't really be realistic. In that case, buying added years in the pension could be a better deal.

There are also tax considerations.More info is needed to give a proper reply.

Acromion

I decided to buy added years when I was 50 so that I could retire on a full pension at 60. In these days when final salary pension schemes are fast vanishing, it seems pretty sensible to maximise benefits in one of the last remaining final salary schemes. You can argue about the cost going in - which to me seems reasonable - but the priceless aspect is the fixed benefit at the end come rain or shine. I say - go for it.

happilass

Hi
thanks EdInvestor and Acromion. I have not got a problem with living costs etc if i retire at 59/60 since my pension is really a bonus for myself and my husband but i do want to make the best of what i can have. What i mean is that if i want to retire at any age i can afford to do so but at the moment i feel happy to keep working and threrfore would like to maximise any potential pension from my employer when i do retire.
I think after what i have read and the help that you have given it looks likely that it would help to buy some extra years. I am also going to do that to maximise my state pension as i have a few years gap in that also.
Acromion what percentage did you pay to buy extra contributions, if you don't mind me asking.
Thanks to all
Happilass

Biggles

When I operated the NHS scheme in my local authority, it was always accepted by genuinely independent advisers that it was one of the best investments available to you. I don't believe the added years scheme has changed significantly since then, but always take the Added Years (sometimes referred to as 'Additional Service') in preference to the AVCs.

I would be dubious of an IFA's advice that it 'looked far too expensive'; perhaps the truth is that 'it pays no commission'?

Happilass, the percentage you pay is determined by your age. The rates and the number of years you can buy are shown on the NHS Pensions Agency website
http://www.nhspa.gov.uk/site/Advice/Current/MemberGuides/IncreasingBenefits_SDAVC/sdavc1.pdf

If you retire early at 50-55 you will lose 40-25% of your pension.

Though this reduction doesn't apply to nurses who joined the scheme before 1995.

the_geary

I looked into buying extra years in order to retire early. The NHS pension scheme doesn't work that way, in that you can't draw the pension in advance of when you're entitled to it, unless you accept a reduced payment (as stated above).
I started paying in at 23 (am now 34) and will put in the maximum 40 years at 63, so at 60 will be about 2.5 years short of the max I would like to retire at 55.
I checked about buying the 2.5 additional years and for the cost (I can't find the calculations they sent but I think it was approx £75 a month) I worked out I'd need to draw the pension for at least 15 years to get the money back (which obviously I hope to <img>).
But even then it wouldn't pay up at 55 (as Andy L said) - plus you are stuck with being forced to buy an annuity with a portion of it. However if you started paying in later and wouldn't otherwise be buying the max no. of years then it may be more worth it for you.
So I have chosen to put the money in a good interest savings account (I also use my cash ISA allowance each year) so I can do want I want with it.
This may be bridging the gap or paying off the mortgage early to allow me to retire on less money.

Your hospital's pension people are the ones to contact as they can provide you with the costings and the projected difference it makes to the pension. The ones at my place were very helpful, if a little surprised to have an enquiry from a 30-year old <img>

Ian_W

the_geary wrote: »

But even then it wouldn't pay up at 55 (as Andy L said)

Maybe not in your case but it can be dangerous to generalise when others circumstances, length of service and role may be different. As I said earlier Mrs W is buying back years to retire on full pension at age 55 - how?
"Certain groups of staff who were members of the Scheme before 6 March 1995 are known as the special classes.
They are:
Nurses, physiotherapists, midwives, occupational health nurses and health
visitors."
[Mental Health Officers also qualify but with a few more provisos.]

Special classes status allows those qualifying to retire on a normal, though not full unless they've paid 40ys, pension at age 55 - although there are some other provisos in the case of males and perhaps most importantly for all:
"Special class status will not apply to anyone who starts working in one of these jobs for the first time on or after 6 March 1995."

See pages 30 &42 of THIS GUIDE.

The local Trust pensions boffin refers to them as:
The Golden Girls!

the_geary

Ian_W wrote: »

Maybe not in your case but it can be dangerous to generalise when others circumstances, length of service and role may be different.

Yes, I agree. Which is why they should contact their hospital's pensions department to get the proper costings, as you also said.
I wish was allowed to buy the extra years!

jamesd

the_geary wrote: »

I have chosen to put the money in a good interest savings account (I also use my cash ISA allowance each year) so I can do want I want with it. This may be bridging the gap or paying off the mortgage early to allow me to retire on less money.

You should really be using your stocks and shares ISA allowance instead of a savings account. The stocks and shares portion is likely to be worth considerably more than just a savings account after 21 years of growing at 4-10% more than the savings. Savings will be lucky to keep ahead of inflation.

Biggles

the_geary wrote: »

I checked about buying the 2.5 additional years and for the cost (I can't find the calculations they sent but I think it was approx £75 a month) I worked out I'd need to draw the pension for at least 15 years to get the money back

When doing those sums, bear in mind:-
Your contributions will be paid less tax;
Though the additional pension is taxable, the additional retirement lump sum (3 x additional annual pension) is paid tax-free;
After you've commence paying, your ill-health and death benefits are enhanced by the full value of your added years.

Edit: Oh, and index-linking, of course!