NHS pension vs. SIPP

justme111

You are right. Still my rough calculation was that even taken early with reduction it is still better or at least not worse than what could be got from SIPP

lawriejones1

It's a great system! I worked for the NHS for 5 years or so and in that time added £50k to my pension stash.

atush

awm112 wrote: »

Hi all, quick question to which I probably know the answer...


I'm currently working as a junior doctor two years post qualification and not currently paying into a pension scheme as I've been using the money to pay off student debt. Now that I'm debt free I'm looking into joining the NHS pension scheme. I've been investigating SIPPs on HL's website and just wondering if people have thoughts regarding the different options available? I'm guessing the NHS pension will turn out to be superior?


Thanks

To put this financial stuff into terms you can understand, you had a disease which was treatable and you turned down treatment against the doctors advice and are now more sick than you were to begin with?

darkidoe

lawriejones1 wrote: »

It's a great system! I worked for the NHS for 5 years or so and in that time added £50k to my pension stash.

From my understanding the value of your stash doesn't seem to factor into what you will get from your pension at retirement.

bigadaj

darkidoe wrote: »

From my understanding the value of your stash doesn't seem to factor into what you will get from your pension at retirement.

There is no stash, just a promise to pay a set amount at a point in the future.

dunstonh

darkidoe wrote: »

From my understanding the value of your stash doesn't seem to factor into what you will get from your pension at retirement.

You are buying benefits. Not a fund.

jabberwock95

Sorry to hijack the thread but this is relevant to me as I'm a junior doctor taking a couple of years to work as a locum and so won't be part of the NHS pension scheme.

Here's the relevant part of the scheme regarding buying additional pension:

Additional Pension is a flexible way of increasing your NHS Pension. Under this option you choose to buy
a set amount of annual pension, which you can pay for either with a lump sum payment or by regular
contributions deducted from your pay for an agreed period of time.
The minimum amount of Additional Pension you can buy is £250 and the maximum amount is currently
£6,500.
Additional Pension is protected against inflation by being index linked both before and after retirement.
You can choose whether your Additional Pension is just for you or also provides benefits for your
dependants when you die.

For myself I have the option of either putting a couple of years worth of money in a SIPP, or using that money to buy additional NHS pension.

The upside of the NHS pension appears to be that it is guaranteed benefit, and that it's currently considerably more valuable.

The downsides are that you can't take it until state retirement age, and that the government are free to change the terms at any point they like. If they wish to make it less generous at any point in the future they will and you have no recourse. In investment terms that seems like having all your eggs in one basket.

EDIT: It's also worth noting that 'earned' NHS pension is revalued by a Treasury Order plus 1.5%. 'Bought' pension is only revalued by the Treasury Order. So if the treasury never wants the value of your pension to increase, it will be worth the same amount in 40 years as it is now, making it considerably less valuable than 'earned' pension. Although I believe currently the treasury is going with CPI, they are under no compulsion to do so in the future.

hyubh

jabberwock95 wrote: »

Sorry to hijack the thread but this is relevant to me as I'm a junior doctor

Would have been better to start your own, to be honest.

taking a couple of years to work as a locum and so won't be part of the NHS pension scheme.

Not sure the 'and so' follows...?

https://www.bma.org.uk/advice/employment/pensions/eligibility-to-join-nhs-scheme
https://www.bma.org.uk/advice/employment/pensions/locum-gps

Here's the relevant part of the scheme regarding buying additional pension:

Presumably you're still in the scheme at the moment? Because this will only be an option for active members.

For myself I have the option of either putting a couple of years worth of money in a SIPP, or using that money to buy additional NHS pension. The upside of the NHS pension appears to be that it is guaranteed benefit, and that it's currently considerably more valuable.

This is where your question clearly differs from the original poster's. If you buy additional pension, while it is indeed additional DB pension, there's no explicit employer contribution, so you will be contributing a lot more than for the equivalent ordinary scheme benefit. This doesn't make it bad thing in itself, however...

The downsides are that you can't take it until state retirement age, and that the government are free to change the terms at any point they like. If they wish to make it less generous at any point in the future they will and you have no recourse.

You overstate the last point, or perhaps, mis-state it: the public sector, as an employer, has an excellent track record of keeping its occupational pension promises.

On the other hand, if you're not yet a high earner, you will be, in which case the risk is more (I think) that the value of the benefit is undercut by future tax changes that remove the current imbalance between the tax treatment of large DC pensions and large DB ones. I wouldn't consider this as a reason to actually opt out of the NHS scheme, but it possibly is a reason to think twice about pushing significant extra savings into it.

EDIT: It's also worth noting that 'earned' NHS pension is revalued by a Treasury Order plus 1.5%. 'Bought' pension is only revalued by the Treasury Order. So if the treasury never wants the value of your pension to increase, it will be worth the same amount in 40 years as it is now, making it considerably less valuable than 'earned' pension.

Public sector pensions have been increased by 'treasury orders' for decades and decades - that doesn't make them risky.

jabberwock95

hyubh wrote: »

Would have been better to start your own, to be honest.

Apologies, I figured since the original question had already been firmly answered I could jump off into my own. Since we're here now...

hyubh wrote: »

Not sure the 'and so' follows...?

This applies to locum GPs and locums working directly for the NHS. As I will work via an agency, I will not be eligible to be part of the scheme.

hyubh wrote: »

Presumably you're still in the scheme at the moment? Because this will only be an option for active members.

I am currently (although not for long) and I will also be rejoining after a few years and could purchase additional pension then.

hyubh wrote: »

This is where your question clearly differs from the original poster's. If you buy additional pension, while it is indeed additional DB pension, there's no explicit employer contribution, so you will be contributing a lot more than for the equivalent ordinary scheme benefit. This doesn't make it bad thing in itself, however...

There's an online calculator available, but yes you are right you need to pay in a fair bit more to gain the equivalent reward. And even then it isn't really equivalent because of the difference in revaluation.

hyubh wrote: »

You overstate the last point, or perhaps, mis-state it: the public sector, as an employer, has an excellent track record of keeping its occupational pension promises.

On the other hand, if you're not yet a high earner, you will be, in which case the risk is more (I think) that the value of the benefit is undercut by future tax changes that remove the current imbalance between the tax treatment of large DC pensions and large DB ones. I wouldn't consider this as a reason to actually opt out of the NHS scheme, but it possibly is a reason to think twice about pushing significant extra savings into it.

Public sector pensions have been increased by 'treasury orders' for decades and decades - that doesn't make them risky.

You'll probably have to forgive me on this point, but at the moment there is a huge amount of distrust between NHS workers and the government. Without getting too political they have shown no hesitation in screwing us over in other areas, and have changed our pension terms three times in 20 years. As of yet they haven't introduced retrospective changes, but it's not outside the realms of probability.

In any case my main question was if you are outside the scheme, would you be better served buying additional pension when you can or starting a SIPP?

hyubh

jabberwock95 wrote: »

You'll probably have to forgive me on this point, but at the moment there is a huge amount of distrust between NHS workers and the government. Without getting too political they have shown no hesitation in screwing us over in other areas, and have changed our pension terms three times in 20 years.

Leaving aside any other aspect, your claim about pension terms is completely wrong. The amount of change compared to the private sector has been frankly minimal, and it's deluded to think otherwise. Or, put another way, at the last round of change, the unions completely bested the government, whatever the tough-sounding rhetoric of the latter (and good for the unions involved, that's their job).

In any case my main question was if you are outside the scheme, would you be better served buying additional pension when you can or starting a SIPP?

Until you give more details, this is like asking how long a piece of string is. E.g., what is your age, how do you see your career progressing, what other savings do you have, what age are you looking to retire at, how much income are you expecting to need in retirement, what's your propensity for risk, etc...