Buying a pension

Stubod

We have a cash ISA up (60k)..and thinking about options. One is to "buy" extra pension. I have had a quote, (NHS pension purchase), and this will buy about £4k per year, starts to pay in about 6 yrs, index linked, with spouse getting "half" on death.

We do not need money in the short term, but my only other pensions are a (very) small private pension and a state pension. Just wondering if this would be considered a "good" buy, or would be better of "investing" in a SS ISA?

Main thoughts are that being "risk averse" it does represent a relatively "safe" long term (Index linked) investment. (OK depends how long you live, but I like the idea of being able to "plan" our income for the longer term).

atush

It can be a good bet IF (and only if) you do not ant to retire early.

when you retir early your pension will be reduced (approx 5% PA) and the pension you buy would be reduced as well.

If you decide you might want to go early, another better use for your cash pot would be a DC pension. AS you would get TR so every 8K would become 10K. You can put in up to your entire salary this year (incl TR and minus your DB pension).

Stubod

Hi and thanks for the reply. I do intend to retire early (any day now!),hence the reason for considering the pension "purchase" before I go. My understanding of this scheme is that it doesn't make any difference when you go. Its simply a one off "payment" that purchases a chunk of pension, (NB I am aware that you can only start taking it out when you hit what would be your "normal" retirement age, (in this case 65). That's the dilemma really. Put money "somewhere" that may or may not keep pace with inflation. Or money "put away" for the long haul, which will at least maintain its value. (ie the 4k per year "eventual" payout will increase with inflation until you start taking it at 65, and then maintain pace with inflation, (depending on which measure is used). Its a number game really, would need to "survive" until at least 65 to start with, and then probably another 15yrs before you "get your money back". I have looked at some annuities and to get this level of "income" (with spouse payout on death + inflation), and the cost is £100k+...

atush

Bascially, are you retireing before your scheme age of 65? Or not?

Mostly DB pensions have to be taken in one go, so if you go early your pension is reduced.

So if this is the case, then you'd be better off paying into a DC pension.

Only you can find out the facts of your own case.

p00hsticks

atush wrote: »

Bascially, are you retireing before your scheme age of 65? Or not?

Being pedantic, this question is probably better worded as 'are you planning to start drawing your pension before the normal scheme age ?'

My interpretation of the OP's last post is that they are plannig on 'retiring' (i.e giving up work) imminently, but without claiming the pension.

Stubod

Hi all, and thanks for the replies so far they are appreciated. I think people may be reading a bit much into it, but basically the only thing I am trying to understand or get feedback on is whether it is better to "buy" a chunk of pension (valued as per above..indexed link etc), or "invest" the same amount and hopefully get a similar / better return with the "bonus" of still having access to the money, (or whatever is left of it subject to drawing it down at a similar rate, and hoping the market doesn't crash). I appreciate there is "no crystal ball" as far as investments go, but just wondering what others would do...thanks

atush

p00hsticks wrote: »

Being pedantic, this question is probably better worded as 'are you planning to start drawing your pension before the normal scheme age ?'

My interpretation of the OP's last post is that they are plannig on 'retiring' (i.e giving up work) imminently, but without claiming the pension.

God loves a pedant (not!) lol.

But I feel we cannot really interpret the OPs post as it isnt clear at all when the bought pension would be taken. Now, later, whatever. Or where these investments would be kept- unwrapped, S&S isas or DC pension.

Stubod

Hi..sorry I thought it was clear as per original post and clarified in my 2nd post, the pension would start to pay out at 65, but between now and then (6yrs) it would keep pace with inflation..ie would pay out more than £4k by 65...I am sorry if I have not made my earlier post. But to answer the above post specifically, the pension can only be taken at normal retirement age, (in this case 65)..or in 6 years time.

atush

Was not suffienciently clear to me.

then buying added pension could make sense.There was room to interpret in different ways.

IF you have savings and investments enough to both live on if you retire early, and to provide any lump sum required so as not to raid your DB pension for a lump sum.