Stop NHS Additional Pension in favour of topping up SIPP

saucer

I have asked a couple of questions on here as I try to sort out an early retirement plan, and I really appreciate the very helpful thoughts. I am wondering about a new change to my plan.

I am 48 and have an NHS pension to which I also buy additional years so that I have the equivalent of 40 years at age 60, which was the maximum allowed.

More recently (about 4 years ago) I took on an 'Additional Pension'. The terms of this were that I am 'purchasing' £4000 extra pension a year from age 60 and increased by CPI each year both before and after retirement. It also includes dependent cover. For this I pay £755 for this each month on a 7 year contract. If I pull out I would get the benefits that I have already paid for, i.e. 4/7 of £4000 at 60 (if that makes sense)

What I am now wondering is whether it would be sensible to save the same amount into my SIPP instead. The advantages of this would be that I could use it to help me retire a year or two earlier. There is a small chance that I could end up as a higher rate taxpayer in retirement, and I am thinking that diverting the money to a SIPP would be more sensible.

I would really welcome any thoughts on whether this sounds like a good plan or whether I would be better leaving it in the additional pension contract until that finishes in about 3 years.

justme111

To be more or less certain one would have to know the numbers. Ie what is the rate of what you pay now to the benefit you will get. I do not think you getting employer contribution on additional pension, do you ? From 2015 retirement age for NHS pension is the same as state retirement age , not 60 but 67. Are you sure you will be able to get the proportion of pension you pay from 2015 at 60? Without going into exact calculations I would likely preferred SIPP to that additional NHS pension or taken it further and put money into ISA (depends on your tax now , your plans and other factors of course). The reasons being that without emploers contributions this part NHS pension would be not as valuable as the main one; likelihood of you wanting early retirement and needing money earlier- even not taking into account current and dare I say future low moral in healthcare it is usually physically and emotionally demanding work and people after 50 tend to run out of steam ; you not being able to access that portion of pension till 67; probable further increase in state retirement age to which NHS one is linked now; chances of further lowering of LTA; too many eggs in one basket.

jamesd

If you stop you get the proportion that you have already paid for, as described at http://www.nhsbsa.nhs.uk/Documents/Pensions/Additional_Pension_V3_08.2016.pdf

I suggest not stopping but instead going SIPP in addition to normal contributions once you have finished the term.

You appear to have ample time to accumulate enough to retire a year or two or more earlier after the term ends. If you want to retire now or as soon as possible then it probably would be desirable to stop now provided your expected pension is high enough.

Using an ISA instead of pension contributions would lose you a lot of money in an early retirement situation and should normally be considered if you need to accumulate more money to retire before pension benefits become available at age 55. In early retirement before a DB pension is taken a large part of the pension that you got tax relief on would be within the personal allowance and withdrawable tax free. You don't get this big tax boost with an ISA.

atush

Buying additional pension at the going rate, then having that additional pension be reduced by early retirement is to me a waste of money.

I would be boosting the Sipp to retire on, leaving the NHS pension to be taken when it wont be actuarily reduced.

saucer

atush wrote: »

Buying additional pension at the going rate, then having that additional pension be reduced by early retirement is to me a waste of money.
.

But the plan would be to leave NHS employment at 58, if everything goes to plan, but not take the pension until 60. Am I wrong in assuming that this would have no impact on that part of the pension for which I will have completed the agreed 7 years of additional pension contributions and which is payable at 60?

justme111

Whatever you accrued prior to 2015 will be paid at 60 unreduced. What you accrued later will be paid at the state pension age for you.

saucer

justme111 wrote: »

Whatever you accrued prior to 2015 will be paid at 60 unreduced. What you accrued later will be paid at the state pension age for you.

I believe that the £4000 additional pension contract will remain payable at 60 as it was when I took it out. It is part of the 2015 pension and seems to work somewhat like an annuity:
http://www.nhspa.gov.uk/PDWeb/PensionCalculators/AdditionalPension/index.htm

justme111

I would call them and check (or even better write)

atush

In your OP you mentionned early retirement. So if you dont plan to take your pension at 58- and the contract can be taken at 60- great. Keep on paying in,

But I'd put any other spare cash into a Sipp.

claire111

I've purchased plenty of NHS Additional Pension over the years - but always as a lump sum. Every time I've researched the figures it always comes out as extremely good value for me. Add to that it is fixed and guaranteed, it is paid at age 60 providing you purchased/entered the contract before 2015, will increase by CPI before and after payment and will be paid until you die. Payments in attract tax relief and I think possibly can take you in to a different tax band as its deducted from pay. You can take a reduced amount early if you want to and someone who did this recently told me theirs wasn't reduced by much .....

Average life expectancy for a male your age is 86 and you have a 1 in 4 chance of living to 95. in very simple terms you are paying in £63k to get back ~ £104k

In your shoes I would stick with Additional Pension purchase.

saucer

...when you put it like that it seems a no brainer
The previous advice from James about allowing the contract to run, and then topping up the SIPP makes a lot of sense and likely the way I will go. Thanks for all the very helpful thoughts, as always