Pension NHS - Additional Purchase topup or Property

pardal51

hi all,

In need of advice regarding pensions

My OH (45yo) has been working for the NHS (clinical staff) since 2010 and is enrolled on the 2008 scheme (retirement age = 65). Therefore, in theory, she will have worked for the NHS for 26 years when she reaches retirement age. Hopefully go full time for 3 years in the last 10 years

She has the option to buy Additional Pension up to £5,000. The cost calculation (today) to purchase the whole £5,000 is £54,800. This means that, in theory, not considering taxes she would need to live ~ 11-years after retirement, i.e., until 76 to "break-even" the amount invested.

We have been debating whether to purchase the Additional Pension (I am very inclined to this) or maybe invest in a buy-to-let (although the tax implication on property, CGT, etc put me off a little bit).

My question is: Should we purchase the Additional Pension, or think about a buy-to-let or even open a separate ISA/SIPP for her?

At the moment we have 1x property we live in (100% offset) plus saving as much as possible every month to topup existing my SIPP (my current work pension scheme is the govt rubbish 1% only).

Comments would be much appreciated.

atush

Is there any possibility they will want to retire early? If so, buying added pension that is actuarily reduced is not a great idea. In that case a sipp or PP would be better.

Also, do you have a large enough savings/investment pot (ie s&S isas etc)? If not, you mught want a sipp/PP for a lump sum and additional sums as and when needed- instead of reducing your DB pension by taking a LS at retirement.

Property is best for those with skills in that sector. And is not tax efficient in either growth or income.

hugheskevi

My OH (45yo) has been working for the NHS (clinical staff) since 2010 and is enrolled on the 2008 scheme (retirement age = 65).

She will have moved to the post 2015 scheme in 2015 (retirement age=67).

Therefore, in theory, she will have worked for the NHS for 26 years when she reaches retirement age.

Her retirement age in the new scheme is 67 (and may change if State Pension age changes) so that would be about 28 years.

She has the option to buy Additional Pension up to £5,000. The cost calculation (today) to purchase the whole £5,000 is £54,800. This means that, in theory, not considering taxes she would need to live ~ 11-years after retirement, i.e., until 76 to "break-even" the amount invested.

Plus the implicit assumption that returns between now and age 76 are CPI, which is a low rate of return. A higher rate of return would increase the break-even point.

She can buy up to £6,500 in the post 2015 scheme - she won't be able to enter into new contracts for Added Pension in the old schemes.

My question is: Should we purchase the Additional Pension, or think about a buy-to-let or even open a separate ISA/SIPP for her?

Additional pension is great if you want more guaranteed income in retirement. It is less good if you want to build a pot to fund you for retiring before State Pension age.

ISA gives maximum flexibility, which is great if you need flexibility but doesn't have as many tax advantages.

A SIPP is flexible after age 55/57 (depending on how minimum pension age changes). This is great if you want to use most of the SIPP early in retirement, but less good if you want the pot to last the whole of your retirement - in that case a Defined Benefit pension is easier as you have nothing to manage and a guaranteed income.

A single buy-to-let is questionable, as so much risk is concentrated both in a single asset class and also in whatever tenants you have - if you had a portfolio of properties you would benefit from scale and also spread risk across tenants.

Flugelhorn

Has she not now started in the 2015 scheme? There was some tapering for people of her age - not sure how it affects things.
I know that the scheme is CARE rather than final salary.

pardal51

She will have moved to the post 2015 scheme in 2015 (retirement age=67).

Hmmmm I will have to re-read documents then as it seems that she might have a "Preserved Rights". It seems that between her joining date and 1 April 2015 the pension will be calculated as 2008 Scheme. From 1 April 2015 onwards on the 2015 scheme. It must mean less pension for sure.

From the comments, it looks like the best option is to build up an ISA (so we have access to funds before 55-57; although we wouldn't touch it) + SIPP (so only be able to have access to funds after 55-57.

More comments are much appreciated

kidmugsy

pardal51 wrote: »

Hopefully go full time for 3 years in the last 10 years

Does that mean she's currently part-time? Does that mean that each year she's been working counts as less than a year for pension purposes, with her pensionable pay being calculated pro-rata from her actual pay? Or do they count each part-time year as a full year, but with the part-time pay becoming the basis for the pension?

Does going full-time late on have much effect on a CARE pension?