What to do ? NHS pension / S&S / SIPP or other

Clare43

I work for the NHS and am a member of both the 1995 and 2015 parts of the NHS pension. I also have a couple of small private pensions. I have some money in stocks and shares and have some money in most of the higher interest bank accounts. I have a policy maturing soon and am thinking of using this for my pension so I have more money in retirement. I know I can buy extra pension with the NHS and don't know if it's better to do this, or get one of the free standing NHS AVC with prudential or standard life. Other options would be to put more in stocks and shares and hopefully they would grow and I'd get profits although I know this is far from guaranteed or to start a SIPP - but to be honest I wouldn't know where to start with that. I'll have about 10k to use. Any help / advice please ?

Maelwys

Clare43 wrote: »

I work for the NHS and am a member of both the 1995 and 2015 parts of the NHS pension. I also have a couple of small private pensions. I have some money in stocks and shares and have some money in most of the higher interest bank accounts. I have a policy maturing soon and am thinking of using this for my pension so I have more money in retirement. I know I can buy extra pension with the NHS and don't know if it's better to do this, or get one of the free standing NHS AVC with prudential or standard life. Other options would be to put more in stocks and shares and hopefully they would grow and I'd get profits although I know this is far from guaranteed or to start a SIPP - but to be honest I wouldn't know where to start with that. I'll have about 10k to use. Any help / advice please ?

I'd be a bit wary (particularly under the 2015 scheme which it appears you're in now) about buying additional pension or ERRBO years. The latter is rather expensive for what you get (being able to retire up to 3 years early) and the former isn't matched or salary linked so is a much worse deal than you get out of your standard pension payments.

If you feel you'd need more to live on after you hit state pension age, then maybe additional NHS pension contributions would be something to consider, since the NHS scheme will give you a guaranteed annuity until you die... but the standard matched payments of the scheme itself tend to result in quite a generous annuity as long as you don't convert anything to a lump sum... so in most cases you ought to be perfectly fine (you can always ask for a forecast from the NHS to see what you're likely to get).

The major downfall of the 2015 NHS scheme is that you need to wait until your State Pension Age to claim anything, otherwise you'll be hit with very hefty Actuarial Reduction penalties (or buy those ERRBO years). State pension age can be raised without you having any real say over the matter - for me I'll be 68-70 before I get there, and I really don't want to wait until I'm that old to retire! My solution to this problem has been to invest money in other sources (such as ISAs and SIPPs) to tide me over between the time I intend to retire and my forecasted state retirement age when both my NHS pension and state pension will kick in.

Another thing to note here is that you can DEFER taking both your State pension and your NHS pension - and each year you defer the amount you'll get goes up quite drastically (with those NHS Actuarial Reduction figures now working in your favour!!) so if you can tide yourself over for a few extra years on other savings before taking your NHS and State pension then you'll get a lot more out of them. [STRIKE]This could easily beat buying extra additional NHS pension and taking everything at the "normal" time.[/STRIKE] [Edited: Additional Pension tradeoff is better than I thought, see Post #13]

So rather than buying extra NHS pension, I'd suggest looking into putting the extra money into a SIPP (particularly if you're in a higher tax band) or a Lifetime ISA, with the intention of using this cash to live on before you claim your NHS and State pension. Investing into well-diversified Stocks + Shares within those SIPPs/ISAs would probably be the best option, given that you already have some experience with this and that you probably still have quite a few years before you want to retire... but it'd depend on how much risk you'd be willing to take with your cash.

Clare43

Maelwys wrote: »

I'd be a bit wary (particularly under the 2015 scheme which it appears you're in now) about buying additional pension or ERRBO years. The latter is rather expensive for what you get (being able to retire up to 3 years early) and the former isn't matched or salary linked so is a much worse deal than you get out of your standard pension payments.

If you feel you'd need more to live on after you hit state pension age, then maybe additional NHS pension contributions would be something to consider, since the NHS scheme will give you a guaranteed annuity until you die... but the standard matched payments of the scheme itself tend to result in quite a generous annuity as long as you don't convert anything to a lump sum... so in most cases you ought to be perfectly fine (you can always ask for a forecast from the NHS to see what you're likely to get).

The major downfall of the 2015 NHS scheme is that you need to wait until your State Pension Age to claim anything, otherwise you'll be hit with very hefty Actuarial Reduction penalties (or buy those ERRBO years). State pension age can be raised without you having any real say over the matter - for me I'll be 68-70 before I get there, and I really don't want to wait until I'm that old to retire! My solution to this problem has been to invest money in other sources (such as ISAs and SIPPs) to tide me over between the time I intend to retire and my forecasted state retirement age when both my NHS pension and state pension will kick in.

Another thing to note here is that you can DEFER taking both your State pension and your NHS pension - and each year you defer the amount you'll get goes up quite drastically (with those NHS Actuarial Reduction figures now working in your favour!!) so if you can tide yourself over for a few extra years on other savings before taking your NHS and State pension then you'll get a lot more out of them. This could easily beat buying extra additional NHS pension and taking everything at the "normal" time.

So rather than buying extra NHS pension, I'd suggest looking into putting the extra money into a SIPP (particularly if you're in a higher tax band) or a Lifetime ISA, with the intention of using this cash to live on before you claim your NHS and State pension. Investing into well-diversified Stocks + Shares within those SIPPs/ISAs would probably be the best option, given that you already have some experience with this already and that you probably still have quite a few years before you want to retire... but it'd depend on how much risk you'd be willing to take with your cash.

Thanks Maelwys - that's useful info I'm not a higher rate tax payer and am not eligible for a LISA as I'm too old !! - I'm only 44 ! but that's past it in LISA terms ! I'd like to retire about 55 I think - can take my 1995 part of pension from then I believe ? I don't really want to wait until my state pension age of 67 till I retire :eek: I'll look into SIPP - I'd say I'm probably moderate risk - can accept I may loose some but don't want to loose large amounts but do want the best return I can get - as do we all I'm quite new to investing - would you have any suggestions on the best way to go ?

Maelwys

Clare43 wrote: »

I'll look into SIPP - I'd say I'm probably moderate risk - can accept I may loose some but don't want to loose large amounts but do want the best return I can get - as do we all I'm quite new to investing - would you have any suggestions on the best way to go ?

No worries, and there's plenty of info out there on SIPPs

Taken simply, a SIPP is just a container that you can put money into now, but that you can't withdraw money from before you reach pensionable age (55 now, 57 from 2028 onwards). Whilst it's inside the container that money can remain as cash or be invested into Stocks and Shares or whatever you like etc.

The big thing about SIPPs is that the money you contribute to it is treated as if it is "before tax" - so when you transfer money into a SIPP, the government tops it up depending on whatever your current tax rate is. Whenever you withdraw money later, [under current rules] you won't need to pay tax on the first 25% of the pot, the rest you'll pay tax on at whatever your tax rate is at that time (whenever you're in retirement). The upshot is that a SIPP is a good option if you're in a higher tax bracket now, and expect to be in a lower tax bracket at retirement.

Unfortunately you've missed out on the Lifetime ISA, but as a Basic Rate taxpayer the only real benefit you'll get from a SIPP over a standard ISA is that you are (currently) able to get 25% of it Tax Free once you retire, so it might not be worth the extra hassle if you're still under your annual ISA allowance.

There are a lot of SIPP and ISA providers out there - you'll find that some are flat fee and some are percentage based. Generally for smaller amounts (£10k qualifies as this!) you want Percentage based. Check out this table or here for a quick rundown.

Be sure to read up on risk levels if you're looking at investing anything big into Stocks and Shares, and the differences of passive investing compared to a more hands-on approach.

For what it's worth, I'm a few years younger but in much the same boat as yourself: I work for the NHS, and I keep an emergency fund and some liquid savings in high-interest bank accounts, but a good deal of my extra cash is split between secured P2P investments and a SIPP. I'm holding out on a decent LISA appearing before I shift things around again!! I opened a SIPP with "BestInvest" several years ago before the LISAs were being planned. I started out with a small portfolio of mostly low-cost trackers diversified across High/Medium/Low Caps, and a geographical split of UK, US, European and Asia... but have gotten lazy and have ended up just keeping my best performing funds and transferring the rest into a Vanguard Lifestrategy 80%... :rotfl:

stoozie1

I'd suggest the SIPP to bridge the gap between the 2 retirement dates and the inability to keep contributing to the 2015 scheme once you've accessed your benefits from the 1995 scheme. But that's because that's what we're doing, so I'm biased! A lot of it depends on whether you feel you'll be able to do your job to the same level at 68/69. (and whether you'll want to)

stoozie1

What's your calculation of what your 1995 benefits will be if paid out at 55 and how much will you need the other products to generate to supplement it?

justme111

To my knowledge 1995 scheme is paid at 60 with no reduction. 55 is the earliest one can access it but with reduction which would not make sense.

Clare43

Thank you all for your replies. I would need to check on my benefits at 55 and how much more I would need. I'm in the process of reviewing the figures at the moment. I may be wrong but think under " special class status " I can retire at 55 without reduction but will check this

Clare43

Maelwys wrote: »

No worries, and there's plenty of info out there on SIPPs

Taken simply, a SIPP is just a container that you can put money into now, but that you can't withdraw money from before you reach pensionable age (55 now, 57 from 2028 onwards). Whilst it's inside the container that money can remain as cash or be invested into Stocks and Shares or whatever you like etc.

The big thing about SIPPs is that the money you contribute to it is treated as if it is "before tax" - so when you transfer money into a SIPP, the government tops it up depending on whatever your current tax rate is. Whenever you withdraw money later, [under current rules] you won't need to pay tax on the first 25% of the pot, the rest you'll pay tax on at whatever your tax rate is at that time (whenever you're in retirement). The upshot is that a SIPP is a good option if you're in a higher tax bracket now, and expect to be in a lower tax bracket at retirement.

Unfortunately you've missed out on the Lifetime ISA, but as a Basic Rate taxpayer the only real benefit you'll get from a SIPP over a standard ISA is that you are (currently) able to get 25% of it Tax Free once you retire, so it might not be worth the extra hassle if you're still under your annual ISA allowance.

There are a lot of SIPP and ISA providers out there - you'll find that some are flat fee and some are percentage based. Generally for smaller amounts (£10k qualifies as this!) you want Percentage based. Check out this table or here for a quick rundown.

Be sure to read up on risk levels if you're looking at investing anything big into Stocks and Shares, and the differences of passive investing compared to a more hands-on approach. :

Some really useful advice again - thanks Maelwys I'll look at the charts tomorrow when I've got more time. I've used all of my ISA allowance for this year

Clare43

stoozie1 wrote: »

A lot of it depends on whether you feel you'll be able to do your job to the same level at 68/69. (and whether you'll want to)

The answer is no ! To both parts !! :eek:

claire111

Do investigate purchasing NHS Additional Pension. This is different from AVCs and extra years.

Someone around your age could pay £8,800 lump sum for £1000 pa pension payable from age 67. This date cannot be changed. It is an annuity fixed and guaranteed, index linked before and after payment. You would also get tax relief on that £8,800 - (you will need to claim it back from HMRC though)

Since it could be paid for up to 30ish years most people find it incredibly good value when considering their options but obviously do your own research.....