Options to bridge from early retirement until NHS pension

tibbles209

Hello,

I am a 27 year old junior doctor in Scotland earning approx 44k/year of which 29k is pensionable. I am enrolled in the NHS 2015 defined benefit scheme which can be drawn at state pension age (so at least 68+ for me). I would like to retire no later than 60. I am aware that I can draw my NHS pension early but with heavy reductions, and I would like to avoid doing this.

I am trying to plan to accumulate a pot that I can use to bridge me for up to 10 years between early retirement and my NHS pension and am currently trying to figure out where the best place to save this pot would be.

I have been considering;
-NHS early retirement buy out option - this allows me to buy out the reduction of up to 3 years pension payments, allowing me to take my full NHS pension from age 65. This would cost me an additional 3.72% of my pensionable pay, and I am finding it difficult to figure out if this is a good deal and should be factored into my plan.

-NHS Group Additional Voluntary Contributions (with Standard Life) to build a pension pot, however this plan does not allow flexible drawdown. The summary suggests you can either buy a pension income with your pot, or take a 25% tax free lump sum and then buy a smaller pension income. The main draw of this plan is how easy it would be, as the contributions are deducted from my pre-tax salary which would avoid having to claim back the higher rate tax relief manually as I go on to become a higher rate tax payer. However this does not seem a good fit for what I am trying to achieve as my secondary pension is not intended to provide lifelong income, just up to 10 years of a bridge. How easy/viable is it to save into a scheme like this, and then transfer into a scheme which allows flexible drawdown prior to drawing my pension?

SIPPs - I have been looking at these and they certainly seem to be the most obvious fit for what I am looking for, but I have no investing experience and do not feel very confident at the moment about choosing my own investments. I am however keen and motivated to learn, so if anyone can point me in the direction of a good place to start learning about these I would be grateful.

Other personal pensions/stakeholder pensions etc. - From what I can find out these are more simple as they do not require the degree of self management of a SIPP, but generally have higher charges which can have a significant impact on the final balance. Are there other benefits to these that I am not aware of?

Lifetime ISAs - main things putting me off these are the equivalent of basic rate tax relief only (I am likely to be a higher rate tax payer for most of my working life), the fact that I could only access it from age 60 so if I decided I wanted to retire at 58 I would need a plan C to bridge that gap.

I am new to the whole pensions thing and having read around a bit my head is slightly spinning so I would be glad if some of the more experienced people here could help me out with what the most sensible place to save my pension would be.

Thanks!

AnotherJoe

tibbles209 wrote: »

SIPPs - I have been looking at these and they certainly seem to be the most obvious fit for what I am looking for, but I have no investing experience and do not feel very confident at the moment about choosing my own investments. I am however keen and motivated to learn, so if anyone can point me in the direction of a good place to start learning about these I would be grateful.

[STRIKE]Moneyvator[/STRIKE] Oopsy, no "y". Thanks to Colsten for correction - Monevator.com

xylophone

The Pru NHS AVC would be available to you?

https://www.pru.co.uk/rz/nhs/avcs/

Currently you can take the money you have built up in your AVC pot from age 55 - either before, at the same time as, or after you take your NHS Pension Scheme benefits. It really is up to you. When you decide you want to take your money from your AVC pot you can choose from a wider range of cash and income options than ever before. Have a look at 'Taking your benefits' to find out more about these options.

tibbles209

Thanks for that AnotherJoe, I will start there

xylophone - as far as I can tell the Pru NHS AVC seems to be for the England & Wales scheme only, the Scotland scheme seems to just offer the Standard Life AVC

colsten

AnotherJoe wrote: »

Moneyvator

I think you mean Monevator.

Congrats to the OP for thinking about this now, as they stand a real chance to make their retirement dream come true if they start now.

justme111

To calculate whether plan A is benefitial you would need to do estimate how much your pension would be ( let's say you have pensionable pay of 54 k, for each ear in service (let's say from 30 to 68 - 38 years of service- you would accrue 1/54 of it - £1000×38=£38 k.) So in total in those 3 years you retire early you would draw 38×3=114 k. You would have to contribute for it 3.72% of your 50 k yearly , ie £1872. If you were to contribute this money into personal pension assuming growth of 4% above inflation putting it into compound interest calculator you would get £167 k. Allowing for 1% charges it would be 132 k. Obviously growth is a guess and I am not sure about private pension charges and your exact numbers. The calculation above shows it is more benefitial to use private pension in money terms but what of growth is not good - NHS pension has security. On another hand it has dangers of further changed conditions. You may want to find out whether this buy out portion uprated by 1.5%dinamising factor or not. The above is just an illustration of how it could be calculated. I am not sure I have not missed anything important, other contributors would correct me I hope if I have. If I were you I would not bother with this option - too much fuff to calculate it for only 3 years and using it would be adding even more into NHS basket without having any other. I would open a simple SIPP with any mainstream provider with a multi asset fund in it (charge 0.45 % at HL I believe) and contributed till I have about 50 k in it. Then I would either know more about the topic or consulted an IFA or both.

Triumph13

The elephant in the room here is the Lifetime Allowance - which is currently leading many doctors to take early retirement. If the rules don't change (big if) then if you retire at 60 taking your pension at SPA then if your pensionable salary averages a bit under £80k over that period then you will have used up your entire lifetime allowance. (33 years in a 1/54th scheme, CARE with revaluation at CPI +1.5% vs announced LTA indexation of CPI).
If that is the case then saving into AVCs or a SIPP ceases to look attractive as all the tax benefits are likely to get gobbled up by the LTA charge.
The extra contributions to go unreduced at 65 don't have this problem so may be worth looking into. Other than that I'd be looking at ISAs and LISAs in your shoes if you plan to work full time until 60 - unless you fancy taking a bet that higher rate relief and the LTA are both going to be abolished, in which case go the SIPP route now.

bostonerimus

If you want to bridge a gap between retirement and pension then you need savings in an ISA, a regular investment account, the bank or a source of income say from a rental or even part time work.......although are you then truly retired. You need accounts that are immediately available. Having a detailed budget and spending discipline is important.

I retired at 52, three years before my pension started. I had some savings in the bank, some fund investments that I could readily access and income from a rental property so I could cover my expenses.

kidmugsy

At £44k p.a. you pay basic rate income tax. So open a LISA in March 2018.

Once you are earning enough to be exposed to Higher Rate income tax, open a personal pension of some kind - perhaps a SIPP.

This suggestion applies only if you have already accumulated a suitably large emergency cash fund, which would best be held in high interest current accounts backed up by regular saver accounts.

sleepless_saver

kidmugsy wrote: »

At £44k p.a. you pay basic rate income tax. So open a LISA in March 2018.

Once you are earning enough to be exposed to Higher Rate income tax, open a personal pension of some kind - perhaps a SIPP.

This suggestion applies only if you have already accumulated a suitably large emergency cash fund, which would best be held in high interest current accounts backed up by regular saver accounts.

In Scotland it's now £43000 for higher rate tax. http://www.gov.scot/Topics/Government/Finance/scottishapproach/Scottishincometax2017-18

Rheumatoid

His gross taxable pay needs to be over the higher rate threshold I believe before he will be able to benefit much more from a SIPP than a basic rate payer. So he will need to be earning a fair bit over threshold due to his NHS pension contributions reducing his gross taxable pay.