Additional NHS Pension or SIPP?

saucer

As far as I know the main way of paying more into the NHS pension is via 'Additional Pension' which has nothing to do with AVCs. Instead you pay for extra pension in 250 pa chunks. You do this by lump sum or ongoing contract, taken before tax. This is payable at 60 or 65 and rises with inflation. I think they beat anything you could get terms of a return on a normal investment.

louloubelle79

Thanks-found the pension calculator on nhs pension site which calculates it for you.

saucer

Here's the calculator
http://www.nhspensions.nhsbsa.nhs.uk/PensionCalculators/AdditionalPension/index.aspx

dunstonh

My understanding is if we put it in a SIPP we can potentially pass it onto our children rather than using it ourselves if we have otherwise adequate funds for our retirement. Presumably this is not an option if we went down the AVC route?

It is an option with the AVC. It is also an option with stakeholder pensions and personal pensions too. SIPP is not the only alternative.

claire111

jscol-

Please check and double check the figures for lump sum purchase of NHS ADDITIONAL PENSION.

For most people that want an annuity type arrangement they are astonishingly good value.

It is index linked before and after payment, guaranteed, and you can calculate at what point you would break even (eg. 5 years after commencement of payment , or 7 years etc ) ....after which everything else is free money.

Obviously you need to decide first if an annuity is right for you...

dunstonh

claire111 is right. Are you looking at this extra contribution you are planning to be for retirement planning (i.e. income provision) or tax efficiency?

Pensions can be used for either nowadays.

jscol

claire111 - thanks I'll have a very detailed look at these figures. Much appreciated. However if we get an annuity and my wife dies at a relatively young age then what happens to those funds?

Dunstoh - I suppose we've been seeing saving in my wife's pension as primarily a means of minimising tax. I suppose my pension, her present nhs pension and savings/ investments had been what I'd been imagining using in old age.

jamesd

jscol wrote: »

claire111 - thanks I'll have a very detailed look at these figures. Much appreciated. However if we get an annuity and my wife dies at a relatively young age then what happens to those funds?

The funds were spent to buy the annuity. They vanished on the day of purchase and are gone forever. In exchange the annuity income was purchased, usually at a dire rate compared to alternatives. When buying an annuity you can choose to cut the income paid while alive in exchange for a reduced income to be paid to a spouse, perhaps 66% of that reduced income.

In general for normal retirement ages and pension pots it's foolish for those with normal life expectancy to buy an annuity. This is because there are alternatives that pay much more income for the same amount of money:

1. State pension deferral increases the state pension by 5.8% for each year deferred. Roughly, five years of deferring an £8,000 state pension will cost 5 times that £8,000 to replace it, so £40,000, the the state pension when taken will be 29% higher, an extra £2,320 a year of guaranteed, inflation linked income for life. A reasonably comparable annuity might pay under half of that for the same spend. So you can both defer and have twice the income for the money while alive and the survivor keeps theirs after the first death.

2. Income drawdown could provide something similar from 55 depending on how much income drop you'd be willing to take if investments did unusually badly. It's particularly suitable for people with high levels of guaranteed income. Much to read about it, the examples linked from here may be an interesting starting point. This provides a 100% spousal pension and normally significant inheritance.

jscol

Thanks jamesd.

You've given me a lot to think about. I need to sit down with pen and paper and make sense of these examples.

One thing I not quite understanding. If my wife pays additional payments to her NHS pension but then dies whilst still working what happens to those additional payments?

I thought I was fairly financially switched on. No mortgage, no debts, some savings and investments but I know recognise I have been ignoring pension issues.

atush

jscol wrote: »

Thanks jamesd.

You've given me a lot to think about. I need to sit down with pen and paper and make sense of these examples.

One thing I not quite understanding. If my wife pays additional payments to her NHS pension but then dies whilst still working what happens to those additional payments?

I thought I was fairly financially switched on. No mortgage, no debts, some savings and investments but I know recognise I have been ignoring pension issues.

it depends on what she chose as her options. Check her last statement or have her ask for another or call HR.

It might be AVCs- like a DC pension for people with a final/average salary pension. It is essentially a DC pension alongside. So she would get 25% tax free and drawdown the rest or buy an annuity etc.

Or it could be additional/added pension- buying extra years in her scheme. So she would retire getting more money as a guaranteed pension/