ERRBO with NHS Pension

louloubelle79

Hi
Wonder if anyone can help (age 39 now) started late with pensions. Pension with 2008-2013 pension minimal for a few years as had two children. Started again in 2016 so 2015 scheme. Started paying max allowed additional contributions and AVC NHS with Prudential.Due to small pot trying to make up lost time
My basic pay each month as a nurse (26 hrs) is £1531. I pay £149.60 into my pension (employee contribution 9.3%) and Additional payment of £470 and AVC of £47.

My retirement age is 68years, dont want to work another 29 years :eek: is it worth paying additional contributions with the ERRBO agreement to buy out the reduction that would apply if i retire before my Normal Pension Age?

Many thanks

Brynsam

There's no easy answer to that. Have you read the factsheet and checked how much it would cost you? https://www.nhsbsa.nhs.uk/sites/default/files/2018-03/ERRBO%20factsheet-20180302-%28V7%29.pdf

You then have to decide if the extra cost of the ERRBO is likely to be better value you for you than paying AVCs (assuming you can't afford to do both). There's no magic formula, I'm afraid!

louloubelle79

Hi thanks for your reply, need to sit down and work it out and then decide.

GingerJim

I've also been looking at ERRBO.

You really need to do some power calculations to work out your likely pension benefits (lump sum and annual pension) at age 68 based on your likely pensionable income between now and then (difficult to do I know). Then re-calculate these benefits assuming you want to retire at 65, but with the penalties this attracts (taking your pension 3 years early). Then work out the likely cost of ERRBO to buy three years. Then see how the two compare. For me, if I buy two years of ERRBO and retire at 63 (two years earlier than my new ERRBO age). I'll only encounter two years worth of penalties rather than four years worth of penalties without ERRBO. I need to live to 77 to make it make financial viability though. So it is highly complicated - unnecessarily so in my opinion.

I'm not sure this actually helps you.

Jim

louloubelle79

Thanks GingerJim

GingerJim

I've done some back of the envelope calculations, based on your age of 39, annual salary of £18372, and I've made an awful assumption that your salary will go up 1% each year. The values below are ball park annual pension based on just the 2015 scheme and your contributions from 2016 (and ignore any previous contributions). This is annual pension if taken at a range of ages, given reducing contributions (if taken before 68) and also takes into account the deductions you will encounter taking your pension before 68 - they do not take into account any lump sums (if you took a lump sum your annual pension would be less).

Age Annual pension
60 5495
61 6036
62 6699
63 7302
64 8036
65 8808
66 9728
67 10697
68 11834

Now, if you were to buy three years of ERRBO in the very near future, you'd have to pay an extra 3.96% pension contributions (currently £727 a year, £60 a month), but this would allow you to retire at 65 without incurring a penalty, but it would also mean you had paid fewer pension contributions. You could also retire earlier than 65 with ERRBO and the penalties for early retirement would then start to apply, but at the normal rate (1 year early penalty for retiring at 64, 2 years penalty for 63 etc). Rough and ready annual pension amounts with ERRBO with the same pay etc as above:

Age Annual pension
60 6277
61 6999
62 7708
63 8551
64 9442
65 10485

So if retiring at 65 either way, you'd be £1677 a year better of with ERRBO. But my rough calculations suggest between now and 65 you'd pay £21,695 in addition pension contributions to pay for ERRBO. So you'd need to live for 13 years on top of 65 (78) to make ERRBO financially viable.

But these are really really ball park figures and do not take into account pre-2016 pension contributions, make wild assumptions about your pay progression etc.I'm not a financial adviser or have any skills in this, I'm just another health care professional who is also looking closely at my pension and at the potential value of ERRBO to me.

James

GingerJim

The improved pensions rewards with ERRBO are about 2-4% higher than I should have shown them as I applied ERRBO to the whole of your 2015 pensions contributions and not to the contribution from 2019 to age 65 which they would in relatity be applied to if you got your application in and accepted before the end of the current tax year. That is not me suggesting you should go for ERRBO though. I suspect i will go for it

justme111

Thank you for your calculations , Ginger Tim; it looks very helpful despite all the assumptiins -
I am sure there are not many people who done what you done. When I looked into it I did not master the will to calculate and I decided not to take it.
The reasons being:
- Benefit seems comparable to the investments in personal pension assuming average performance
- Difficulty in calculations- specially keeping in mind I would want to retire way before those 3 years. Likelihood of me stopping NHS employment before retirement leaving it unfinished.
- Not having trust in NHSBSA calculating it correctly
- More control and accessibility if held in private pension/SIPP
Your helpful calculation confirmed to me my choice was right
as living beyond 78 - likely but not for so many years - what is the average life expectancy , 84?
Having all that fuff and for realistically just 6 years after break even, ie about 10k?

hugheskevi

- Benefit seems comparable to the investments in personal pension assuming average performance

The pricing is based on a discount rate of CPI+2.8%, reducing to CPI+2.4% from April. The discount rate can be compared to the rate of return after all charges in a personal pension.

The actuarial assumptions made in the calculations are based on all member characteristics, so the extent to which individual characteristics differ from population characteristics will affect the price (in particular, how long you will remain in the pension scheme and so benefit from enhanced revaluation and life expectancy).

- More control and accessibility if held in private pension/SIPP

That is true, but with this comes uncertainty. Whilst better performance can be achieved in a personal pension, a return of CPI+2.4% on investments without investment risk isn't going to be possible.

as living beyond 78 - likely but not for so many years - what is the average life expectancy , 84?

It is slightly below 90 years of age.

louloubelle79

Thankyou so much you have been very helpful. I pay the £6000 additional payments each year also which started Nov 2017.