NHS Pension advice

GingerJim

tibbles209 wrote: »

ERRBO cannot be applied retrospectively; only pension accrued after joining the ERRBO scheme can be taken early without actuarial reduction. Any pension accrued before the date you joined the scheme will still be reduced. Therefore if you join ERRBO at 60, and retire early at 65 (3 years before normal retirement age) then you will still be hit by most of the usual actuarial reduction, it would only be the part you accrued after age 60/ after joining ERRBO that would be unreduced. This is why it appears so cheap and why, if you are going to join the ERRBO scheme the ideal time to do so is at the beginning of your career.

Ah. Well I missed that bit of useful information in the small print! It makes ERRBO even less financially viable for me, even without doing the calculations. Very helpful, thank you.

redlfc

tibbles209 wrote: »

ERRBO cannot be applied retrospectively; only pension accrued after joining the ERRBO scheme can be taken early without actuarial reduction. Any pension accrued before the date you joined the scheme will still be reduced. Therefore if you join ERRBO at 60, and retire early at 65 (3 years before normal retirement age) then you will still be hit by most of the usual actuarial reduction, it would only be the part you accrued after age 60/ after joining ERRBO that would be unreduced. This is why it appears so cheap and why, if you are going to join the ERRBO scheme the ideal time to do so is at the beginning of your career.

yeah I initially didnt see this on the ERRBO document. Essentially I think its pointless - you are making a significant investment across lifetime to access pension 3 years earlier - investing that same money into ISA/LISA over that time period will allow you to likely retire at 55-60 and have enough to last you until NHS pension kicks in at 68

tibbles209

redlfc wrote: »

yeah I initially didnt see this on the ERRBO document. Essentially I think its pointless - you are making a significant investment across lifetime to access pension 3 years earlier - investing that same money into ISA/LISA over that time period will allow you to likely retire at 55-60 and have enough to last you until NHS pension kicks in at 68

As per my above hypothetical example, the cost of buying out the 3 years early retirement reduction would cost less than £30k take-home pay over the course of 40 years, to get an additional ~£67k (actually quite a bit more than that due to revaluation) take-home pension over the 3 years of early retirement. Unless you happened to be incredibly lucky and stock-pick the next Apple, I can't see how gradually investing that £30k in an ISA over the course of 40 years could possibly allow you to retire at 55-60 and bridge to 68. You would have to invest a large sum of money (many times the £30k) to build a pot of money that you could live off for that many years, even at bare minimum living standards. Indeed even to accumulate enough to live off for 3 years from 65 until 68, and match the income you would have got from ERRBO, would require some extremely good luck in the stock market. With ERRBO the income is guaranteed (provided you don't die before retirement) and not dependent on striking it lucky.

redlfc

tibbles209 wrote: »

As per my above hypothetical example, the cost of buying out the 3 years early retirement reduction would cost less than £30k take-home pay over the course of 40 years, to get an additional ~£67k (actually quite a bit more than that due to revaluation) take-home pension over the 3 years of early retirement. Unless you happened to be incredibly lucky and stock-pick the next Apple, I can't see how gradually investing that £30k in an ISA over the course of 40 years could possibly allow you to retire at 55-60 and bridge to 68. You would have to invest a large sum of money (many times the £30k) to build a pot of money that you could live off for that many years, even at bare minimum living standards. Indeed even to accumulate enough to live off for 3 years from 65 until 68, and match the income you would have got from ERRBO, would require some extremely good luck in the stock market. With ERRBO the income is guaranteed (provided you don't die before retirement) and not dependent on striking it lucky.

thanks! yeah i re-read your post - the only thing putting me off is how much of it is guesswork as like you say - its impossible to predict how much you will be working/how much salary will rise (and therefore the contributions) etc but you do make a good argument

I do wonder why it gets so much stick on this forum in general - not many seem to be in favour of it. Dos the 3.69% stay the same throughout your career or does it increase as salary does?

tibbles209

I wonder whether it is just because the scheme has such complicated rules that it is just not widely understood very well and people understandably tend to be averse to financial commitments that they do not fully understand. There are some legitimate criticisms of ERRBO course, particularly the fact that ERRBO does not impact death-in-service benefits, so if you die prematurely your contributions are essentially gone, but this risk is priced into the contribution rate.

Yes it will be 3.69% throughout my career (it would be 3.66% for you given your age). The cost does of course go up as your earning do in terms of £, but in terms of percentage of your pensionable pay it remains the same. There is the possibility they could slightly increase the cost of ERRBO at some point in the future, at which point you would have the option to either continue contributing and remain in the scheme, or leave the scheme.

GingerJim

redlfc wrote: »

thanks! yeah i re-read your post - the only thing putting me off is how much of it is guesswork as like you say - its impossible to predict how much you will be working/how much salary will rise (and therefore the contributions) etc but you do make a good argument

I do wonder why it gets so much stick on this forum in general - not many seem to be in favour of it. Dos the 3.69% stay the same throughout your career or does it increase as salary does?

it is 3.69% of your pensionable pay throughout your career, so the actual amount you pay will increase over time as your pensionable pay goes up. For a doctor, your basic pensionable pay is largely predictable so you can make some calculations.

Additional contribution would be £738 a year when on £20,000, £3690 a year when on £100,000.

For me, the additional contributions of two years of ERRBO would cost me about £50,000 between now and age 63, and it would give me about £22,000 larger lump sum, and about £2,500 extra a year in pension than if I retired at 63 without ERRBO (which would be retiring four years earlier than my original state pension age of 67). Means I'd need to live to 77 to make it financially viable.

My rationale is that the extra pensions contribution now is a tolerable sacrifice I am likely happy to make because it also has a psychological effect on me giving me some more flexibility as retirement approaches to retire at 63 without the mental burden of thinking of incurring a penalty of taking my pension 4 years early; with ERRBO I'd only be taking my pension two years early. I'm also hoping to live longer than 77 so the small increase in annual pension may also come in handy.

If you private message me your grade in 2015 I can do some rough and ready calculations with and without ERRBO, but ideally you should seek professional (trained) help.