Taking NHS Pension Early (? around 55).

Korkyb

Hi all!

I've just turned 52 and have just over 30 years within the NHS pension 1995 section (2018 benefit statement said just under 19k pension at NPA of 60yrs this should rise slightly in the next 3 years with pay increases) and will have around 5 or 6 years in the 2015 scheme when I get to 55 on top of the 1995 section.


I know that if I take my pension early that there is an actuarially reduction as in this guidance https://www.nhsbsa.nhs.uk/sites/default/files/2017-03/ARER factsheet (03.2017) V7.pdf so at 55 it is a 21% reduction in pension and a 15% reduction in lump sum.


I appreciate that generally one should leave a pension until NPA if at all possible but 3 years ago I was treated for the big C (all good now) and in my mind it changes things a bit - i.e. being Scottish, having a father who died under 60 from a heart attack + my brush with my own mortality may mean I'm not in line for a telegram from the Queen at 100 J



On to my question (s):


- If I did take my 1995 section pension at 55yrs how old would I be when I start losing the gamble i.e. the overall amount of money gained by the extra 5 years pension becomes less than the amount I would have had sticking to the NPA of 60.


- If I take the 1995 section pension early can I leave the 2015 scheme running (the actuarially reduction for taking that at 55 appear much higher than the 1995 section element).




Part of my thinking is that I'll probably want / need more money between 55 / 70 years old and probably less after that as things (I) slow down (or drop).


If I work part time between 55 & 60 I reckon that salary plus the pension would mean my income wont be drastically reduced compared to its current level (it will still be reasonable) so will be able to enjoy not being at work without being too skint.


Other info is that I have no debt, mortgage is paid off and I have 50kish in savings (thanks to a critical illness policy which had a hair trigger to my gain).


Any advice gratefully appreciated (& if you think I'm bonkers please tell me!)

justme111

Question a) - roughly you would be taking about 15k/year. In 5 years taking it early it is 15×5=75. You would be taking 4 k less/year so 75÷4=19 roughly; 19+60=79. Ie you would be losing money overall if you survived past 79. But you would pay tax on the higher amount so probably even a bit later. Plus there would be an opportunity cost , ie if you would have taken money earlier it would have a chance of making you more money.
I would not say you are bonkers at all, it makes sense and there are other considerations than making sure one's occupational scheme pays them the maximum.
Weaknesses in your plan as I see them: if in order to achieve the standard of living you want ( or even one close to it) you would need to do part time job what do you intend to do after 60 when you do not plan to work any more? Where will the money come from then? Or you planning to reduce your spending ?

Johnnyboy11

The are a couple of benefits of starting your DB pension early, at say 55. One being that you won't pay any income tax up to your personal allowance, assuming you have no other income. The other is reducing back-end loading when your State Pension kicks in. I read somewhere that the early reduction factors in the NHS and LGPS are supposed to be cost neutral, and not punitive.

tacpot12

The actuarial reduction on the 1995 scheme is about 4% pa. Every year that you can defer taking this pension will also result in the pensio being larger because it has been uplifted for inflation (about 2.1% pa) so unless you are getting 6% plus interest on your savings the best thing to do would be to spend some of your savings to allow you to defer taking the 1995 scheme pension. My partner retired early from the NHS and is doing the same thing, although her savings were acquired by different means.

Korkyb

Thanks chaps, from what you've said it may well something for me to seriously consider.

One reason I've got 55 in my head is because in the 2 or 3 years till then I am looking at a pay increase of 10%ish with pay rises & a pay increment & with it being a final salary scheme the better that final wage the better the pension.

My other reason is that I work a lot (an awful lot) of unsocial hours which attracts an extra unsocial payment. This makes my pay at the end of the year over 15% more that my base salary.

As its a final salary scheme I believe its based on my best years pay in the 3 years before retirement.

This means if I reduce my hours and do not retire within 3 years my pension would be hugely reduced being then calculated on my base salary.

One other factor I didn't mention is her indoors. She is also in the NHS and is lucky enough to have special status so she can retire at 55 without any actuarially reduction.

She has only worked part time & doesn't have anything like as many years under her belt as I do but her pension will also add to the holiday fund.

The last post has a point - it may be worth me using up a lump of my savings before taking the pension although as the pension is index linked wouldn't that cancel out any uplift?

Johnnyboy11

Age 55 is also important, because if you start your NHS pension earlier then you lose CPI inflation until you reach age 55. Potentially 5 times say 2%, that's 10% in real terms, before any actuarial reduction is applied, Ouch!

Pension_Geek

How does your LTA look? Have you got any LTA protection?

You could use ISAs and other savings to fund a gap.

xylophone

Have you obtained a new state pension statement?

Has your wife?

https://www.gov.uk/check-state-pension

tacpot12

Korkyb wrote: »

...

As its a final salary scheme I believe its based on my best years pay in the 3 years before retirement.

...
The last post has a point - it may be worth me using up a lump of my savings before taking the pension although as the pension is index linked wouldn't that cancel out any uplift?

Yes, the 1995 scheme is based on your best years pay in the 3 years before retirement. So to maximise your pension, you need to either take it OR defer it (by leaving your job) after a maximum of two years on a lower salary. Note that it doesn't matter if you go part-time for a number of years, as the 1995 scheme works on your full-time salary, all that going part-time means is that you earn your years of service at a lower rate.

No, the uplift won't be cancelled out by deferring your pension. You can double check this here:
https://www.nhsbsa.nhs.uk/sites/default/files/2018-11/Leaving%20Early%20and%20Transferring%20Out%20Guide%20%28V16%29%20-%2011.2018.pdf Option 1 - Deferring benefits

This means that for all NHS staff who are close to retirement, they are likely to get a better pension if they leave early, than if they stay and receive pay rises that are less than the rate of inflation. If you are due an increment then this argument doesn't hold, it would make sense to stay until the increment has been paid for one year, and then leave.

crv1963

Hi Korkyb,

"Part of my thinking is that I'll probably want / need more money between 55 / 70 years old and probably less after that as things (I) slow down (or drop).


If I work part time between 55 & 60 I reckon that salary plus the pension would mean my income wont be drastically reduced compared to its current level (it will still be reasonable) so will be able to enjoy not being at work without being too skint."

There is nothing wrong with your thinking. I would agree that 55-70 time off work or reduced hours would be worth it, there is nothing like a major health scare/ issue to make you appreciate what you have and the time you have.

In the three years up to your retirement- which you have now entered if you go at 55, I would look to increase the pension by as much as possible by working as many unsocial hours as I could get away with. This would have a twofold benefit- increased pension for life and possibly reduce the number of years that you would need to work part time or the amount of hours part time you need to work.

Once you have increased your pension benefits, you could look to step down hours/ pay scale (depending on role) as your Trust may have a retirement policy that includes stepping down responsibility- check with your Policies and Procedures or Pension Officer. Use some savings to supplement the income thereby reducing the hit on the preserved pension. This also keeps you in the scheme so keeping the other scheme benefits without reducing the pension to you.

For us we're looking to save monies to fund the gap between date of retirement and SP starting, as like you with 1995 pension in our 50s then SP in our 60s we will actually be better off as we age theoretically of course as we may not make it!

Korkyb

Thanks all.

All advice much appreciated.