NHS 1995/2015 pensions & retirement planning

jimbob42

NHS pension query
Hi Folks, looking for opinions if possible
Background
Currently employed in NHS, aged 52. Have 14 yrs in 1995 NHS pension scheme (with a pension age of 60), and from 2015 in CARE scheme (matches state pension age – 67 for me).
Problem A
Trying to figure out a way to reduce hrs from F/T to P/T before this job drives me bananas. As far as I can see, to do this I need to pay off a big chunk of what will remain in mortgage in 2023. To accomplish this I’m thinking of cashing in (at 56/57yrs) some private pensions I have, taking a hefty hit on tax and hopefully paying some 80k off mortgage, this then should make mthly outgoings and reduced P/T hrs doable. Then P/T until about 63/64yrs and retire fully then with mgage at zero. Up to that time point in 2023 I will be paying off as much as I can on the mortgage but wife and kids need fed too. So this is the current plan for Problem A.
Problem B
Issue with NHS pension is I cannot really touch them early. I have to retire to access 1995 scheme and this means the 2015 scheme stops too, taking 2015 that early invokes a massive actuarial reduction. This extra 7 yrs part does not seem at all fair to me – and I understand there is a group action court case ongoing regarding this, although do not yet know the detail or if any potential impact personally.
So useful comments on my planned solution to problem A and any thoughts on problem B would be welcome.
Cheers :beer:

Notfarfromtheborder

With regards to problem B, my understanding is that taking 1995 scheme benefits means you can no longer contribute to 2015 scheme rather than having to take the 2015 pension actuarially reduced.

I could be wrong, but may be worth checking

jimbob42

Yep, think that is correct. 2015 scheme can be deferred, with no further contributions possible as I understand it. Ideally I'd want to take the 1995 scheme early, use cash lump to reduce debt, leave privat pension for a while and remain in P/T employed in current role, however not doable.
At least all the digging has meant good advice for the kids - Don't leave it late. Start early. 13 yr old doesn't seem to appreciate it though..

nicknameless

Is there not a way to avoid that tax hit on the DC pensions?


I am not the most sophisticated at this but that seems an awful waste of money.


Could you not remortgage and extend the term to reduce payments and then pay off with TFLS from 1995 scheme, or with a combination of 25% tax free from DC pensions.

woolly_wombat

Taking the tax-free 25% from your private pensions at 55 would be a start, and would immediately start to ease the mortgage pressure.

You could then take the rest via drawdown over several years to minimise the tax hit and overpay the mortgage as you go.

You would then be restricted to £4000 p.a. limit on annual DC pension contributions, but I believe your DB pension contributions would be unaffected.

You could also consider downsizing - drastic but if your mental health is affected then definitely worth considering.

It would be a terrible shame to stop contributing to your NHS pension.

GingerJim

As said above, if you get your 1995 pension at 60, you don’t have to touch your 2015 pension and can defer taking it, return to work between 60 and 64 so the income from work fills the income gap of going part time, and then at 64 take the 2015 pension with only a 3 year penalty.

The other things which are worth thinking about:
- if the job drives you nuts, can you move sideways and do a different job withon the NHS?
- it is hassle moving house, but if you downsized to a house which was £80k less in value you wouldn’t need to cash in on your other pensions and reduce the mortgage amount.
- you don’t have to take the 1995 pension at 60, in which case any work you did after 60 would still be pensionable and allow you to contribute into the 2015 scheme.
- even if you took the 1995 at 60 and could no longer contribute to the 2015 scheme when you returned to work, you could contribute to a non-NHS scheme.
- have you read about ERRBO? You can make higher pensions contributions to the 2015 scheme and effectively reduce your pension age - if you purchased 2 years (which would be the maximum for you), you new effective pension age would be 65, so if you claimed your 2015 pension at 64 you would only be penalised for taking your pension one year early, not three years early. But this only applies to those years in the 2015 scheme you had been in ERRBO, so probably 2019 to when you claimed, not the years 2015 to 2018 inclusive (you would be penalised for three years early reduction if retiring at 64 in these years). You’d need to do some power calculations to work out if it was advantageous for you in the long run.
- have you looked at other mortgage options, including offset mortgage - not suitable for everyone.
- just double check how much you are specifically allowed to overpay on the mortgage, you don’t want to exceed this and then end up with a mortgage early repayment charge on top of everything else.
- if you have substantial savings, have you considered drip feeding some of that into the mortgage, or again considered an offset mortgage.
- you certainly don’t want to precipitate a tax bill by cashing anything in. I would speak to someone clever about this as there may be ways to avoid or at least minimise any tax bill.

jimbob42

Thanks to all for the replies esp Wooly and GingerJim for taking the time to chip in.


In no particular order:

• Mental health as good as the next person..onwards and upwards :-)
• No option for sideways move - too specialized.
• ERRBO route - have been advised not really worth it as you suggest.
• Will take further advice re tax hit if go Plan A route - but although it is 20% vs 40% over a ten year period at P/T hrs it actually seems worth it.
• 10% overpay on mortgage fine so will be throwing what I can at this as and when

Thanks for the detail folks. I've a few years to mull it over and come up with Plan C.

For all the undoubted benefits of the NHS type pension, I think the major caveat is the penalties incurred if want to leave early. They seem designed to keep you grafting until expiry date!
:A
Bye

Sawman

In a similar position to OP, but with longer service in 1995 section. I have 2 part time jobs totalling 42 hrs (some of it isn't superannuated)

I have just received a pension estimate, which suggests that I could take my pension in the summer age 53, (deferring 2015 benefits) and reduce my hours from 42 to 27 and be about £60 worse off, but 2 days a week better off. My plan would be to pay off a decent chunk of mortgage with the lump sum but continue to work 3 days a week for about the next 7 years (or until the mortgage is fully paid up and the kids have finished Uni'). I have the option to develop a private practice in the 2 available days.
I could worry about my pension being smaller in the longterm that it would have been if I had stuck it out at full hours, but several folks I know have barely made it past the finish line in recent years and so I am inclined not to worry so much

jimbob42

Hi Sawman,


Thanks for the detail. Interesting to know someone with similar target - just the means to hit the target different. I have a spreadsheet that tallys pension estimates according to my age - if you haven't already got something like this it might be useful for your planning. Couple this with income/outgoing s/sheet and you get clear detail of where you may stand wrt dosh. Only drawback is you can get bit obsessed with it.

Good luck with reducing hrs and your Plan, and completely agree with your words about finish line. I could keep working at this rate, retire at 67 with decent pension and be fit for sfa.

Thrugelmir

jimbob42 wrote: »

[*]10% overpay on mortgage fine so will be throwing what I can at this as and when
[/LIST]

The mortgage is something you do have control over. Paying it down quicker is normal down to personal choice. What matters to you the most. Surprising how much money can be found if one puts ones mind to the task.