NHS Pension. Best way to retire before my pension age (68)?

andy230uk

For context, I'm 33 years old and earn around £40k.

I've worked in the NHS for almost exactly 11 years. That means I do have a few years in the old 2008 scheme (which I can take at 65) but nothing that I think will affect decisions in the long term.

For the sake of this question, I’m going to assume I’ll work in the NHS until retirement.


The current pension age for me is 68. Who knows if that’ll go up again over the next 30 years or so. Realistically, I’d like to retire at 60. Ideally earlier but I’m probably not rich enough. Maybe I’m not rich enough to retire at 60 either.

I know I can claim my NHS pension early but according to the link below it would be actuarially reduced by a hefty 34% in my example of wanting to retire 8 years early.

https://www.nhsbsa.nhs.uk/sites/default/files/2017-03/ARER%20factsheet%20%2803.2017%29%20V7.pdf


So, my current thinking is that I need to leave that untouched, take it when I get 100% of it, and ‘bridge the gap’ between 60 and 68 with other savings.

I currently pay £100pm into a S&S LISA (which I can claim at 60) and another £280ish pm into other S&S ISAs which I intend to be pension savings but would be accessible before that point if needed.

My question is, how do I best bridge that gap?

• I’ve just been reading up on MPAVC (Money Purchase Additional Voluntary Contributions) which I can do through my wage but gets paid into a ‘conventional style’ pension (the likes of which I’ve never had to worry about). Offered through Standard Life or Prudential, it’s completely separate to the NHS pension and can ‘currently’ be taken from 55. Since it gets paid out of my wage, it’s tax efficient but this is where my knowledge is a little hazy.

• How does the salary sacrifice element of that work? Do I save on NI too? When I tip into a 12.5% NHS Pension contribution rate (rather than my current 9.3% rate), could I use MPAVC to drop me back into the 9.3% section?

• Is MPAVC any more advantageous than a S&S LISA (with 25% monthly bonus) for example?

• Is it even worth considering putting lots more into my significantly more generous standard NHS scheme then just taking the 34% actuarially reduced hit?

I’ve done lots of digging and reading but feel like I’ve reached the limit of my understanding without the kind help of MSEers!

Any help, advice, things I haven’t considered would be much appreciated.

kendun

Just wanted to say a thank you for posting as I have been thinking about the feasibility of an early retirement and your post is quite timely.
I am looking forward to any advice in this thread

I am a decade older than you and also dont have significant savings, so will be looking into ISAs.

I have thought about investing into the Vanguard funds and will need read up more about this.

arwain

Did you look at the ERRBO system (mentioned at the bottom that document you linked to) it might be worth considering. My O/H has sent off for a costing from NHS Pensions to see how much it would cost to buy out the reduction for going two years before NPA.

You would be allowed to buy out up to three years due to your age. If I have understood it correctly this would mean instead of your pension being reduced by 34% (due to retiring at 60) it will instead be reduced by 24%. This only applies to the pension benefits you earn once you start paying the extra contributions, it does not apply to the benefits you have already earned (would be very nice if it did lol).

hugheskevi

I've worked in the NHS for almost exactly 11 years. That means I do have a few years in the old 2008 scheme (which I can take at 65) but nothing that I think will affect decisions in the long term.

You should be aware of the McCloud Employment Tribunal. This is likely to have significant implications for the pension you have accrued after 2015.

I currently pay £100pm into a S&S LISA (which I can claim at 60) and another £280ish pm into other S&S ISAs which I intend to be pension savings but would be accessible before that point if needed.

You can move the S+S ISA money into a pension in future years to be more tax efficient - particularly if you become a higher rate taxpayer.

• How does the salary sacrifice element of that work? Do I save on NI too? When I tip into a 12.5% NHS Pension contribution rate (rather than my current 9.3% rate), could I use MPAVC to drop me back into the 9.3% section?

It is not a salary sacrifice scheme. Your contributions get income tax relief but you do not save on National Insurance. You cannot move to a lower contribution rate band via use of AVCs.

• Is MPAVC any more advantageous than a S&S LISA (with 25% monthly bonus) for example?

No, not for a basic rate taxpayer.

For each £100 you take home, you have paid 20% income tax and 12% National Insurance. So if you put the remaining £68 into a LISA it is grossed up to £85 with no further tax due.

If you put the money into pension, £88 goes into the pension (as there in no income tax due) and there is income tax due when you receive the pension.

• Is it even worth considering putting lots more into my significantly more generous standard NHS scheme then just taking the 34% actuarially reduced hit?

It is worth considering - it depends on your appetite for risk. You can receive a guaranteed rate of return of approximate CPI+2.4% by doing this. That is an excellent rate of risk-free return, but below what you would expect from investments over a longer term.

Any help, advice, things I haven’t considered would be much appreciated.

S+S LISA is good, pensions will be better when you are a higher rate taxpayer. You can save into S+S ISA until such a time, and then contribute to a pension (using ISA money if necessary) to benefit from higher rate relief.

saucer

Just wanted to say a thank you for posting as I have been thinking about the feasibility of an early retirement and your post is quite timely.
I am looking forward to any advice in this thread

I am a decade older than you and also dont have significant savings, so will be looking into ISAs.

I have thought about investing into the Vanguard funds and will need read up more about this.

If you are older, does that imply you have some membership of the 1995 scheme? If so there might be a bit more flexibility regarding options.

You will find a lot of good advice on the NHS scheme in previous threads, but suffice to say it is fantastic value.

One reason you might also want to consider a private pension, such as a SIPP, would be to save some money you could use to bridge a gap between early retirement (any point after 55) and taking the NHS pension unreduced (60, 65 or state retirement age depending on what part of the NHS scheme your membership is in, 1995, 2008 or 2015. We are all now in the 2015 scheme now but you may well have some years in the 1995 or 2008 schemes with an earlier retirement age. I hope that makes sense

kendun

saucer wrote: »

If you are older, does that imply you have some membership of the 1995 scheme? If so there might be a bit more flexibility regarding options.

You will find a lot of good advice on the NHS scheme in previous threads, but suffice to say it is fantastic value.

One reason you might also want to consider a private pension, such as a SIPP, would be to save some money you could use to bridge a gap between early retirement (any point after 55) and taking the NHS pension unreduced (60, 65 or state retirement age depending on what part of the NHS scheme your membership is in, 1995, 2008 or 2015. We are all now in the 2015 scheme now but you may well have some years in the 1995 or 2008 schemes with an earlier retirement age. I hope that makes sense

Hi Saucer,

Thank you for your reply, it is appreciated.

I started full time NHS employment in 2005 ,so the 1995 scheme and 2008 scheme pension maybe quite limited. It's only recently that I have been able to access my TRS account. I will have a trawl through the TRS section to see if I can get any further info.

I will search for older threads re NHS pension, thank you for the advice Saucer

crv1963

Hi OP and other posters-

My advice as someone (NHS Pension Pot still working/ contributing to it) would be as follows-

1) to be aware that over the coming years there certainly will be more changes to the scheme. Possibly advantageous but probably not!

2) look to save a way to bridge the gap between when you aim to retire and when your NHS pension is due to come into payment- unreduced. So possibly SIPP, LISA or ISA or whatever form they take in the future.

3) if you need to take on payments that are salary sacrifice just as child care vouchers/ lease car payments etc, take the least costly option- you can live without a fancy car, but a basic one has less impact on your long term pension prospects.

4) if you have a spouse try to even up pension income in retirement to minimise tax taken from pension income.

I could go now but we're building Mrs CRV pension pot just as in point 4. All the while trying to maximise my NHS pension through the rules applying to me.

Good luck and remember it is a Team effort if you have a spouse/ life partner.

CRV

andy230uk

Hi All, thanks for all your responses. Life took a turn and this got relegated to the backburner but I think your advice has steered me in the right direction. After re-reading this thread a few times, and I've made some changes by putting much more into my LISA for the time being. I got a promotion last month so edging closer to the higher tax bracket. I'll re-assess once I get there.
I also set up a Vanguard SIPP.

I've dismissed any thoughts of taking the NHS Pension early. The % sacrifice of the yearly pension for the rest of your life is too great to justify for the sake of taking it a few years early. Instead I'm concentrating on bridging the gap between 60 (hopefully) and 68 (when the bulk of my pension will be available).

arwain said:

Did you look at the ERRBO system (mentioned at the bottom that document you linked to) it might be worth considering. My O/H has sent off for a costing from NHS Pensions to see how much it would cost to buy out the reduction for going two years before NPA.

You would be allowed to buy out up to three years due to your age. If I have understood it correctly this would mean instead of your pension being reduced by 34% (due to retiring at 60) it will instead be reduced by 24%. This only applies to the pension benefits you earn once you start paying the extra contributions, it does not apply to the benefits you have already earned (would be very nice if it did lol).

I did look at this in the past but decided against it. Without looking into it all over again, I think it's a real retention policy for the NHS and you sacrifice a lot if you ever leave the NHS in your career. I might be wrong but I did a lot of reading around this at one point and it didn't appeal to me.

Thank you particularly to hugheskevi:

You should be aware of the McCloud Employment Tribunal. This is likely to have significant implications for the pension you have accrued after 2015.

• Is it even worth considering putting lots more into my significantly more generous standard NHS scheme then just taking the 34% actuarially reduced hit?

It is worth considering - it depends on your appetite for risk. You can receive a guaranteed rate of return of approximate CPI+2.4% by doing this. That is an excellent rate of risk-free return, but below what you would expect from investments over a longer term.

Any help, advice, things I haven’t considered would be much appreciated.

S+S LISA is good, pensions will be better when you are a higher rate taxpayer. You can save into S+S ISA until such a time, and then contribute to a pension (using ISA money if necessary) to benefit from higher rate relief.

I was aware of the McCloud Employment Tribunal. Fingers crossed but I'll plan for the worse case scenario.
The CPI + 2.4% is a great deal. But then retiring early then would reduce this further. 
Thanks again for the advice.

Hi OP and other posters-

My advice as someone (NHS Pension Pot still working/ contributing to it) would be as follows-

1) to be aware that over the coming years there certainly will be more changes to the scheme. Possibly advantageous but probably not!

2) look to save a way to bridge the gap between when you aim to retire and when your NHS pension is due to come into payment- unreduced. So possibly SIPP, LISA or ISA or whatever form they take in the future.

3) if you need to take on payments that are salary sacrifice just as child care vouchers/ lease car payments etc, take the least costly option- you can live without a fancy car, but a basic one has less impact on your long term pension prospects.

4) if you have a spouse try to even up pension income in retirement to minimise tax taken from pension income.

I could go now but we're building Mrs CRV pension pot just as in point 4. All the while trying to maximise my NHS pension through the rules applying to me.

Good luck and remember it is a Team effort if you have a spouse/ life partner.

CRV

Good advice re: spouse. And yes, I'm sure I'll see more NHS pension reforms in my time in the NHS. And obviously they won't be better for the employee, otherwise they wouldn't be coming in at all.

sm50

I am in a bit of similar boat I have dual benefits in the 1995 and 2015 scheme. I can retire on full pension in the 1995 scheme at 60. But I can only get full pension in the 2015 scheme at 67 yrs. The thing that makes things more complicated is that if I waited until 67 when I can get my full benefits from the 2015 scheme I would have missed 7 years on benefits from the 1995 scheme. The 1995 scheme does not give additional benefit for delaying one's retirement date, further more once I start to draw benefits from the 1995 scheme I will not be allowed to continue to contribute to the 2015 scheme. 

So I am now making plans to put in additional payments to bridge the gap as much as I can between the to retirement dates.  I am not sure what is better ERRBO or additional pension payments?

Dazed_and_C0nfused

sm50 said:

I am in a bit of similar boat I have dual benefits in the 1995 and 2015 scheme. I can retire on full pension in the 1995 scheme at 60. But I can only get full pension in the 2015 scheme at 67 yrs. The thing that makes things more complicated is that if I waited until 67 when I can get my full benefits from the 2015 scheme I would have missed 7 years on benefits from the 1995 scheme. The 1995 scheme does not give additional benefit for delaying one's retirement date, further more once I start to draw benefits from the 1995 scheme I will not be allowed to continue to contribute to the 2015 scheme. 

So I am now making plans to put in additional payments to bridge the gap as much as I can between the to retirement dates.  I am not sure what is better ERRBO or additional pension payments?

You might not be able to contribute to the 2015 scheme but if you are employee of the NHS they must at least offer some form of auto-enrolment pension option.

If this option is a DC scheme it may be that the employer contribution makes it worthwhile you continuing to contribute after you take your 1995 pension.

saucer

sm50 said:

I am in a bit of similar boat I have dual benefits in the 1995 and 2015 scheme. I can retire on full pension in the 1995 scheme at 60. But I can only get full pension in the 2015 scheme at 67 yrs. The thing that makes things more complicated is that if I waited until 67 when I can get my full benefits from the 2015 scheme I would have missed 7 years on benefits from the 1995 scheme. The 1995 scheme does not give additional benefit for delaying one's retirement date, further more once I start to draw benefits from the 1995 scheme I will not be allowed to continue to contribute to the 2015 scheme. 

So I am now making plans to put in additional payments to bridge the gap as much as I can between the to retirement dates.  I am not sure what is better ERRBO or additional pension payments?

I am also in that position but my plan is to retire at 60 (or before), and take both the 1995 and 2015 pensions at the same time (at 60). This will mean an actuarial reduction on the 2015 part of the pension to allow for the fact that it will be paid earlier and therefore for 7 years longer, ie the extra 7 years between me being 60 and 67 which is my SRA. If I waited until 67 to claim both, the total annual pension would not be that much more. 

Remember you also have the option of taking the 1995 pension at 60 and the 2015 at any point after that, with the reduction for taking early gradually dropping as you get closer to SRA.