NHS Additional Pension or SIPP

GloriaSloth

Hi, I recently started working for the NHS and have been looking to increase my pension contributions. I am 39 years old and have previously worked for smaller organisations with much lower pension contributions, so my pension pot is not very big at the moment. I am in the 2015 scheme, I pay higher income tax and have built up a reasonable level of savings. I have relatively low outgoings so can afford to invest more into my pension. Having looked at the options I am not sure whether I am better off buying additional NHS pension or investing in a SIPP. I have done some reading and looked at the NHS AP calculator and don't really understand how to calculate how much to invest over how long and whether this is the better option for me or if a SIPP is more sensible. 
Any help most appreciated. 

crv1963

There are a couple of options, decide if you're going to retire at SPA or earlier. Then look at what retirement income you want. Then look saving enough to get out of HRT, it may be possible to do both additional pension and SIPP or LISA. Also any partner in the picture and what is their provision? The advantage of additional pension is that it is certain, SIPP fluctuates depending on the markets but is more flexible to access, as in 10 years before SPA, whereas NHS 2015 is at SPA unless you buy earlier retirement or take a drop in pension.

Edit- It may be possible to save enough into a SIPP to fund earlier retirement and then preserve your NHS pension, taking it at NRA without any reduction.

GloriaSloth

Thanks that's really helpful. I am planning to retire early (ideally 55). I set up a LISA and have payed the full amount into it (£4k) since I set it up. My partner is ten years my senior and has 15 years NHS pension and is now paying significantly into a private pension through his work. I am really looking to enhance my retirement pot in the most efficient way to enable us to maximise our joint income. 

andy001

crv1963 has already given great advice.
My view:
To try and buy additional NHS pension as it's the best pension in the UK currently.
NHS pension even with actuarial reduction (even 2015 scheme) is better than SIPP,  or Private arrangements. (Experts in the forum please correct me if I'm wrong!)
Keep an eye on AA allowance + LTA, if you decide additional SIPP as you don't want to get caught accidentally 
Maximise ISA contributions (So could utilise this from 55yo, till the date you draw your 2015 pension/SIPP)
Best luck

GloriaSloth

Thanks andy001. I agree the NHS pension is a great pension to be in but still trying to work out if buying AP is the best option if I can't withdraw my NHS pension (as it stands at the moment) till I am 68 (or 65 if I buy ERRBO) and I can't access my LISA till I am 60. Based on your and crv1963's advice, I think my best option might be to purchase some AP in the NHS scheme and invest the rest in a SIPP or ISA to access from 55. Then I can access my LISA at 60 and my NHS pension from 68 (or later depending on SPA).
Any advice on how best to calculate best AP value to buy would be appreciated - it seems that the quicker you pay your instalments, the less you pay - so how to work out the balance of this with ISA/SIPP investments?
Thanks again

tibbles209

I can only find the purchase factors for the NHS 2015 scheme Scotland, but the English scheme tends to be the same in almost every way so they are likely pretty accurate.
According to the Scottish figures, at the age of 39, buying an additional £250 of 2015 scheme Additional Pension with dependent cover would cost you £2440 if purchased as a lump sum. You would be entitled to claim tax relief at your highest marginal tax rate for this, so if you are a basic rate taxpayer the out of pocket cost would be £1952, to purchase £250 annual pension from state pension age until death, with 1/3rd survivors pension for your surviving partner thereafter. The £250 will be revalued by CPI every year from purchase until death, so will retain its real value.
That is by a very long way the cheapest annuity you could ever hope to buy. NHS Additional Pension represents outstanding value.

If you are planning on retiring significantly early you can either build a SIPP/LISA pot to bridge the gap and try to avoid taking your NHS pension until your scheme retirement age, or you could take your NHS pension early and accept the actuarial reduction. Actuarial reduction factors are non-punitive and are the same for Additional Pension as they are for main scheme pension, and so Additional Pension remains outstanding value even if you are planning on taking actuarily reduced early retirement. 
It may also be worth looking at the ERRBO scheme, which allows you to 'buy out' the actuarial reduction that you would face for taking your NHS pension up to three years earlier than your scheme retirement age, by paying a few extra percent of your pensionable pay each month. I purchase 3 years ERRBO and having done the sums it is also excellent value. 
You can buy both ERRBO and Additional Pension, however this is subject to a cap on the overall amount of extra pension you can purchase, which takes into account both the value of any ERRBO contracts and any Additional Pension elections.

GloriaSloth

Thanks so much, that's so helpful. I am looking into the ERRBO and have a call with NHS Pensions tomorrow. Thanks again everyone!

crv1963

GloriaSloth- remember NHS Pensions can only offer information not advice so you need to have a clear idea of what it is you want to know, I'd suggest something along the lines of how much will the costs be? What happens if I stop work before NRA after committing to x, y or z? Some of the additional benefits paid for by increasing the percentage of earnings may be based on an assumption of working to NRA or a specific age- so worth checking.

There is nothing wrong with getting as much information as you can and going ahead at a later date- I'm thinking weeks/ months not years! As there is also nothing wrong about saving into different "pots", with the idea of running these down to zero over a period of time, such as ISA age 55-60, LISA age 60-68, and then NHS Pension and SP from 68, at least that is how I've tried to organise our finances- nothing is perfect but also nothing needs setting in stone, you're just increasing your options and ability to be flexible when it comes down to when and how much income in retirement. 

Edit- You possibly could formulate your plan and seek advice, possibly with an IFA maybe even one through your union if they offer that benefit?