additional pension or S+S ISA

dwhl

Hi everyone,
appreciate that it's a broad question....
I work within the NHS and pay into this pension as a higher rate tax payer. Am I better buying in additional NHS pension or paying into a S+S ISA or a general investment account if the latter is used up?  just trying to work out what I need to consider when making this decision..  My state pension age is over 20 years away still
thanks

cloud_dog

Use of an ISA for retirement planning really depends on accessibility, i.e. are you going to want access/retire before age 55 currently although this will increase to be state pension age minus ten years.

If you inly want access from age 55/58 then using a personal pension or paying more in to the NHS scheme will be more beneficial.  I am not that familiar with specifics of the NHS scheme so can't comment further on which of these two routes would benefit you most.

Even if you wish to retire earlier than age 55/58 then the ISA only needs sufficient funds to cover the period between stopping and accessing the pension.

ZeroSum

As your a higher rate tax payer, then pension is the most beneficial financially due the tax breaks. 

But pensions have restrictions on them, so if you need a bit more flexibility around early retirement, then ISA would offer that

dunstonh

. Am I better buying in additional NHS pension or paying into a S+S ISA or a general investment account 

Why haven't you included an individual pension (SIPP, PPP or SHP) in your list of options?

What are you objectives?   The NHS additional pension is very good value £ for £ but it linked to the scheme.   If you are retiring earlier than an individual pension would be better.   However, if you are retiring in your early 50s then you will need to fund the gap and then an S&S ISA would be better.     The best option (and it may be multiple things) will depend on your objectives.

dwhl

Many thanks all,
My objective is to ensure that i can fund my childrens' education  (approx 20 years or so) and so i don't envisage retiring until in my early 60s.  I would want to have a comfortable retirement and would hope that savings accrued now would help towards this.

Apologies, for ignorance....what would the advantage of an individual pension mentioned above (SIPP, PIPP or OHP) be over paying extra into the NHS pension?  is it that this can be withdrawn earlier?  The worry about both these options would be hitting the lifetime allowance..

tibbles209

What do you do in the NHS? How much do you earn? Just trying to get an idea of how likely the lifetime and annual allowances are to be a concern for you. 

NHS Additional Pension is fantastic value. It is designed to increase your pension at your scheme pension age, but is only actuarily reduced by the same non-punitive factors as main scheme pension if you take early retirement so it remains fantastic value even if you are planning on taking actuarily reduced early retirement. You could alternatively/ in addition (subject to an overall maximum value of all pension enhancements) take out an Early Retirement Reduction Buyout contract, to buy out the actuarial reduction on up to 3 years early retirement, although this would only apply to new pension accrued after taking out an ERRBO contract.

Alternatively, you could aim to avoid taking your NHS pension early and instead bridge from your retirement age until your NHS pension age using other savings in a personal pension/SIPP or ISAs. If you are likely to hit the lifetime allowance with your NHS pension alone then ISAs are probably the way forward.

dwhl

Thanks for this.
Am looking at six figures in terms of salary.  have been told about the issue with lifetime allowance but don't know much about it thus far or whether I would hit it and thus incur charges.
what would the difference be between a personal pension or SIPP and the additional contributions for the NHS pension?  I said above that I was in the 2015 scheme but am also in the 1995 scheme.  presume I could pay into 1 or both of these.  if the 1995 scheme then the benefits would be seen at age 60.?

Being in the NHS pension,I have never looked into pensions at all so have no concept of payout from a defined contribution scheme; is there anywhere where i can have a rough idea of input v potential output(mindful that this is likely to change dependent on economy etc)

I will have to look into the early retirement reduction buyout scheme....presume that this is different to the standard voluntary decision to leave work before your normal pension age meaning less of a penalty in pension payout?

Albermarle

so have no concept of payout from a defined contribution scheme;

In simple terms - you contribute £X per year , normally you get tax relief up to a limit and dependent on what tax rate you pay .

So lets say £x + 25% goes in every year . After 10 years you will have a pot of ten times this + hopefully some investment growth above inflation - lets say 2 % pa . Once you reach 55 ( currently ) you can take this pot . 25% is tax free and 75% taxable.

Or you can leave it where it is and hopefully it will continue to grow . Or you can take part of it and leave the rest etc.

If you want to take a regular income that keeps up with inflation, but want the pot to last until you die , then the rule of thumb is to take out 3.5% pa only.

By the way you can spin this 3.5% figure around the other way and say every £3.5K you get in pension from the NHS pension is worth approx. £100K in cash terms