NHS Car Lease through Salary Sacrifice impact on Pension

uF0n

spaniel101 said:

uF0n said:

Thread necro, but after searching I think continuing this thread seems reasonable!

I've been working through all the pros/cons of the NHS lease scheme and the impact on pension. One thing I discovered is that you can make additional payments to top up your pension, thus mitigating the reduction in pension due to the car lease.

https://www.nhsbsa.nhs.uk/member-hub/increasing-your-pension/additional-pension

I'm possibly trying to justify to myself  but I'm essentially seeing this as a basic spend your money or save your money scenario... spend money on a car, have less in in your pension pot; spend money on anything now instead of putting it into savings, have less in your savings pot later.

Not quite.  Standard 2015 CARE accrues at 1/54 + CPI +1.5% whilst active.  CPI only in deferrment/retirement.   

2015 CARE 'Additional' Pension increases + CPI only.

Minus any reductions for early retirement, minus any reductions for lump sum.

I'm a little lost here, but my take away is that if I want to top-up to mitigate the reduction from the car lease, I should top-up by slightly more than the monthly reduction? I also need to accept that the top-up pot does not grow as much are the primary pension pot. Is this correct?

I still think it healthy to think that to get something now (i.e. discounted car deal) then I potentially have less later, which seems fair... many people seem to cry foul around this concept.

saucer said:

Bear this in mind if you are a higher rate tax payer bma-car-leasing-salary-sacrifice-examples-feb-2021.pdf

I had found this before... as an 8b pharmacist working 3 days a week, I don't think I will hit the same issues as a consultant.

Dazed_and_C0nfused

uF0n said:

spaniel101 said:

uF0n said:

Thread necro, but after searching I think continuing this thread seems reasonable!

I've been working through all the pros/cons of the NHS lease scheme and the impact on pension. One thing I discovered is that you can make additional payments to top up your pension, thus mitigating the reduction in pension due to the car lease.

https://www.nhsbsa.nhs.uk/member-hub/increasing-your-pension/additional-pension

I'm possibly trying to justify to myself  but I'm essentially seeing this as a basic spend your money or save your money scenario... spend money on a car, have less in in your pension pot; spend money on anything now instead of putting it into savings, have less in your savings pot later.

Not quite.  Standard 2015 CARE accrues at 1/54 + CPI +1.5% whilst active.  CPI only in deferrment/retirement.   

2015 CARE 'Additional' Pension increases + CPI only.

Minus any reductions for early retirement, minus any reductions for lump sum.

I'm a little lost here, but my take away is that if I want to top-up to mitigate the reduction from the car lease, I should top-up by slightly more than the monthly reduction? I also need to accept that the top-up pot does not grow as much are the primary pension pot. Is this correct?

I still think it healthy to think that to get something now (i.e. discounted car deal) then I potentially have less later, which seems fair... many people seem to cry foul around this concept.

saucer said:

Bear this in mind if you are a higher rate tax payer bma-car-leasing-salary-sacrifice-examples-feb-2021.pdf

I had found this before... as an 8b pharmacist working 3 days a week, I don't think I will hit the same issues as a consultant.

You've got a basic misunderstanding there.

There is no "pension pot" with the normal NHS pension.

You are accruing a promise from the NHS to pay £x/year.

There may well not be a pot with any extra you pay either, it all depends on exactly what you choose to pay for as there are a multitude of options available in the NHS.

https://www.nhsbsa.nhs.uk/member-hub/increasing-your-pension

uF0n

Dazed_and_C0nfused said:

uF0n said:

spaniel101 said:

uF0n said:

Thread necro, but after searching I think continuing this thread seems reasonable!

I've been working through all the pros/cons of the NHS lease scheme and the impact on pension. One thing I discovered is that you can make additional payments to top up your pension, thus mitigating the reduction in pension due to the car lease.

https://www.nhsbsa.nhs.uk/member-hub/increasing-your-pension/additional-pension

I'm possibly trying to justify to myself  but I'm essentially seeing this as a basic spend your money or save your money scenario... spend money on a car, have less in in your pension pot; spend money on anything now instead of putting it into savings, have less in your savings pot later.

Not quite.  Standard 2015 CARE accrues at 1/54 + CPI +1.5% whilst active.  CPI only in deferrment/retirement.   

2015 CARE 'Additional' Pension increases + CPI only.

Minus any reductions for early retirement, minus any reductions for lump sum.

I'm a little lost here, but my take away is that if I want to top-up to mitigate the reduction from the car lease, I should top-up by slightly more than the monthly reduction? I also need to accept that the top-up pot does not grow as much are the primary pension pot. Is this correct?

I still think it healthy to think that to get something now (i.e. discounted car deal) then I potentially have less later, which seems fair... many people seem to cry foul around this concept.

saucer said:

Bear this in mind if you are a higher rate tax payer bma-car-leasing-salary-sacrifice-examples-feb-2021.pdf

I had found this before... as an 8b pharmacist working 3 days a week, I don't think I will hit the same issues as a consultant.

You've got a basic misunderstanding there.

There is no "pension pot" with the normal NHS pension.

You are accruing a promise from the NHS to pay £x/year.

There may well not be a pot with any extra you pay either, it all depends on exactly what you choose to pay for as there are a multitude of options available in the NHS.

https://www.nhsbsa.nhs.uk/member-hub/increasing-your-pension

I was using "pot" as a simplification to simply describe the amount of money that would be paid each year during retirement, and how this amount changes as a result of changes in salary during working years, with the additional calculations if utilising the option to purchase additional pension... I understand it is not a pot of defined total amount in a single moment of time such as a share portfolio.

Alternatively, if I put the money paid by the NHS (according to their promise to pay £x/year) into a pot, then it is a pot of money; and I can calculate how much money will be in that pot each year. I could even put a label on that pot and call it my "pension pot" While considering the implications and calculations being discussed here in relation to the impact on pension of a lease car, this "pot" approach is easier for me to comprehend... though I believe it is essentially identical to your "accruing a promise from the NHS to pay £x/year".

syedrizwan14

	Indicative Alternative Quotation (Worst Case Scenario)
	Annual Gross Salary Sacrifice	£8,253
	Total Estimated Monthly Cost (as per Fleet Solutions or other Salary Sacrifice leasing quote)	£343.20
	Potential AA charge arising from Salary Growth at end of contract	£21,170
	Monthly cost of AA if car given back (from net pay) expressed over 36 months of contract	£588.06
	Option 1 - Give car back (and pay potential AA charge)
	Real Total monthly cost including  potential AA charge	£931.26
	Option 2 - Stay "trapped" in leasing a similar car until you retire at 60, to avoid paying AA charge
	Loss of annual pension with this strategy (remember pension is paid annually, is indexed linked and also comes with spouse / dependant benefits)	£4,058
	Loss of pension lump sum	£7,428
	Total loss of pension and lump sum if keep similar car till retirement, est. 28 years of retirement (doctors typically retire at 60, and actuarily live till 88)	£121,049
	Years of leasing till retirement	13
	Cost per year of lost pension / lump sum expressed over 13 yrs till retirement at 60	£9,311.46
	Cost per month of lost pension / lump sum expressed over 13 yrs till retirement at 60	£775.96
	Total monthly cost including loss of pension / lump sum	£1,119.16
	IMPORTANT NOTE    The estimates for annual allowance assume a worst case scenario where you have no available annual allowance to cover the increase in income caused by returning the car. There are some circumstances where a NHS company lease car could be financially advantageous, it will depend on both your individual circumstances now and when you return the car - you may wish to seek specialist independent advice prior to proceeding with a significant salary sacrifice arrangement. Changes to your pensionable or non-pensionable pay, rates of inflation, use of the "best of last 3" salaries or changes to future pension or income tax rules could impact the financial consequences. This illustration is intended to inform you that you are making a serious financial commitment which could have unintended tax and pension consequences