NHS additional payments... is it worth it?

chucknorris

IAMIAM said:

@chucknorris Thats good to know, if you don't mind me asking further!, how much has it increased in value since inception date....my main concern is it seems to only allow you to purchase it based on NRA of 68, meaning if you take it at 65 its reduced in value by 3 years. Albeit, I have heard you can do partial retirement, but unsure of how that works and whether that means you take your main benefits whenever and keep this part until you want it...

In the pre 2015 scheme I originally bought £5,600 over 3 years, from January 2011  to 2014, the value of that today (I just checked 2 minutes ago) is £6,458 (I have another £250 in that scheme, but I bought that this year as a lump sum, so I excluded that from the above figures). Hope that helps.

Clare43

Hello, I’m looking into getting additional pension and it would be in the 2015 part. My SPA is 68
I looked at the additional pension factsheet on the nhs pension website and have a query about this part  - copied and pasted - 

Additional Pension purchased in the 2015 Scheme is revalued by a Treasury Order each year before the Additional Pension comes into payment and increased in line with CPI inflation whilst it is being paid.

The Treasury Order is the method by which the Treasury notifies the value of the change in prices or earnings to be applied as part of revaluation. The Additional Pension earned in a Scheme year (April to March) is revalued on 1 April of the following and each subsequent Scheme year until you retire.

For example, if the Treasury Order was 2% the value of your earned Additional Pension would increase by 2% at the beginning of the following Scheme year. Additional Pension does not receive the additional 1.5% applied to the standard earned pension. If an Order is negative it will result in the earned Additional Pension being reduced at the beginning of the following year.

so if the order was negative that means I don’t get my £1000 extra ( for example ) guaranteed extra pension and could get less. How likely is this to happen ?   If I get less than the £1000 then it won’t be as good a deal ?  

Currently to get £1000 / year pension would cost me £160.80 a month or £13507.20 in total over 7 years    I’m nearly 48 so have done 7 years to take me to 55 when I plan to take early retirement - have special class status.  I’ve been in the nhs pension since 1991 so have some time in the 1995 section as well.     Any comments appreciated. 

IAMIAM

chucknorris said:

IAMIAM said:

@chucknorris Thats good to know, if you don't mind me asking further!, how much has it increased in value since inception date....my main concern is it seems to only allow you to purchase it based on NRA of 68, meaning if you take it at 65 its reduced in value by 3 years. Albeit, I have heard you can do partial retirement, but unsure of how that works and whether that means you take your main benefits whenever and keep this part until you want it...

In the pre 2015 scheme I originally bought £5,600 over 3 years, from January 2011  to 2014, the value of that today (I just checked 2 minutes ago) is £6,458 (I have another £250 in that scheme, but I bought that this year as a lump sum, so I excluded that from the above figures). Hope that helps.

The problem I have is I bought the 3 year buy out, which is taken into account for the rest of the time I am in the scheme, meaning I can take a full pension at 65 (although I plan to cease working at 60 the latest).
I can now only buy a maximum of circa 3-3.5k per year, and this seems to keep reducing based on my 3 year buy out continually being reevaluated as higher in value. I just do not know whether to commit to 3.5k over say 7-10 years in case I leave early, but then I suppose I can pay a lump sum to pay the 'contract' off.

OldBeanz

IAMIAM said:

OldBeanz said:

Somethings to note which applied to my son's pension in the teachers' scheme:
If you pay a lump sum into the pension you will only receive up to any tax you have paid in that year. This is unlike a personal pension where you can pay in up to 80% of your salary (less other pension contributions) and get tax relief.
The price of additional pension is based on your date of birth so will increase on your birthday. Worth sorting out before.
Inflation growth starts on the whole amount from day 1. So with the Teachers' Pension it looked cheaper to buy 10x£750 but it was better to buy £7500 over 10 years as inflation pension growth tipped the balance.

Does the APB get increased yearly by inflation only or by inflation plus 1.6%

Yes plus cpi+ 1.5%

OldBeanz

chucknorris said:

OldBeanz said:

Somethings to note which applied to my son's pension in the teachers' scheme:
If you pay a lump sum into the pension you will only receive up to any tax you have paid in that year. This is unlike a personal pension where you can pay in up to 80% of your salary (less other pension contributions) and get tax relief.

You do get the full tax relief, when you submit your tax return you get the full relief by claiming it as a pension contribution where tax relief was NOT given, and instead of your basic tax allowance being extended, your tax free allowance is extended.

chucknorris said:

OldBeanz said:

Somethings to note which applied to my son's pension in the teachers' scheme:
If you pay a lump sum into the pension you will only receive up to any tax you have paid in that year. This is unlike a personal pension where you can pay in up to 80% of your salary (less other pension contributions) and get tax relief.

You do get the full tax relief, when you submit your tax return you get the full relief by claiming it as a pension contribution where tax relief was NOT given, and instead of your basic tax allowance being extended, your tax free allowance is extended.

If you do not pay any tax in the first place you will not get anything back. If you are claiming more than you pay in tax you will only receive the tax you have paid that year. This is different to paying into a SIPP.

Tree10

Thank you all. i feel more reassured by your advice since a few people i mentioned this to thought that i am crazy for wanting to spend so many thousands on my pension (i guess they joined the scheme on their 20s so they dont have to worry about not earning enough on their retirement).
 i think tax wise i must be ok for the lump sum, given that i have been earning 26k in this financial year. i might just purchase a "one off" £750 (approx 6k) and claim tax back and then purchase  £500 via salary sacrifice over the next 2 years.

chucknorris

OldBeanz said:

chucknorris said:

OldBeanz said:

Somethings to note which applied to my son's pension in the teachers' scheme:
If you pay a lump sum into the pension you will only receive up to any tax you have paid in that year. This is unlike a personal pension where you can pay in up to 80% of your salary (less other pension contributions) and get tax relief.

You do get the full tax relief, when you submit your tax return you get the full relief by claiming it as a pension contribution where tax relief was NOT given, and instead of your basic tax allowance being extended, your tax free allowance is extended.

chucknorris said:

OldBeanz said:

Somethings to note which applied to my son's pension in the teachers' scheme:
If you pay a lump sum into the pension you will only receive up to any tax you have paid in that year. This is unlike a personal pension where you can pay in up to 80% of your salary (less other pension contributions) and get tax relief.

You do get the full tax relief, when you submit your tax return you get the full relief by claiming it as a pension contribution where tax relief was NOT given, and instead of your basic tax allowance being extended, your tax free allowance is extended.

If you do not pay any tax in the first place you will not get anything back. If you are claiming more than you pay in tax you will only receive the tax you have paid that year. This is different to paying into a SIPP.

Well obviously if someone does not pay tax in the first place, then there will not be any tax relief. My post was directed at those who do pay tax (at 40% and 45%) and may have been concerned about not gaining the full tax relief (rather than those not paying tax but gaining something anyway). Before I knew the answer, I posted that as a question on this forum board, but no one answered, so I found out for myself and posted the answer for others.

chucknorris

IAMIAM said:

chucknorris said:

IAMIAM said:

@chucknorris Thats good to know, if you don't mind me asking further!, how much has it increased in value since inception date....my main concern is it seems to only allow you to purchase it based on NRA of 68, meaning if you take it at 65 its reduced in value by 3 years. Albeit, I have heard you can do partial retirement, but unsure of how that works and whether that means you take your main benefits whenever and keep this part until you want it...

In the pre 2015 scheme I originally bought £5,600 over 3 years, from January 2011  to 2014, the value of that today (I just checked 2 minutes ago) is £6,458 (I have another £250 in that scheme, but I bought that this year as a lump sum, so I excluded that from the above figures). Hope that helps.

The problem I have is I bought the 3 year buy out, which is taken into account for the rest of the time I am in the scheme, meaning I can take a full pension at 65 (although I plan to cease working at 60 the latest).
I can now only buy a maximum of circa 3-3.5k per year, and this seems to keep reducing based on my 3 year buy out continually being reevaluated as higher in value. I just do not know whether to commit to 3.5k over say 7-10 years in case I leave early, but then I suppose I can pay a lump sum to pay the 'contract' off.

If I was you I would buy it early, it may also cover you if they introduce another scheme, when they introduced new schemes (in 2007 and 2015, and probably ones before then too) you were able to buy more additional pension in the new scheme, even if you have bought the max allowed in a previous scheme(s). I bought the max allowed in the pre 2015 scheme, and yet I am still allowed to buy more additional pension in the current scheme (which surprised me, I didn't think that that would be allowed). There is no guarantee that they will introduce a new scheme of course, but given that people are tending to live longer as time goes by, it is probable that they there will be another scheme introduced at some point in the future.

Dazed_and_C0nfused

chucknorris said:

OldBeanz said:

chucknorris said:

OldBeanz said:

Somethings to note which applied to my son's pension in the teachers' scheme:
If you pay a lump sum into the pension you will only receive up to any tax you have paid in that year. This is unlike a personal pension where you can pay in up to 80% of your salary (less other pension contributions) and get tax relief.

You do get the full tax relief, when you submit your tax return you get the full relief by claiming it as a pension contribution where tax relief was NOT given, and instead of your basic tax allowance being extended, your tax free allowance is extended.

chucknorris said:

OldBeanz said:

Somethings to note which applied to my son's pension in the teachers' scheme:
If you pay a lump sum into the pension you will only receive up to any tax you have paid in that year. This is unlike a personal pension where you can pay in up to 80% of your salary (less other pension contributions) and get tax relief.

You do get the full tax relief, when you submit your tax return you get the full relief by claiming it as a pension contribution where tax relief was NOT given, and instead of your basic tax allowance being extended, your tax free allowance is extended.

If you do not pay any tax in the first place you will not get anything back. If you are claiming more than you pay in tax you will only receive the tax you have paid that year. This is different to paying into a SIPP.

Well obviously if someone does not pay tax in the first place, then there will not be any tax relief. My post was directed at those who do pay tax (at 40% and 45%) and may have been concerned about not gaining the full tax relief (rather than those not paying tax but gaining something anyway). Before I knew the answer, I posted that as a question on this forum board, but no one answered, so I found out for myself and posted the answer for others.

I think the confusion with these gross payments where no tax relief is given at the point of payment is that you can make "relief at source" contributions as a non taxpayer and do receive tax relief.

You could be earning £12,500 and contribute £12,500 under the relief at source method which would consist of £10,000 from the individual and £2,500 tax relief added by the pension company.

It is easy to see why people assume that they will get 20% tax relief on a gross payment but each contribution method works differently and can generate different outcomes.

chucknorris

Dazed_and_C0nfused said:

chucknorris said:

OldBeanz said:

chucknorris said:

OldBeanz said:

Somethings to note which applied to my son's pension in the teachers' scheme:
If you pay a lump sum into the pension you will only receive up to any tax you have paid in that year. This is unlike a personal pension where you can pay in up to 80% of your salary (less other pension contributions) and get tax relief.

You do get the full tax relief, when you submit your tax return you get the full relief by claiming it as a pension contribution where tax relief was NOT given, and instead of your basic tax allowance being extended, your tax free allowance is extended.

chucknorris said:

OldBeanz said:

Somethings to note which applied to my son's pension in the teachers' scheme:
If you pay a lump sum into the pension you will only receive up to any tax you have paid in that year. This is unlike a personal pension where you can pay in up to 80% of your salary (less other pension contributions) and get tax relief.

You do get the full tax relief, when you submit your tax return you get the full relief by claiming it as a pension contribution where tax relief was NOT given, and instead of your basic tax allowance being extended, your tax free allowance is extended.

If you do not pay any tax in the first place you will not get anything back. If you are claiming more than you pay in tax you will only receive the tax you have paid that year. This is different to paying into a SIPP.

Well obviously if someone does not pay tax in the first place, then there will not be any tax relief. My post was directed at those who do pay tax (at 40% and 45%) and may have been concerned about not gaining the full tax relief (rather than those not paying tax but gaining something anyway). Before I knew the answer, I posted that as a question on this forum board, but no one answered, so I found out for myself and posted the answer for others.

I think the confusion with these gross payments where no tax relief is given at the point of payment is that you can make "relief at source" contributions as a non taxpayer and do receive tax relief.

You could be earning £12,500 and contribute £12,500 under the relief at source method which would consist of £10,000 from the individual and £2,500 tax relief added by the pension company.

It is easy to see why people assume that they will get 20% tax relief on a gross payment but each contribution method works differently and can generate different outcomes.

When I bought my first additional pension with a lump sum, I wasn't aware that there was a part of the tax return that was specifically for those contributions (where the 20% tax uplift is not added), up until then I had only either invested in my SIPP (and received the uplift added by HL, and the additional 20% covered by increasing my basic tax threshold) and by buying additional pension by monthly payments from my salary (so it wasn't taxed). I strongly suspected that I would not have lost out, but I didn't know how it was dealt with, but when I posted the question of how, on this forum board, no one answered. But when I looked at the online submission I noticed the part of the tax return which covered it, and results in the tax free allowance being increased (zero/nil tax band as you prefer to call it, I know that is exactly what it is, but I prefer to call it what HMRC do).