NHS Penion vs Investment ISA: please educate me

MaxiRobriguez

To the OP: An increase to paying £530 a month to generate a ~£38k pension is not something to panic about. If you wanted to generate that sort of pension using private schemes you're talking at least double that, maybe triple that £530. I am currently putting in 4x that amount to generate a lower final income than you will receive (albeit my target retirement is over a decade earlier).

So when others say "it will be the worst financial decision you ever make" they mean it. Do not leave the NHS pension scheme.

You may want to consider introducing a S+S ISA to help facilitate slightly earlier retirement if you wish. It may also give you a defensive pot of money if the government change the rules of your scheme (for example if access age goes back to 70 or if your career average is based on 60'ths rather than 54th's).

But it's not imperative to introduce a different pot of money for your retirement. If you're comfortable with retiring at a "normal" age then the NHS pension will provide well enough by itself. 

prb1984

MaxiRobriguez said:

To the OP: An increase to paying £530 a month to generate a ~£38k pension is not something to panic about. If you wanted to generate that sort of pension using private schemes you're talking at least double that, maybe triple that £530. I am currently putting in 4x that amount to generate a lower final income than you will receive (albeit my target retirement is over a decade earlier).

So when others say "it will be the worst financial decision you ever make" they mean it. Do not leave the NHS pension scheme.

You may want to consider introducing a S+S ISA to help facilitate slightly earlier retirement if you wish. It may also give you a defensive pot of money if the government change the rules of your scheme (for example if access age goes back to 70 or if your career average is based on 60'ths rather than 54th's).

But it's not imperative to introduce a different pot of money for your retirement. If you're comfortable with retiring at a "normal" age then the NHS pension will provide well enough by itself. 

Yes that's the sense I'm getting from the consensus on here. I think that's likely what I'll do, but I'm going to research the options mentioned by hugheskevi, and also consider how to use investments to pay off mortgage quicker

Thrugelmir

Don't overlook the contribution your employer makes to fund the pension you'll ultimately receive. Gold plated pension schemes shouldn't be dismissed as having little value. Stock markets may have performed exceptionally well for an extended period. Unlike you pension though there's no guarantees to the final outcome. As investors become less and less risk adverse you know that the markets are heading closer to a tipping point. In the same way that dawn follows the night. There's nothing magical that hasn't been experienced before. 

prb1984

Thank you to the mods
I think the clear plan is to maintain NHS pension contributions, and utilise an additional approach to possibly facilitate earlier retirement/part-time work in the second half of my career.
So I've been looking at options and wanted to check I understand the Lifetime ISA right...
- At 36 now, I could open and pay in for the next 14 years.
- Depositing 4k a year would equate to 14*4=56k.
-The bonus of 1k a year would mean a final sum of 70k. 
- This is of course not counting accumulated interest? and not counting any interest from age 50 to age of withdrawal
- I could withdraw at age 60 and not be penalised/taxed i.e., keep the 1k a year bonus
So this 70k would cover the between 60 and when my NHS pension and state pension can be drawn. There are options to look at in addition to this, but just wanted to check this is how it owuld work with the Lifetime ISA?

strawb_shortcake

prb1984 said:

Thank you to the mods
I think the clear plan is to maintain NHS pension contributions, and utilise an additional approach to possibly facilitate earlier retirement/part-time work in the second half of my career.
So I've been looking at options and wanted to check I understand the Lifetime ISA right...
- At 36 now, I could open and pay in for the next 14 years.
- Depositing 4k a year would equate to 14*4=56k.
-The bonus of 1k a year would mean a final sum of 70k. 
- This is of course not counting accumulated interest? and not counting any interest from age 50 to age of withdrawal
- I could withdraw at age 60 and not be penalised/taxed i.e., keep the 1k a year bonus
So this 70k would cover the between 60 and when my NHS pension and state pension can be drawn. There are options to look at in addition to this, but just wanted to check this is how it owuld work with the Lifetime ISA?

That's correct, I've just opened up my LISA for retirement, but went for a S&S rather than cash. £70k in 24 years time might not stretch that far.
You might also want to open one this side of the current tax year to get the full benefit 

prb1984

annabanana82 said:

prb1984 said:

Thank you to the mods
I think the clear plan is to maintain NHS pension contributions, and utilise an additional approach to possibly facilitate earlier retirement/part-time work in the second half of my career.
So I've been looking at options and wanted to check I understand the Lifetime ISA right...
- At 36 now, I could open and pay in for the next 14 years.
- Depositing 4k a year would equate to 14*4=56k.
-The bonus of 1k a year would mean a final sum of 70k. 
- This is of course not counting accumulated interest? and not counting any interest from age 50 to age of withdrawal
- I could withdraw at age 60 and not be penalised/taxed i.e., keep the 1k a year bonus
So this 70k would cover the between 60 and when my NHS pension and state pension can be drawn. There are options to look at in addition to this, but just wanted to check this is how it owuld work with the Lifetime ISA?

That's correct, I've just opened up my LISA for retirement, but went for a S&S rather than cash. £70k in 24 years time might not stretch that far.
You might also want to open one this side of the current tax year to get the full benefit 

Thinking about balancing this with paying off mortgage of 200k at around 2.4%, I'm currently paying somewhere around £3.5k in mortgage interest a year, so putting 4k into a LISA to get 1k bonus, would that make financial sense? Or would it be better to use all exess to pay down the capital on the mortgage first to reduce interest paid on the mortgage before doing the LISA?

The point about it not lasting long in 24 years... yes! I need to keep in mind the impact of inflation. As I say, I'm working my way through researching different options, but need to pick one that will best outpace inflation. When you take that into account, LISA doesn't seem the best option. Even if we did one for my partner, she would probably amass about 85k, 155k in 24 years might not last long.

saucer

Its often sensible to think about how much you think any investment is lilely to grow above inflation so that you can have an indication of how much you will have in today's money.  Going back to the NHS pension, one of the great advantages of it is that it is inflation proof insofar as your accumulated benefits (in the 2015 CARE pension) are uprated by inflation (CPI) + 1.5% every year.  Moreover it accumulates at a very attractive rate of 1/54 of your salary every year, as well as having all the advantages of avoiding being taxed.  The only real drawback is that you have to live long enough to take maximum benefit from it, although you are likely to be quids in quite early on. 
My mortgage rate is lower than yours, and so it is a relative no brainer for me to prioritise contributing to the pension before paying off the capital or saving elsewhere.   Its not for everyone as a strategy but suits my circumstances.  You are younger and your circumstances are different so it is a matter of working out the best strategy for you, which you are doing.

Dazed_and_C0nfused

prb1984 said:

annabanana82 said:

prb1984 said:

Thank you to the mods
I think the clear plan is to maintain NHS pension contributions, and utilise an additional approach to possibly facilitate earlier retirement/part-time work in the second half of my career.
So I've been looking at options and wanted to check I understand the Lifetime ISA right...
- At 36 now, I could open and pay in for the next 14 years.
- Depositing 4k a year would equate to 14*4=56k.
-The bonus of 1k a year would mean a final sum of 70k. 
- This is of course not counting accumulated interest? and not counting any interest from age 50 to age of withdrawal
- I could withdraw at age 60 and not be penalised/taxed i.e., keep the 1k a year bonus
So this 70k would cover the between 60 and when my NHS pension and state pension can be drawn. There are options to look at in addition to this, but just wanted to check this is how it owuld work with the Lifetime ISA?

That's correct, I've just opened up my LISA for retirement, but went for a S&S rather than cash. £70k in 24 years time might not stretch that far.
You might also want to open one this side of the current tax year to get the full benefit 

Thinking about balancing this with paying off mortgage of 200k at around 2.4%, I'm currently paying somewhere around £3.5k in mortgage interest a year, so putting 4k into a LISA to get 1k bonus, would that make financial sense? Or would it be better to use all exess to pay down the capital on the mortgage first to reduce interest paid on the mortgage before doing the LISA?

The point about it not lasting long in 24 years... yes! I need to keep in mind the impact of inflation. As I say, I'm working my way through researching different options, but need to pick one that will best outpace inflation. When you take that into account, LISA doesn't seem the best option. Even if we did one for my partner, she would probably amass about 85k, 155k in 24 years might not last long.

You can choose to invest within a LISA, doesn't have to be cash.

https://www.which.co.uk/money/savings-and-isas/isas/lifetime-isas-ac6mf6s7r9d5

prb1984

Dazed_and_C0nfused said:

prb1984 said:

annabanana82 said:

prb1984 said:

Thank you to the mods
I think the clear plan is to maintain NHS pension contributions, and utilise an additional approach to possibly facilitate earlier retirement/part-time work in the second half of my career.
So I've been looking at options and wanted to check I understand the Lifetime ISA right...
- At 36 now, I could open and pay in for the next 14 years.
- Depositing 4k a year would equate to 14*4=56k.
-The bonus of 1k a year would mean a final sum of 70k. 
- This is of course not counting accumulated interest? and not counting any interest from age 50 to age of withdrawal
- I could withdraw at age 60 and not be penalised/taxed i.e., keep the 1k a year bonus
So this 70k would cover the between 60 and when my NHS pension and state pension can be drawn. There are options to look at in addition to this, but just wanted to check this is how it owuld work with the Lifetime ISA?

That's correct, I've just opened up my LISA for retirement, but went for a S&S rather than cash. £70k in 24 years time might not stretch that far.
You might also want to open one this side of the current tax year to get the full benefit 

Thinking about balancing this with paying off mortgage of 200k at around 2.4%, I'm currently paying somewhere around £3.5k in mortgage interest a year, so putting 4k into a LISA to get 1k bonus, would that make financial sense? Or would it be better to use all exess to pay down the capital on the mortgage first to reduce interest paid on the mortgage before doing the LISA?

The point about it not lasting long in 24 years... yes! I need to keep in mind the impact of inflation. As I say, I'm working my way through researching different options, but need to pick one that will best outpace inflation. When you take that into account, LISA doesn't seem the best option. Even if we did one for my partner, she would probably amass about 85k, 155k in 24 years might not last long.

You can choose to invest within a LISA, doesn't have to be cash.

https://www.which.co.uk/money/savings-and-isas/isas/lifetime-isas-ac6mf6s7r9d5

I see. So what is the benefit of putting money into Stocks and sharesLISA as opposed to a stocks and sharesISA?

I understand you can do both up to the 20k limit. But why would you do 4k in S&S LISA & 16k in S&S ISA, vs putting whole 20k in S&S ISA? (obviously assuming you can put the whole limit in)
As far as I can tell are you trading off earlier access for the 1k a year government bonus? 

kuratowski

Yes precisely, the benefit of the LISA is the 25% government bonus, which is free money but with strings attached, i.e., no access until age 60.  Who doesn't like free money.  It's an especially good product for basic rate taxpayers with no access to salary sacrifice, or alternatively for those who have already used up their allowances for pension tax relief it's a nice addition.