NHS AVC

battyboimatt

Hi All, 

Well I thought I better start thinking about my Pension as in my late 30's it's starting to cross my mind, so I pay into the NHS pension but can see that they offer AVC's after looking at the options it is provided via Standard Life or Prudential, and after looking at reviews online Prudential seems to have gotten a lot of bad reviews lately so I have decided to look at Standard Life. 

However, they offer a Group Additional Voluntary Contributions or Group Stakeholder Pension Plan, I am no expert and it seems all gobbly gook to me, all I want to do is shove an extra £150 a month away on top of what I already contribute. Does it matter which of the funds I put this extra into? 

Thanks

dunstonh

nd after looking at reviews online Prudential seems to have gotten a lot of bad reviews lately so I have decided to look at Standard Life. 

Online reviews of financial services companies (and many other areas of retail) are usually a complete and utter waste of time.   They are either manipulated or irrelevant.  For example, those with good scores tend to be the companies with no legacy business going back generations.  So, no old fashioned products from a different era.  They also tend to almost bully you into writing a review at purchase.  People tend to write the best reviews at purchase.   Not when they actually come to need the product to do something and that is when the real service level is met.         THen you have the insurers that have been buying companies over the years.  Are the comments referring to insurer A or insurer B or C, D E etc?    And which product version are they referring to?  version 1 or version 325?   It is common to see people moan about not being able to do something on their product.  Yet the product was never meant to do that.  You dont see people moaning that a black & white TV cant display colour but somehow their pension from 1975 is bad that it cannot offer options introduced in 2015.

That said, Pru's service levels are dire at the moment.  Over 1 hour waits on the phone. Slow responses via post.

Anyway, why are you attracted to the AVCs and not individual retail pensions (like SIPPs)?  Is there something about the AVC that appeals to you?

Lowtrawler

battyboimatt said:

Hi All, 

Well I thought I better start thinking about my Pension as in my late 30's it's starting to cross my mind, so I pay into the NHS pension but can see that they offer AVC's after looking at the options it is provided via Standard Life or Prudential, and after looking at reviews online Prudential seems to have gotten a lot of bad reviews lately so I have decided to look at Standard Life. 

However, they offer a Group Additional Voluntary Contributions or Group Stakeholder Pension Plan, I am no expert and it seems all gobbly gook to me, all I want to do is shove an extra £150 a month away on top of what I already contribute. Does it matter which of the funds I put this extra into? 

Thanks

There are 2 ways to increase your pension benefits - paying into an AVC arrangement which you discuss, and; paying into the NHS scheme to add Additional Pension.

Through entering into an AVC arrangement, you are basically investing in the stock market and building up a pot of money which can be used for pension income. Whether you choose Prudential or Standard life is an investment choice and there is no wrong or right action. As you are in your 30's, there is a good chance that the money you put away will give a good return by the time you retire and could improve upon the Additional Pension option.

If you look at the Additional Pension option, it essentially buys you a guaranteed additional pension amount which will be increased in line with inflation. It is an extension of your existing NHS pension and will not depend on stock market performance. If you are risk averse and desire certainty, the Additional Pension could be a better choice for you.

Moonwolf

I'm with Standard Life and it seems to work OK.  The app is easy to use and I haven't had any issues.

I've posted this before.  There are then three ways (in the 2015 scheme) of getting additional pension.

1. Additional purchase - using a lump sum or regular payment you can increase your pension by up to £6500 a year. There are some funny rules on this which you should read, the cost of living increases are not the same as your main pension and you have to decide if you are giving some to your dependants.

Pros: Good value for money compared with other similar risk investments.
Cons: For regular payments, you need to keep in the NHS to get the benefits. Lump sum payments might cause annual allowance issues. If you don't have a dependant cover then you lose the investment if you die early. Personally I found the rules complicated but you might not be as thick as me.

2. ERRBO - (Early Retirement Reduction Buy Out) This allows you to take your pension 1-3 years earlier without actuarial reduction. This can be valuable if you think you will retire early and live a long time (unless you know different you probably will but nothing is certain). You pay a fixed percentage extra from your salary which is higher the closer you are to retirement. If you leave the NHS it applies to the pension you have accrued.

Pros: Good value for money compared with other similar risk investments. No impact on lifetime allowance (as it doesn't change the value of your final scheme, just when it is paid).
Cons: No benefit to dependants, all benefit lost if you die before retiring. Committed to regular increased payments for the rest of your career, messy if you cancel.

3. Discounted AVC scheme with one of the two providers. I think both offer 0.4 percentage point reduction in the annual management charges on the funds you choose which is quite good. Otherwise they are just standard pension investment funds that result in a DC scheme, you have some choice of funds.

Pros: Can be more flexible when you take and use the fund, for example, draw down to use as a bridge between early retirement and taking your NHS pension. Might be transferrable if you leave the NHS into another pension or be consolidated later. Pot is payable to dependants if you die.
Cons: You would probably need better than average fund growth to beat the long term value of the other two.

You could also save additional pension separately or save into e.g. ISAs but you don't get the input tax benefits (but you don't pay tax when you take the money out)

I was unable to find cost effective professional advice when I looked at this back in 2015 when I joined. Basically fixed fee advice would have cost me 5 years of what I was going to save. I (was) only planning to work for another 10. I decided my worst decision would cost less than that.

I went with ERRBO (which I had problems with but are now sorted) and AVCs with some savings in ISAs as well. This means that I have a good secure pension and extra that can be used more flexibly.

For what its worth, my opinion of the ERRBO is that it is a bit too inflexible for most but favours those in my position with an older partner who probably won't need to benefit from it directly, but as a couple we hope to benefit from me being able to retire on full pension earlier.

Lowtrawler

Good summary Moonwolf, I'd ignored the ERRBO as it is slightly niche but lot's of useful additional information. Also useful comments from yourself and Dunstonh on other, non NHS, options to consider. The NHS AVC options do provide similar flexibility to what you might get from a standalone pension while also being subsidised and so not sure if it would be worth bringing SIPP's into the discussion.

Staying blinkered on pensions, I do think the main choice is AVC or Additional Pension. As part of a wider review, the flexibility provided by ISA's is worth considering. From a personal perspective, my wife is buying additional pension through the scheme and it is a very good value option, particularly for anyone closer to retirement where stock market growth would likely not create the same reward. For someone in their 30's, it is not as clear cut.

jamesd

ERRBO does affect the lifetime allowance. It'll be calculated on the basis of the pension amount paid and that will be full instead of actuarially reduced.

Taking a DB pension early with an actuarial reduction is one technique to reduce lifetime allowance charge exposure. The allowance used is calculated on the lower figure but the extra number of years of payment is ignored.

jamesd

One advantage a personal pension can offer is being taken to fund early retirement before you take the DB pension. That can reduce the actuarial reduction.

Lowtrawler

In terms of the additional pension option, £150 per month will roughly buy an additional pension of £2,750 (payments spread over 20 years). You can check the exact calculation here: http://www.nhspensions.nhsbsa.nhs.uk/PensionCalculators/AdditionalPension/index.aspx

The monthly payments will increase each year but so will the additional pension amount. Having performed a quick calculation, it would need some racy stock market returns to beat that as an option, even for someone in their 30's. Still worth considering the AVC's if you feel you will need the flexibility they provide.

Lowtrawler

jamesd said:

One advantage a personal pension can offer is being taken to fund early retirement before you take the DB pension. That can reduce the actuarial reduction.

I may be wrong but I believe the AVC schemes offered by the NHS allow the AVC's to be taken earlier than the DB pension in a similar way to a personal pension.

dunstonh

3. Discounted AVC scheme with one of the two providers. I think both offer 0.4 percentage point reduction in the annual management charges on the funds you choose which is quite good. Otherwise they are just standard pension investment funds that result in a DC scheme, you have some choice of funds.

Just picking up on the "discounted" bit.  That would have been the case 15 years ago but there is no discount there any more.  That is within the range of simple investment options on the retail pension products now (indeed 0.3x% is. Possibly more depending on amounts).

Lowtrawler

dunstonh said:

3. Discounted AVC scheme with one of the two providers. I think both offer 0.4 percentage point reduction in the annual management charges on the funds you choose which is quite good. Otherwise they are just standard pension investment funds that result in a DC scheme, you have some choice of funds.

Just picking up on the "discounted" bit.  That would have been the case 15 years ago but there is no discount there any more.  That is within the range of simple investment options on the retail pension products now (indeed 0.3x% is. Possibly more depending on amounts).

The NHS still claim "We have negotiated special NHS terms for these arrangements. We review these regularly and there are no commission charges". In the case of Standard Life, they say "Standard Life will rebate 0.40% of the fund management charge by adding extra units to your fund each month". So, no commission charges and a 0.4% rebate on the FMC - I take your point that similar discounts are available through retail channels but it is still a discount of sorts.