Additional savings to NHS pension or Stakeholder pension

AgathaSquirrel

I’m increasing my work hours and would like to pay more into my pension. I’m aiming to retire at 60 so would want to pay into my 1995 Scottish NHS pension. I believe I can buy certain amounts of pension rather than years. Alternatively I can increase my very small stakeholder pension. Is there any value in doing one over the other? 

AlanP_2

I'm surprised you haven't had a reply to this as there are some people on here who are very knowledgeable about the NHS pension scheme.

My simplistic view is that it depends what you want and when.


The NHS scheme offers guaranteed, inflation linked income but annual pension will be reduced if taken before normal scheme age to offset the increased number of years it is being paid for.

A stakeholder or private pension is dependent on investment returns but can be taken before the NHS scheme and thus avoid the reductions.

Have you thought about how much you want / need and at what ages?

Have you checked your State Pension situation to see what that will pay you?

AgathaSquirrel

Thanks @AlanP_2. I intend to retire at 60 so can take the 95 section of my pension then. The CARE section of my pension and state pension I can access at 67. I should receive full state pension. I will be fine at 67 but need to maximise pensions at 60, hence my original question. I’m not sure which pension would be best to add to at the moment.

Lowtrawler

AgathaSquirrel said:

Thanks @AlanP_2. I intend to retire at 60 so can take the 95 section of my pension then. The CARE section of my pension and state pension I can access at 67. I should receive full state pension. I will be fine at 67 but need to maximise pensions at 60, hence my original question. I’m not sure which pension would be best to add to at the moment.

My understanding is that you are not able to take the 95 Section of the pension at 60 and continue paying into the CARE section until 67. I also don't believe you can add further contributions into the 95 Section unless you had taken out a contract previously.

Essentially, you will only be able to add to the CARE section and if you wish to continue paying into the CARE section beyond 60 then you will not be able to access the 95 Section until you leave the CARE section.

AgathaSquirrel

Thanks @Lowtrawler. I won’t be working beyond 60 so won’t be contributing to the CARE section of my pension but I can’t access it until I’m 67 without losing money.

I also though I couldn’t add to my 1995 pension but I recently read I could purchase additional sums, e.g. £250 additional per year pension which is what got me wondering if this might be a better option than the Stakeholder pension.

Moonwolf

I have posted versions of this before. I am in the 2015 scheme and these are my un-expert and non-professional thoughts based on the research I did when I wanted to make additional contributions. 

I thought the 1995 scheme was being frozen as part of the McCloud judgement and from April 2022 it would be the 2015 for everyone.  I'm not entirely sure of the details but if I'm right then the advice below might be relevant to you.

In the 2015 scheme you pay for 1/54th of your salary added to your pension as a defined benefit each full year. You can't change that directly and as you already know, the percentage you pay depends on your salary range. 

There are three supported ways (in the 2015 scheme) of getting additional pension plus a couple of other options.

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.

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 direct impact on lifetime allowance (as on its own 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 and difficult to suspend.

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

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. 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 paying extra into an existing DC pot with some savings in ISAs as well. This means that I have a good secure DB pension and extra that can be used more flexibly. I will be able to take my 2015 NHS pension at 65 without actuarial reduction and retire even earlier using my DC pot as a bridge. I won't need to take pension even earlier with an actuarial reduction.

For what its worth, my opinion of the ERRBO is that it is 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

AgathaSquirrel said:

Thanks @Lowtrawler. I won’t be working beyond 60 so won’t be contributing to the CARE section of my pension but I can’t access it until I’m 67 without losing money.

I also though I couldn’t add to my 1995 pension but I recently read I could purchase additional sums, e.g. £250 additional per year pension which is what got me wondering if this might be a better option than the Stakeholder pension.

I believe the Additional Pension purchases form part of the 2015 (CARE) benefits and so would only be available without deduction at your normal pension age. You are correct in that they can be purchased in £250 multiples. You can do this either by monthly salary deductions or by making an up-front payment. You can arrange so that the payments stop at age 60 whilst still giving you the benefit you wish to buy - albeit not available without deduction until normal pension age.

As Moonwolf says, you may find the ERRBO worthwhile although I haven't personally looked into it.

Personally, I would stick with the NHS options rather than top-up a stakeholder pension. I have found the Additional Pension offers very good value and so even with an actuarial deduction, it is still likely to be better than a stakeholder. 

Lowtrawler

I have just taken a look at The ERRBO option. Actuarial deductions are 6%, 11% and 16% for 1,2 and 3 years earlier than NPA. You can only use the ERRBO to retire without deduction at 65 earliest. From the items I have tested, assuming you obtain basic rate tax relief, the costs to remove those actuarial reductions also look like good value. Given this is your plan, I would probably start with ERRBO and then Additional Pension.

adamcarvell

did you find anything about the nhs stakeholder pension run by standard life i myself are looking at this option im trying to find out with little sucsess if i can transfer my DC pots into it and a lump sum ?.

AgathaSquirrel

@adamcarvell why do you want to transfer into the standard life stakeholder pension? I’m looking to add to mine, rather than transfer.

AgathaSquirrel

https://pensions.gov.scot/nhs/your-membership/your-contributions/increasing-your-pension

This is where I took my information from but on rereading, I’m wondering if I’m an active member of the 1995 pension and if not, surely with the McLeod judgement I should be able to purchase extra until 2022?