NHS pension calculations, annual and lifetime allowances

DoublePolaroid

My apologies if this has been done before, my search skills may be lacking. 

I’m trying to get a handle on my NHS pension in order to properly plan what I hope to be an early retirement, at age 60. I’m 41 and as of March 2019 (because that’s the latest NHSBSA has updated my statement to) my pension has a value of £16k per annum plus £27k lump sum giving a “pot” for the purposes of LTA (more on that in a bit) of nearly £350k. My pension is currently split roughly equally between 1995 and 2015 schemes but by retirement the sum in the ‘95 section will be dwarfed by the 2015 for obvious reasons and though I’ll be able to take a fraction of my pension without penalty from the ‘95 section at 60, my NPA for the rest will be 68. 

My income has increased in the last few years considerably and I expect, on average to grow my pension from now on at a rate that means I expect to hit the LTA not long after I turn 50 (in fact I will probably have to take steps to mitigate the risk of going over the annual allowance - the ultimate first world problem). At that point I’m aware I’ll be liable for 25% or 55% tax on the excess, depending on whether I take the hit via annual income or lump sum. I’m also aware there will be a substantial actuarial reduction in annual income for retiring at 60. 

I need to work out, nearer the time of course, at what age to come out of the scheme i.e. whether that’s to avoid LTA excess charges before I retire, at 60 when I hope to retire or even if retirement at that point will be feasible. I’m perfectly happy to do my own maths, but my questions are to clarify that I haven’t missed anything in order that I don’t get my sums wrong. Therefore, I seek clarification re: the following:

• Whilst paying into the scheme each year’s pot is revalued at the rate of treasury orders plus 1.5%. From what I’ve read this annual revaluation stops when you stop paying into the scheme and is replaced at retirement by “Pension Increase”. The implication by omission is that if you stop paying into the scheme before taking the benefits there is no uplift for inflation at all during that period and the pension starts to lose value in real terms. Is my assumption here correct?
• Is Pension Increase the same mechanism that governs increases in the value of the state pension i.e. currently (but probably not perpetually) subject to the triple lock?
• Related to the above, if I exit the scheme for short periods to avoid charges due to exceeding annual allowance (I estimate having to do this for circa 6 months every three years if it’s possible) will this impact revaluation? I’m aware that opting out requires completion of some forms but it’d be useful to know from anyone who has experience if NHBSA make it easy? I’d also be a bit concerned about bureaucratic inertia leaving me out of the scheme longer than I’d want. 
• I’m not sure I can work out if it’s actually worth me exceeding the annual allowance regularly; I get hit with a tax bill (which I can opt to pay out of the pension via “scheme pays”) but I also accrue my pension benefits quicker. But in turn this just means I hit the LTA quicker. I realise this is less a question more than it is a vague grope in the dark for insight. 
• Does anybody know any good pension advisers in London with specific knowledge of the NHS pension? Yes I know Google but it’s surprisingly hard to find, for me at least. The colleagues I could ask generally don’t have a clue, don’t care or both. 

Thank you for taking the time to read. 

MX5huggy

This IFA has cropped up a couple of times when I’ve been looking at NHS pension complications seems to know what she is talking about. https://twitter.com/hall_nhs?s=11

hugheskevi

as of March 2019 (because that’s the latest NHSBA has updated my statement to) 

Worth querying why there is not an up-to-date statement - with the prospect of Annual Allowance issues on the horizon you want to make sure your pension record is as accurate as possible, so query every discrepancy.

my pension has a value of £16k per annum plus £27k lump sum giving a “pot” for the purposes of LTA (more on that in a bit) of nearly £350k.

Worth noting that LTA is based on whatever pension and lump sum is actually put into payment when you commence your pension. In particular, an actuarially reduced pension will have a lower LTA value than the same pension taken at Normal Pension age, so other things being equal you are incentivised to commence the pension as early as possible by the LTA.

• Whilst paying into the scheme each year’s pot is revalued at the rate of treasury orders plus 1.5%. From what I’ve read this annual revaluation stops when you stop paying into the scheme and is replaced at retirement by “Pension Increase”. The implication by omission is that if you stop paying into the scheme before taking the benefits there is no uplift for inflation at all during that period and the pension starts to lose value in real terms. Is my assumption here correct?

If you stop paying into the post-2015 scheme and create a deferred award, revaluation is simple inflation without enhancement.

• Is Pension Increase the same mechanism that governs increases in the value of the state pension i.e. currently (but probably not perpetually) subject to the triple lock?

No. It is currently measured by September CPI, with a floor of zero (ie cannot be negative)

• Related to the above, if I exit the scheme for short periods to avoid charges due to exceeding annual allowance (I estimate having to do this for circa 6 months every three years if it’s possible) will this impact revaluation?
  

If you rejoin within 5 years the deferred award created upon leaving is cancelled, and so you then get enhanced revaluation retrospectively (CPI+1.5%).

Flugelhorn

Statements can take forever from NHSBSA particularly if there is any practitioner pay as this can take 18-24 months to get credited through the system - the leaving and rejoining AKA hokey will be the subject of PhD theses before long

peter3hg

You also need to consider the impact of the McCloud judgement which will give you the choice at retirement of taking the period between 2015 and 2022 in either the 1995 scheme or 2015 scheme.

Your pension statement will be updated as though you were in the 1995 scheme all along for this period, but it will be a few years before they get them updated.


Can you access your Total Rewards Statement? That should be updated to March 2021 now.


The LTA is calculated on the pension as it comes in to payment, so if you take your 2015 section early, it is the actuarially reduced amount that will be used for the LTA calculation.
You could also take a lump sum from the 2015 pension to reduce any potential tax charge, but at a 12:1 commutation rate this is probably still poorer value than just taking the hit on the pension.

DoublePolaroid

I’m grateful for the very helpful responses so far. In particular I was unaware that LTA applies to actual pension drawn so this only helps with my retirement goal. Looks like the maths is a bit more complicated than I thought as I’ll have to do some reading around McCloud which I was only vaguely aware of.

Peter, I have access to my TRS and the latest update is March 2019. I’m a Practitioner for pension purposes and my statements have always been between 17-29 months out of date as Flugelhorn indicates but up until now it has always been updated in August, which didn’t happen this year. I will attempt to contact NHSBSA to find out the latest score. 

JohnB47

My TRS is always available in August each year and is correct up to the previous March. I wonder why yours are not up to date?

Flugelhorn

JohnB47 said:

My TRS is always available in August each year and is correct up to the previous March. I wonder why yours are not up to date?

It tends to be practitioners who have big delays in getting up to date figures - the type 1 and type 2 self assessments aren't done until late in the following tax year after the full income for the year is known and hence defining the contributions band  and then they  take ages to upload them to the TRS . I had mixed officer / practitioner and it was always a couple of years out of date - made calculations about LTA a nightmare

DoublePolaroid

According to the email I just received from NHSBSA my 19/20 pension contributions were added to my record on 29/09/21 and my TRS will be updated to reflect the state of my pension as of 31/3/20 on 15/12/21. Doesn’t make it easy to make plans. 

Flugelhorn

Definitely tricky -  I found that a huge problem, it was way behind  and ultimately they would only tell me how much pension I would get when I actually applied for it and I had to make a guess as to how much extra lump sum to ask for even though I deferred 2 years before I took the pension. 

Albermarle

DoublePolaroid said:

I’m grateful for the very helpful responses so far. In particular I was unaware that LTA applies to actual pension drawn so this only helps with my retirement goal. Looks like the maths is a bit more complicated than I thought as I’ll have to do some reading around McCloud which I was only vaguely aware of.

Peter, I have access to my TRS and the latest update is March 2019. I’m a Practitioner for pension purposes and my statements have always been between 17-29 months out of date as Flugelhorn indicates but up until now it has always been updated in August, which didn’t happen this year. I will attempt to contact NHSBSA to find out the latest score. 

As a general comment , you should be aware that the LTA limit has been frozen , so not increasing with inflation.
I think this applies for another four years and maybe will continue after that. It is a kind of back door way of reducing it.