NHS Pension - to buy additional?

Angejc

Hi, I’ve been in the NHS pension scheme for 15 yrs. Last 4 years I’ve only been contributing on PT pay as reduced hours due to kids. 

I’ve taken a second non NHS job so earning a bit more now and want to put some money aside for retirement (I’m late 40s). I’ve done a bit of reading and am thinking of buying additional pension (either monthly or lump sums). The other alternative is S&S ISA. I’m sure I could do a combination of both if better. 

Is my thinking flawed considering 

- I’m unlikely to be in the NHS until retirement 
- I will want to have the option of returning at 60 given a few health issues that will get worse as i age 
- so will also need to plan a pot to tide me over until pensionable age (would S&SISA be better then?!)
- have large residential mortgage  
- have 2nd property on buy to let 

anything I should be considering, I’ve missed? 

MX5huggy

You've missed SIPP's (self invested personal pension). Better than an ISA accessible from 57/58 receive tax relief when you contribute. 

https://www.moneysavingexpert.com/savings/cheap-sipps/

 

Angejc

Ah, thank you. I mistakenly assumed couldn’t draw on pension early. 

Lowtrawler

Additional Pension will roughly cost you £16 Gross per £1 of benefit. It will be index linked. Assuming you are a basic rate taxpayer, that's roughly £12.80 net per £1 benefit. To buy an equivalent benefit by way of open market annuity would cost you at least £35 per £1 of benefit. Hence, any money you put into a S&S ISA or SIPP would need to outperform inflation by more than 100% to give you an equivalent to what the Additional Pension gets you.

However, if you leave the NHS before completing the AP contributions, they will be scaled back to reflect the amount you have put in. They are also not accessible until you take your NHS pension and, if that is early, will be scaled back by roughly 9/10% per year. In my view, you should still max out the AP option in the NHS scheme before considering a SIPP or S&S ISA for retirement planning. However, this depends on how early you are planning to take the pension.

You may also consider the Early Retirement Benefit Option in the NHS scheme (ERBO). It allows you to make contributions which entitle you to take your pension up to 2 years early without reduction. The cost and benefit of this option is roughly the same as AP.

Thrugelmir

Angejc said:

I’ve taken a second non NHS job so earning a bit more now and want to put some money aside for retirement

Isn't this role offering you a pension of some kind? 

hugheskevi

Lowtrawler said:

Additional Pension will roughly cost you £16 Gross per £1 of benefit. It will be index linked. Assuming you are a basic rate taxpayer, that's roughly £12.80 net per £1 benefit.

The NHS Added Pension calculator suggests that a 49 year old purchasing £1,000 of 2015 scheme Added Pension by lump sum with no dependent cover would pay £12,040 before tax, so a cost of £12.04 gross per £1 of benefit or £9.63 net of basic rate income tax relief.

To buy an equivalent benefit by way of open market annuity would cost you at least £35 per £1 of benefit.

This isn't a like-for-like comparison, as the annuity cost is at point of retirement, and so ignores investment growth between the current time and that point in time. Though Added Pension will be far cheaper than an annuity nonetheless.

However, if you leave the NHS before completing the AP contributions, they will be scaled back to reflect the amount you have put in. They are also not accessible until you take your NHS pension and, if that is early, will be scaled back by roughly 9/10% per year.

The actuarial reduction for taking pension early is usually around 4 to 5% per year taken early.

Angejc

Thank you everyone for your helpful comments. 

My 2nd job is through a Ltd company I own - not sure what benefits I could get through this. So essentially nothing is being offered, but nothing to stop me finding out. It’s relatively new and due to pandemic, work has fluctuated a bit, so hard to estimate exactly what I can earn, consistently. 

Im a basic rate tax payer atm but not sure if the second job will push me over into being higher rate- not taken anything out of business yet. With the income from the flat, I suspect it will. 

No idea when I will retire - on a bad day with my health I think I’m screwed, but on a better day I think I could perhaps work until 60 yrs old. Luckily my job isn’t physical.