Pension Newbie

t2rry

So useful to see thoughts, honestly I've tried a few times to sit and work out even just what our pensions mean (NHS, by the way, I wasn't sure what sort of detail to give but most might have been able to work that out), and it's like typing it all out has helped it make sense.

State pension, there's no reason both of us wouldn't qualify for the full amount, we both have plenty of years left to get to 35 years contributions and no missing years except the university years.

So additional pension purchase looks like a pretty good deal, I will definitely look at how we could best maximise that option.

Extension we've not had any quotes or plans drawn up, so only ballpark figure in our heads, that's part of the indecisiveness I suppose, we don't really know how much we need to have saved to get started.  Something I could start getting a better understanding of, definitely.  In terms of funding it, we definitely want to do it from savings.  That's part of what I'm trying to work out, if we start actively doing more for pensions now, our ability to save for extension reduces, pushes us to up to 5 years before doing it.  If we put every spare penny to extension savings now, with the amount we already have in cash savings, we could get started within the next 2 years.  I am conscious that if we have the extension done before our mortgage fix is ending, our LTV would hopefully be much improved. 

MallyGirl

t2rry said:

So useful to see thoughts, honestly I've tried a few times to sit and work out even just what our pensions mean (NHS, by the way, I wasn't sure what sort of detail to give but most might have been able to work that out), and it's like typing it all out has helped it make sense.

State pension, there's no reason both of us wouldn't qualify for the full amount, we both have plenty of years left to get to 35 years contributions and no missing years except the university years.

The 35 years does not apply to you. It is only relevant to those who started earning from 2016 - you might well need more. You are right though to say that you have plenty of years to contribute.

t2rry

MallyGirl said:

t2rry said:

So useful to see thoughts, honestly I've tried a few times to sit and work out even just what our pensions mean (NHS, by the way, I wasn't sure what sort of detail to give but most might have been able to work that out), and it's like typing it all out has helped it make sense.

State pension, there's no reason both of us wouldn't qualify for the full amount, we both have plenty of years left to get to 35 years contributions and no missing years except the university years.

The 35 years does not apply to you. It is only relevant to those who started earning from 2016 - you might well need more. You are right though to say that you have plenty of years to contribute.

Oh okay, my forecast tells me I need another 16 years (which would total 33) and the forecast is for the maximum, but yes either way I have 30+ years left to contribute.  I could make one of my university years (post grad) up to a qualifying year with a £16 contribution, then one other normal uni year with a contribution of £430, which seems less appealing!

MallyGirl

t2rry said:

Oh okay, my forecast tells me I need another 16 years (which would total 33) and the forecast is for the maximum, but yes either way I have 30+ years left to contribute.  I could make one of my university years (post grad) up to a qualifying year with a £16 contribution, then one other normal uni year with a contribution of £430, which seems less appealing!

Someone more knowledgeable than me will be able to confirm this but I think that the ability to top up older than 6 year records is due to be withdrawn soon so I would be tempted to pay that £16 while you can.

Albermarle

So useful to see thoughts, honestly I've tried a few times to sit and work out even just what our pensions mean (NHS, by the way, I wasn't sure what sort of detail to give but most might have been able to work that out), and it's like typing it all out has helped it make sense

Most public sector pension schemes, and I am pretty sure that includes the NHS but not 100% sure) have no cap on the amount they increase with inflation. This makes the £6500 pa even more valuable.

SarahB16

Albermarle said:

So useful to see thoughts, honestly I've tried a few times to sit and work out even just what our pensions mean (NHS, by the way, I wasn't sure what sort of detail to give but most might have been able to work that out), and it's like typing it all out has helped it make sense

Most public sector pension schemes, and I am pretty sure that includes the NHS but not 100% sure) have no cap on the amount they increase with inflation. This makes the £6500 pa even more valuable.

I agree the £6,500 pa is valuable however in terms of money in your pocket this, for most people, will have the basic rate of tax deducted from it.  So, in this example, the £6,500 pa would actually be £5,265 pa (assuming a 19% basic rate of tax).  Still a nice additional pension amount to have all the same and as you say very likely to increase with inflation (CPI) with no cap. 

I also have the option of purchasing additional pension income which would increase with CPI inflation with no cap.  Based on the wonderful information I read on this forum for the time being I have decided to purchase AVCs (only a very small amount per month to take my taxable pay from the 40% tax band into the 19% tax band) which would give me a tax-free lump sum on retirement or if I wish I could purchase additional pension income with it instead.   

Albermarle

SarahB16 said:

Albermarle said:

So useful to see thoughts, honestly I've tried a few times to sit and work out even just what our pensions mean (NHS, by the way, I wasn't sure what sort of detail to give but most might have been able to work that out), and it's like typing it all out has helped it make sense

Most public sector pension schemes, and I am pretty sure that includes the NHS but not 100% sure) have no cap on the amount they increase with inflation. This makes the £6500 pa even more valuable.

I agree the £6,500 pa is valuable however in terms of money in your pocket this, for most people, will have the basic rate of tax deducted from it.  So, in this example, the £6,500 pa would actually be £5,265 pa (assuming a 19% basic rate of tax).  Still a nice additional pension amount to have all the same and as you say very likely to increase with inflation (CPI) with no cap. 

I also have the option of purchasing additional pension income which would increase with CPI inflation with no cap.  Based on the wonderful information I read on this forum for the time being I have decided to purchase AVCs (only a very small amount per month to take my taxable pay from the 40% tax band into the 19% tax band) which would give me a tax-free lump sum on retirement or if I wish I could purchase additional pension income with it instead.   

You are right that all options have their pluses and negatives, although as a general rule investing in pensions of any sort is usually a plus.

Simon11

MallyGirl said:

t2rry said:

Oh okay, my forecast tells me I need another 16 years (which would total 33) and the forecast is for the maximum, but yes either way I have 30+ years left to contribute.  I could make one of my university years (post grad) up to a qualifying year with a £16 contribution, then one other normal uni year with a contribution of £430, which seems less appealing!

Someone more knowledgeable than me will be able to confirm this but I think that the ability to top up older than 6 year records is due to be withdrawn soon so I would be tempted to pay that £16 while you can.

Thanks for flagging this, I have quite an interest in pensions but didn't realise this.

Having a look online, I found this https://www.gov.uk/voluntary-national-insurance-contributions/deadlines

It states the following:

You’re a man born after 5 April 1951 or a woman born after 5 April 1953

You have until 5 April 2023 to pay voluntary contributions to make up for gaps between tax years April 2006 and April 2016 if you’re eligible.

After 5 April 2023 you’ll only be able to pay for voluntary contributions for the past 6 years. This may not be enough to qualify for a new State Pension if you have fewer than 4 qualifying years on your National Insurance record. You’ll usually need at least 10 qualifying years in total.

Can anyone advise? 

I personally have the following:

You have:

• 16 years of full contributions
• 34 years to contribute before 5 April 2056
• 2 years when you did not contribute enough

One of the missing years will only cost me £158.50 and I am keen to retire early. Is it worth the punt?

german_keeper

t2rry said:

So useful to see thoughts, honestly I've tried a few times to sit and work out even just what our pensions mean (NHS, by the way, I wasn't sure what sort of detail to give but most might have been able to work that out), and it's like typing it all out has helped it make sense.

State pension, there's no reason both of us wouldn't qualify for the full amount, we both have plenty of years left to get to 35 years contributions and no missing years except the university years.

Have you managed to work out what your NHS pensions will be worth. It's a very good pension scheme but important to understand exactly how the rules work. It does look likely that you will qualify for 2 x full state pension but again important to understand the rules and make sure that you will.

If you then work out what your NHS pensions and state pensions will pay and the age at which they will pay you can then formulate your retirement plan and make good decisions about extra provision. Don't just ignore actuarial reduction as some do. This is where your pension is reduced for taking it early. It isn't a penalty, it just means you get less because it will be in payment for longer and generally the rate is set at a level that evens out assuming average life expectancy. But it can be a useful tool to facilitate early retirement

Another thing to consider is to make sure you will benefit from 2 x PTA in retirement although looking at your NHS pensions that looks pretty certain. But if circumstances change it may become an issue.

In making these kind of plans I have always worked in current values as the vast majority of our pension provision is index linked DB, and state pension with the triple lock. I think the NHS pension actually increases by significantly more than CPI at accrual stage. 

t2rry

Togerman_keeper said:

Have you managed to work out what your NHS pensions will be worth. It's a very good pension scheme but important to understand exactly how the rules work. It does look likely that you will qualify for 2 x full state pension but again important to understand the rules and make sure that you will.

If you then work out what your NHS pensions and state pensions will pay and the age at which they will pay you can then formulate your retirement plan and make good decisions about extra provision. Don't just ignore actuarial reduction as some do. This is where your pension is reduced for taking it early. It isn't a penalty, it just means you get less because it will be in payment for longer and generally the rate is set at a level that evens out assuming average life expectancy. But it can be a useful tool to facilitate early retirement

Another thing to consider is to make sure you will benefit from 2 x PTA in retirement although looking at your NHS pensions that looks pretty certain. But if circumstances change it may become an issue.

In making these kind of plans I have always worked in current values as the vast majority of our pension provision is index linked DB, and state pension with the triple lock. I think the NHS pension actually increases by significantly more than CPI at accrual stage. 

IF we stay earning the same within the NHS for the next 20 years (in line with idea of when we'd ideally like to retire as a target) then our joint pension income (applying current rules & all other things being equal) would be around £50k pa (today's money), hopefully plenty to live off by then!  

I guess it's the gap between target retirement year and each reaching pension ages that we need to start getting sorted.

I certainly understand the state pension and what we need to do there to get the maximum, that shouldn't be difficult at all.  Writing things down here has somehow broken a seal for me in terms of the NHS pensions, so I definitely understand that better now and the more I look, the better the additional pensions look worthwhile in terms of value, but they don't contribute to the gap between hopeful retirement age and when we'll each receive those pensions.

Not sure what PTA is?  

I have made myself a small spreadsheet to start working from, showing each year we have, when each pensions we currently hold kick in, what they're currently worth so I can update it each year and target improving those figures, however we do that and efforts to start filling the years preceding state retirement ages. 

All good food for thought