Pension Newbie

german_keeper

t2rry said:

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

PTA is personal tax allowance, currently £12,570 pa. I didn't think it would be relevant for you as it looks like both your NHS pensions will be higher than PTA. In a simple example if a couple have a joint income in retirement of £25,140 split equally there would be no tax to pay. If the breakdown was £25,140 for one and nil for the other then the tax bill would be £2,514 although this can be reduced a bit with use of the marriage allowance. In recent years we have been putting the money we used to pay on the mortgage into my wife's pension because my potential retirement income was above PTA and hers below. So when she takes it out she will pay no tax whereas if we had put it in my pension I would have paid tax. But doesn't appear to be an issue for you.

By doing your homework and making plans for retirement I suspect you are doing a lot more than the vast majority of people so good luck with it all.    

t2rry

Oh of course! Yes definitely something to be aware of but yes, hopefully we'll both be over that, especially starting to really throw something at it now.  I wish I had thought more about it all when I first entered the workforce but at least we're working on it now, thanks so much.  

t2rry

@Dazed_and_C0nfused - just wanted to pop in to say thank you - I have been scouring the internet for an answer relating to 40% tax bracket and child benefit high income charge for hours and hours recently, trying to make sure my calculations are correct (employed + self employed so no online calculator quite accounted for my circumstances with a PAYE pension and SIPP contributions).

I found your explanation on a thread from last year and it was perfect to help me properly understand the difference between net adjusted income and taxable pay calculations.  The OP at the time didn't seem to quite grasp it, but I just wanted you to know that it is the first clear explanation I have found so thank you!!! 

Pat38493

Simon11 said:

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?

The deadline for doing this has been extended to July but the website has not been updated - however there is a press release.

There are quite a few other threads on this forum about this topic.  You might be better off posting your details on there - typically you need to call DWP to check what years it would be beneficial for you to top up (if any) and then you have to call HMRC to get an 18 digit reference number to pay with.

t2rry

Revisiting this thread three years later because I am back figuring out what pension contributions we need to make to keep us both under the 40% tax bracket. This was a useful read, especially how much changes in 3 years, but in case anyone is still here and can confirm or tell me where I'm going wrong, I have calculated the following for this year (2025/26 hence doing it now to be sure I've put enough into SIPPs). I am using these calculations just to ensure I've fully understood and applied how the savings interest and PSA interacts with the tax bands…

Income (after salary sacrifice pension) £52,047.23

Savings Interest £539.69

Total income: £52,586.92

0% band is the standard £12,570

20% band is £39,575 (standard £37,700 + £1,875 grossed up SIPP contribution)

The difference of £441.92 between the 0%+20% band amount and total income puts it in the 40% tax bracket so means a reduced Personal Savings Allowance of £500.

The first £12,570 of income is taxed at 0%

The next £39,477.23 of income is taxed at 20%

The first £97.77 of savings interest is taxed at 0% (PSA) but uses the remainder of my 20% band

The next £402.23 of savings interest is taxed at 0% (PSA remainder) but sits against my 40% tax band

The remaining £39.69 of savings interest is therefore taxed at 40%

I think I am right, am I right?

To get under the 40% bracket, the full £441.92 (gross) would need to be added to a SIPP to increase the 20% band to cover the total savings interest so none of it crosses into the 40% bracket, which would then also result in getting back to a £1,000 PSA, thereby paying 0% on all of the savings interest rather than just £500 of it.

Right?

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81906945#Comment_81906945

One thing to remember, assuming there aren't any other factors you are aware of but haven't mentioned.

Your savings nil rate band (aka PSA) may well return to £1,000.

But all that this will change is £40 of your interest will be taxed at 0%, not 40%.

Which is better for you but not a showstopper.

Triumph13

Given that you are wanting to build up funds in your SIPP anyway, to fund the period between retirement and drawing your DB pensions, there's also something to be said for just bunging in an extra few hundred quid to your SIPP to get you comfortably under the limit and take away all the stress about whether or not you got your sums right :)

t2rry

Thank you @Dazed_and_C0nfused and @Triumph13 , you're both absolutely right, that's the weigh up, £330ish put into pension to save £16ish tax - so comes down to cash flow and not the biggest of decisions. The principle that I have correctly understood the interaction between the PSA and tax bands is great though as next year will be a totally different set of figures and way more important/consequential to get right! Thanks