NHS Pension - buying additional pension or AVCs with Prudential or Std Life

saucer

Good plan 

Andy_L

draiggoch said:

I can’t comment on buying additional pension but regarding the AVC, is there any real point to it? As you cannot use it as part of your PCLS against the NHS pension. You could start a personal pension and use it to bridge any early retirement by a few years.

AIUI AVCs are a bit of a legacy thing. In "the old days" you couldn't have a personal pension as well as an occupational pension so if you wanted to increase your pension AVCs (or buying extra years) were the only option.

Moonwolf

I posted the following here before.  It might help although I can't be certain nothing has changed.

https://forums.moneysavingexpert.com/discussion/comment/78669411#Comment_78669411

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. 

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 personal pension 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. (I've also recently heard that only a few hundred have taken it up)

SSquirrel

Just spoken to NHS pensions who said that if I bought a lump sum Id have to wait to claim any tax relief until I drew the pension rather than filling out a self assessment form, that would be a few years down the line so Im not sure Id remember!

SSquirrel

Thanks Moonwolf, I will have a proper read though over the weekend 

Sun-Is-Fun

SSquirrel said:

Just spoken to NHS pensions who said that if I bought a lump sum Id have to wait to claim any tax relief until I drew the pension rather than filling out a self assessment form, that would be a few years down the line so Im not sure Id remember!

Do you mean buying additional NHS pension via lump sum? If so, that is not right what you've been told. You can inform HMRC that you have paid extra pension via lump sum and you will get tax relief either in the form of a cheque or they will adjust your tax code to get the refund for that tax year - it is not until you claim your pension.

See here: https://www.youtube.com/watch?v=43nSpsANhBc. It's for teachers but process will be the same for NHS.

saucer

SSquirrel said:

Just spoken to NHS pensions who said that if I bought a lump sum Id have to wait to claim any tax relief until I drew the pension rather than filling out a self assessment form, that would be a few years down the line so Im not sure Id remember!

That sounds like nonsense and sadly fairly typical of how much their telephone staff know, in my experience 

SSquirrel

Yes, I was told I can only claim tax relief on any lump sum once I'm about to draw my nhs pension so in about 20 years time.

Dazed_and_C0nfused

SSquirrel said:

Yes, I was told I can only claim tax relief on any lump sum once I'm about to draw my nhs pension so in about 20 years time.

What an utter load of rubbish.

The tax relief process and rules for lump sums like this are a little different to most other pension contributions, for example there is no guaranteed tax relief like you would get with RAS contributions, but once you understand what you're doing and how the tax relief works it's fairly straightforward.

The hardest bit is getting the correct tax relief from HMRC as they don't seem to understand these particular contributions very well even though their own staff could well be making then themselves!

Zerforax

With buying additional pension or AVCs throught the NHS, are they both tied to retirement age (assuming 2015 scheme)?

Trying to work out how to bridge early retirement but I haven't been able to work out if additional pension/AVCs are useful or not for this!

Main option so far seems to be a SIPP?