ERRBO in HSCNI/ NHS pension

Letsgetmoving

I work for the NHS in Northern Ireland and have paid into the pension since I started at 24 (I am now 39)

I’ll be a higher rate tax payer this year so was looking at options as I’ll only receive ~40% of any raises (40%tax,10%pension 8%NI)

I was looking at early retirement reduction buy out (ERRBO) where you pay in an additional percentage (4.11% at my age) each year to get your full pension 3 years early.

However if I wait until age 64 I can pay 4.98% for one year to get the same benefits. Am I reading this completely wrong? Why would I pay in extra for the next 20 years instead of waiting. Plus while most of my career has been in NHS my job isn’t medical based so I could work in the private sector at some point but would lose the extra money I’d paid in. 

https://hscpensions.hscni.net/hsc-pension-scheme/hsc-pension-members-section/increasing-your-benefits-additional-pension-added-years-errbo/

hugheskevi

I’ll be a higher rate tax payer this year so was looking at options as I’ll only receive ~40% of any raises (40%tax,10%pension 8%NI)

That isn't right. You would pay 2% employee National Insurance on earnings above the Upper Earnings Limit, and the pension contribution gets income tax relief.

For example, if you earn £60,000 you would contribute 10.7% into the pension, and have a net salary of £41,509. If your salary was £61,000 your net salary would be £42,024.80. So you keep £515.80 of the £1,000 increase.

Nonetheless, the principle is correct - you have a stronger incentive to contribute to a pension.

I was looking at early retirement reduction buy out (ERRBO) where you pay in an additional percentage (4.11% at my age) each year to get your full pension 3 years early.

You pay that to get the pension accrued in the relevant year paid 3 years early, not the full pension.

However if I wait until age 64 I can pay 4.98% for one year to get the same benefits. Am I reading this completely wrong? Why would I pay in extra for the next 20 years instead of waiting. Plus while most of my career has been in NHS my job isn’t medical based so I could work in the private sector at some point but would lose the extra money I’d paid in. 

https://hscpensions.hscni.net/hsc-pension-scheme/hsc-pension-members-section/increasing-your-benefits-additional-pension-added-years-errbo/

The 4.98% would only apply to the pension accrued in that single future year, so it is not the same benefit. You are reading it completely wrong as you assume any ERRBO payment makes the whole pension payable 3 years early, whereas it is only the pension you accrue whilst paying ERRBO that is paid early.

Leaving the scheme would not mean losing ERRBO contributions, the pension accrued whilst paying ERRBO would remain payable at ERRBO age. You would however lose the enhanced in-service annual revaluation of CPI+1.5% on your post-2015 scheme pension - once you leave, it would only increase by CPI, so by leaving you lose 1.5% compounded each year the until pension is put in to payment compared to if you remained in scheme employment.

TheSpectator

Letsgetmoving said

However if I wait until age 64 I can pay 4.98% for one year to get the same benefits. Am I reading this completely wrong?

https://hscpensions.hscni.net/hsc-pension-scheme/hsc-pension-members-section/increasing-your-benefits-additional-pension-added-years-errbo/

Yes, as above, totally wrong.

Letsgetmoving

Thanks so much for the detailed reply, I knew it was wrong but couldn’t work out why. 

I’ll take another look and see what my options are

Letsgetmoving

Also that’s good news about the 2% NI I’ve never early enough to know there was an upper limit

Moonwolf

I have the ERRBO but I don't know anyone else who has and I understand it isn't popular.  I am still glad I have it it as it suits my situation but my situation is probably quite niche.  (I'm the younger partner, biggest earner, we have no dependants)

Be aware that your payment rate can change in the future if the public service pension discount rate changes, even if nothing has changed for you.  There is also no direct benefit for your partner.

It might be worth checking if another form of additional pension is better.  For instance if you pay the same money into NHS AVCs, a SIPP, or a private pension.  You could draw that down until you can take your NHS pension and it creates a pot that your partner could use.