NHS Additional Pension

niallmitch

Hi grateful for advice on this

I'm 55, been in the NHS pension scheme since 2008 and in theory will be retiring in 11 1/2 years. I would like to go somewhere between 60 and 65 but we will see what life brings obviously. I have 16 years of deferred civil service pension and state pension obviously, but my wife having worked in care homes most of her career will probably have only the state pension to speak of. 

Since the kids are grown and the mortgage is paid off, I am saving about £1k a month into ISAs etc so that when the time comes we have a decent nest egg as well as pensions.

However, looking to maximise returns I checked out Additional Pension options in the NHS and I'd appreciate some views on whether or not its worth it. I know tax relief wise its a no brainer but I want to check I'm reading this calculation right - 

Over 11 years, to get an additional pension of £2500, I would pay in £380 per month or £50,160 in total. 

Now at £2,500 additional pension a year, it would take me over 20 years to recover the £50k I've paid in which seems a very long time - am I missing something?

Not sure I will make it to 87 to be in credit to be honest!

Thanks in anticipation

Lowtrawler

The £2,500 pension will be increased by inflation each year while the payments you are making are held constant (they can change a little with actuarial adjustments but generally not by much). Hence, if inflation sits at 3% for the next 12 years, you will have paid £50k (less tax) for a pension of £3,564 per year. Not only that, the pension will continue to increase by inflation each year after you retire.

On-the-coast

And of course you’re saving both tax and probably NI contributions on your contributions so it’s going to cost you a lot less than £380 per month. 

MX5huggy

You should be saving your ISA contributions in to a pension, possibly a SIPP, as a 20% tax payer and presuming you pay 20% on the withdrawal from the pension (you might not, if you organise to take the money out in a low income year). Because 25% from a pension is tax free. Pension beats ISA by 6.25%.

I wouldn’t do the NHS additional pension, it’s expensive (because it’s a valuable return) because you will have quite a lot of index linked pension in your name, your biggest risk is you dying before your wife and the available income dropping dramatically when that happens my quick reading of the NHS additional pension is that if you choose to have dependents pension then £250 while you are alive turns to £90 ish after. 

Your wife should be having getting pension contributions form her employer since auto enrolment came in, is she taking full advantage of that? Should she save more in pensions so that she can utilise her tax free allowance in the years between stopping work and State Pension starting.

niallmitch

Thanks all, something very useful to think about

crv1963

It would be wise to save some into a SIPP for your wife, this is what we have done to try to balance retirement income and also to give her the choice to retire before SPA.

I bought additional NHS Pension purely to save on tax, as well as making sure that I also included dependant income if I should go first. If a HR Taxpayer then additional pension is more attractive.