Put £20k in additional nhs pension or SIPP?

PoGee

I intend to work another 2 years till age 60. I'd like to boost my pension. If I buy £1250 additional nhs pension, it's a lump sum of £20k. I think I wouldn't be able to gain the full benefit of the extra £100 a month till age 65 - is this correct?
I'm thinking of taking the 1995 portion at age 60 and leave the 2015 portion - is this allowed?
If I leave at age 60, would I still get the additional monthly £100 at age 65 if I wasn't contributing to an nhs pension?
Would it be simpler to take my full pension, both 1995 and (reduced) 2015 at age 60 and instead set up a SIPP? I know that after I retire the max I could contribute towards a sipp would be £2880.
If only the nhs scheme was easy to understand...

Marcon

PoGee said:

I intend to work another 2 years till age 60. I'd like to boost my pension. If I buy £1250 additional nhs pension, it's a lump sum of £20k. I think I wouldn't be able to gain the full benefit of the extra £100 a month till age 65 - is this correct?
I'm thinking of taking the 1995 portion at age 60 and leave the 2015 portion - is this allowed?
If I leave at age 60, would I still get the additional monthly £100 at age 65 if I wasn't contributing to an nhs pension?
Would it be simpler to take my full pension, both 1995 and (reduced) 2015 at age 60 and instead set up a SIPP? I know that after I retire the max I could contribute towards a sipp would be £2880.
If only the nhs scheme was easy to understand...

What are you trying to achieve? I appreciate you've said you want to boost your pension, but you then go on to mention 'simplicity'. What's most important to you?

PoGee

Forgot to put 'Or' in front of - would it be simpler....

I'd rather go the NHS pension route but they still haven't responded to a couple of questions I posed to them in February. Someone on this forum said the SPPA are taking 6 months to respond. So trying to make sense of anything is difficult.

Lowtrawler

PoGee said:

Forgot to put 'Or' in front of - would it be simpler....

I'd rather go the NHS pension route but they still haven't responded to a couple of questions I posed to them in February. Someone on this forum said the SPPA are taking 6 months to respond. So trying to make sense of anything is difficult.

The additional pension is a 2015 benefit and so not be payable until your normal state pension age, which is 67 and not 65, or when you claim your 2015 pension, which would be subject to actuarial reduction if earlier.

Your 1995 pension is payable from age 60 without reduction and can be claimed separately from the 2015 pension. If you will still be employed by the NHS on your 60th birthday, you should look into retire and return on your 60th so you don't miss out on any of the 1995 pension.

In terms of the Additional Pension, you would intend to pay this as a lump sum of £20k? Is that correct?

If you do, that will buy you £1,250 extra index linked pension at age 67. It will increase with inflation each year from the point of purchase onwards. That works out at a multiple of 16:1 which is much cheaper than you trying to buy an equivalent annuity. Hence, it appears very good value.

Do you have enough taxable income this year to make the £20k lump sum payment and obtain tax relief? If not, you may want to make the payments over the 2 years until you retire.

Purplelady65

I know that after I retire the max I could contribute towards a sipp would be £2880.

My understanding is you can still make payments into a SIPP above this amount. The £2880 limit applies when you access a Defined Contribution pension scheme not a Defined Benefit pension scheme like the NHS scheme.  

QrizB

Lowtrawler said:

If you do, that will buy you £1,250 extra index linked pension at age 67. It will increase with inflation each year from the point of purchase onwards. That works out at a multiple of 16:1 which is much cheaper than you trying to buy an equivalent annuity. Hence, it appears very good value.

I'm not so sure about the value.

Per https://www.hl.co.uk/retirement/annuities/best-buy-rates £20k (paid into a SIPP and grossed up to £25k) would currently buy a 65-year-old (2 years younger) about £1350 of RPI-linked pension (not CPI).

Or £1135 for a 60-year-old.

(That's single-life; you'd need to complete the quote process to get a joint life value.)

NoMore

Purplelady65 said:

I know that after I retire the max I could ycontribute towards a sipp would be £2880.

My understanding is you can still make payments into a SIPP above this amount. The £2880 limit applies when you access a Defined Contribution pension scheme not a Defined Benefit pension scheme like the NHS scheme.  

You’re thinking of the MPAA which is 10k. 

The 2880 (3600 gross) limit is the tax relief limit for non earners or earners below 3600..  it is nothing to do with whether you have accessed a pension or not. It’s available to everybody up to the age of 75. 

Lowtrawler

QrizB said:

Lowtrawler said:

If you do, that will buy you £1,250 extra index linked pension at age 67. It will increase with inflation each year from the point of purchase onwards. That works out at a multiple of 16:1 which is much cheaper than you trying to buy an equivalent annuity. Hence, it appears very good value.

I'm not so sure about the value.

Per https://www.hl.co.uk/retirement/annuities/best-buy-rates £20k (paid into a SIPP and grossed up to £25k) would currently buy a 65-year-old (2 years younger) about £1350 of RPI-linked pension (not CPI).

Or £1135 for a 60-year-old.

(That's single-life; you'd need to complete the quote process to get a joint life value.)

You're forgetting that the £20k being paid into the NHS scheme will get tax relief. Assuming they will get tax relief at 20%, the £20k cost is only £16k after tax and so you would need to look at annuity rates for £16k, grossed up to £20k, not £20k grossed up to £25k. Hence, my comment about it being much cheaper to purchase the additional pension.

QrizB

Lowtrawler said:

You're forgetting that the £20k being paid into the NHS scheme will get tax relief. Assuming they will get tax relief at 20%, the £20k cost is only £16k after tax 

That's an unconventional reading of the OPs statement:

PoGee said:

If I buy £1250 additional nhs pension, it's a lump sum of £20k.

If he was being asked for £16k, he'd have said so?

Maybe the OP can clarify?

Dazed_and_C0nfused

QrizB said:

Lowtrawler said:

You're forgetting that the £20k being paid into the NHS scheme will get tax relief. Assuming they will get tax relief at 20%, the £20k cost is only £16k after tax 

That's an unconventional reading of the OPs statement:

PoGee said:

If I buy £1250 additional nhs pension, it's a lump sum of £20k.

If he was being asked for £16k, he'd have said so?

Maybe the OP can clarify?

When you buy pension like that using a one off lump sum you never get tax relief at source.

You have to pay the requisite amount the pension provider, often public sector, asks for.  Then claim tax relief, if any is due, from HMRC.

Lowtrawler

QrizB said:

Lowtrawler said:

You're forgetting that the £20k being paid into the NHS scheme will get tax relief. Assuming they will get tax relief at 20%, the £20k cost is only £16k after tax 

That's an unconventional reading of the OPs statement:

PoGee said:

If I buy £1250 additional nhs pension, it's a lump sum of £20k.

If he was being asked for £16k, he'd have said so?

Maybe the OP can clarify?

The NHS Additional Pension payments are always quoted gross. Most people choose to make the payment over time rather than as a lump sum but both options exist. It is why I asked the poster if they were sure they would have enough taxable income this year to make the £20k lump sum payment and obtain tax relief.

On speaking to many people in the NHS, most don't understand they get tax relief on the Additional Pension payments and so end up making a poorly informed choice.