Trying to calculate equal retirement contributions?

Dazed_and_C0nfused

B0bbyEwing said:

Flugelhorn said:

are you trying to balance the amount going in ? or the amount coming out?

in

Dazed_and_C0nfused said:

B0bbyEwing said:

Before OH went working for the NHS we contributed to our retirement plans equally. 
We earned roughly the same each month. I actually earned a few £100 more in the pocket by the end of the month due to doing a hell of a lot more hours but it was roughly the same & so we put in the same - 
SIPP
L-ISA
Workplace pension - both our employers paid in the minimum & would only pay in the minimum & so that's also what we did - the minimum (anything else we wanted to put towards retirement went in to the SIPPs & L-ISAs).

OH then went working for the NHS and their very generous % pension setup.

As I understand it, the NHS pension also works differently too? As in I don't think it's like your NEST, Now or Peoples Pension etc, where you both put in %£x-pm & then at the end of time you have this big (hopefully) pot you access...?

My workplace is still on the 5%+3% setup whereas OH workplace is on considerably more than that.

How would you even go about calculating this so you can then balance things out across the board as that's what we were always doing. Since the NHS put in such an increased % this could then allow OHs SIPP & L-ISA to then be reduced somewhat & my SIPP/L-ISA increased to balance out.


* And as I can see this coming a mile off - yes, OH is aware of this & this has been discussed & no OH has no issue with it whatsoever.

The NHS pension is an extremely good pension, that most people would love to be in.

But there will not be a pot of money for her like there is with a SIPP or Nest.

It's more like deferred salary.  She accrues a fixed % of her salary each year and then an generous revaluation uplift is applied each April so the amount she has accrued keeps pace with inflation.

Say she earns £30,000 and pays 8.3% in pension contributions (£2,490 but the real cost is likely to be £1,992 as NHS operate the net pay pension contribution method so the £2,490 reduces her taxable earnings).  You should ignore the employer contributions as that really is of no relevance to the NHS pension she will get.

For that she will earn 1/54th of her gross salary in pension.  £30,000 ÷ 54 = £555.55.  which is revalued in April for inflation.  This is actually CPI + 1.5% which is pretty generous compared to most other schemes.

Each year she works she will add another £555.55 (or realistically a bit more as the NHS will almost certainly have given her a pay rise).

When she reaches the schemes normal pension pension age she can then get the total pension she has accrued and that will continue to get an annual inflation increase each April (just CPI though, not CPI + 1.5%).

There is no automatic PCLS (DB version of a TFLS) but she can choose to give up some of her pension in return for one if she wants.  But that is generally considered a poor choice financially as she only gets £12 for each £1 of pension she gives up.  As she could be getting the pension for 30+ years (and it's inflation proofed) that £12 would be very expensive!

Although I don't follow some of those abbreviations, thanks for your post. Got some other things to go over first but I'm going to give your post another going over this weekend to try properly digest it.

HedgehogRulez said:

Why are you trying to equalise it? Does it matter?

I think a better question would be why do you seem to suggest that it's a bad thing?
Why the need to question how someone else chooses to handle their finances?

DRS1 said:

One answer would be for you to go and work for the NHS as well.

Yes you'd be correct

FIREDreamer said:

Probably need to pay something between 30% and 40% of salary is needed to reproduce benefits similar to the NHS scheme then buy a joint life 50% spouse index linked annuity with the proceeds to match the cash flow pattern from retirement.

I was coming more from the angle of the OHs SIPP & L-ISA contributions coming down & then my contributions to those going UP to balance out what's going IN to the NHS pension.

QrizB said:

B0bbyEwing said:

How would you even go about calculating this so you can then balance things out across the board as that's what we were always doing. Since the NHS put in such an increased % this could then allow OHs SIPP & L-ISA to then be reduced somewhat & my SIPP/L-ISA increased to balance out.

On the assumption that you want to balance the output ...

Your OH's NHS pension is worth 1/54th of their salary, as an annual pension, from normal pension age until they die, index linked.

So if your OH is earning £27k pa, each year they'll earn £500 of pension.

By comparison to the current HL "best buy" table, to buy a £500pa pension at age 67 would cost something like £9000. So you might want to think of it as adding £9k to their pot.

But that's £9k at retirement age. Hopefully a DC pension pot will grow in value between now and retirement. Let's guess it'll grow at 2% per year more than inflation. If your OH is 57, with 10 years to go to retirement, that £9k at retirement would only need (9 x (0.98)^10) £7400 in a DC pot today.

You'd need to work this out each year for your OH, then see how much they actually paid in pension contributions, and then see what the difference is. And at the same time, see how annuity rates have changed and how much your SIPPs have grown by and what impact those have had to your "equal outcomes" goals.

Personally it all seems a bit artificial and a potential cause for aggro, but it's your relationship not mine!

First question is why is it 1/54th & not 1/52nd?

Second, well it's not a question really. Just to say that after reading your post, my head which was already pulsing before coming here tonight is most certainly throbbing now & I think the takeaway from this is to just leave it alone. Let the NHS pension be the NHS pension, whatever it may be. Pay in to the other stuff that we're doing & leave it at that.

Handy numbers though because I think she'll probably be on somewhere around that wage give or take. 

Secret2ndAccount said:

You may be noticing by now that the NHS offers a really good pension.

Yep. Already knew it was good when I saw how much of a higher percentage is going in to hers than mine.

Question for me would be whether I could swallow the politics & the level of care that consistently is below what it should be or whether my view of what's right would have me lasting no more than 5 minutes. 

With all due respect that means you haven't really understood this.

It is of absolutely no relevance what she or her employer contributes.  An admin person might pay 6.5%, a nurse 9.8% and a consultant 12.5% but they all get exactly the same pension benefit, 1/54th of their pensionable salary.

The NHS pension is a completely different beast to a defined contribution pension "pot".

She is getting a pension based on the scheme rules, not based on how much she and her employer contributes and how well her investment choices within the pension do.

LHW99

While fairness and equality are good IMO (and as these are pension types) what comes out will in the end be more important, because you need to think not just what you need in retirement as a couple, but also to at least consider the income you will each be left with when one passes on.

ie what are the inheritance possibilities? The NHS pension probably offers a 50% bereaved spouse's pension, whereas DC pots like SIPPs (and LISA's I assume) will pass the whole of the unused pot to the beneficiary. Assuming these were used for drawdown, that income wouldn't reduce (apart from normal market fluctuations).

QrizB

B0bbyEwing said:

QrizB said:

B0bbyEwing said:

How would you even go about calculating this so you can then balance things out across the board as that's what we were always doing. Since the NHS put in such an increased % this could then allow OHs SIPP & L-ISA to then be reduced somewhat & my SIPP/L-ISA increased to balance out.

On the assumption that you want to balance the output ...

Your OH's NHS pension is worth 1/54th of their salary, as an annual pension, from normal pension age until they die, index linked.

So if your OH is earning £27k pa, each year they'll earn £500 of pension.

By comparison to the current HL "best buy" table, to buy a £500pa pension at age 67 would cost something like £9000. So you might want to think of it as adding £9k to their pot.

But that's £9k at retirement age. Hopefully a DC pension pot will grow in value between now and retirement. Let's guess it'll grow at 2% per year more than inflation. If your OH is 57, with 10 years to go to retirement, that £9k at retirement would only need (9 x (0.98)^10) £7400 in a DC pot today.

You'd need to work this out each year for your OH, then see how much they actually paid in pension contributions, and then see what the difference is. And at the same time, see how annuity rates have changed and how much your SIPPs have grown by and what impact those have had to your "equal outcomes" goals.

Personally it all seems a bit artificial and a potential cause for aggro, but it's your relationship not mine!

First question is why is it 1/54th & not 1/52nd?

Because, as others have kindly said already, those are the rules.

See here:

https://faq.nhsbsa.nhs.uk/knowledgebase/article/KA-29075/en-us

B0bbyEwing said:

Second, well it's not a question really. Just to say that after reading your post, my head which was already pulsing before coming here tonight is most certainly throbbing now & I think the takeaway from this is to just leave it alone. Let the NHS pension be the NHS pension, whatever it may be. Pay in to the other stuff that we're doing & leave it at that.

Sory it's so complicated. I can see that you're trying to balance it so that both you and your OH are saving the same for the future, but it's not straightforward to assign a cash value to a year's acccrual in a CARE scheme like the current NHS pension.

As an aside, do you and your OH both invest similarly? If you put £3k into your SIPP and invest it in an 80/20 multiasset fund, does your OH do the same in theirs? Or might one of you instead decide to invest it in Apple, or Bitcoin, or gold, or gilts? I'm just thinking you could get to 67 (or whenever you decide to retire) and find that your pension situations are quite different despite being careful to save the same amount.

kimwp

Maybe there is a difference between matching and complementing that you could consider. For example could you take more risk with the non-db pots now there is an increased certainty of pension within your partnership.

B0bbyEwing

Marcon said:

B0bbyEwing said:

HedgehogRulez said:

Why are you trying to equalise it? Does it matter?

I think a better question would be why do you seem to suggest that it's a bad thing?
Why the need to question how someone else chooses to handle their finances?

Because you can often get a more helpful answer when someone knows what you are trying to achieve and why. Giving that information frequently highlights any misunderstandings on the part of the person asking.

QrizB said:

B0bbyEwing said:

How would you even go about calculating this so you can then balance things out across the board as that's what we were always doing. Since the NHS put in such an increased % this could then allow OHs SIPP & L-ISA to then be reduced somewhat & my SIPP/L-ISA increased to balance out.

On the assumption that you want to balance the output ...

Your OH's NHS pension is worth 1/54th of their salary, as an annual pension, from normal pension age until they die, index linked.

First question is why is it 1/54th & not 1/52nd?

Because that's what the rules of the scheme say.

Second, well it's not a question really. Just to say that after reading your post, my head which was already pulsing before coming here tonight is most certainly throbbing now & I think the takeaway from this is to just leave it alone. Let the NHS pension be the NHS pension, whatever it may be. Pay in to the other stuff that we're doing & leave it at that.

Secret2ndAccount said:

You may be noticing by now that the NHS offers a really good pension.

Yep. Already knew it was good when I saw how much of a higher percentage is going in to hers than mine.

...but you say you are trying to match 'what goes in', and in any sort of defined benefit scheme, you'll never get an accurate answer. Employers are on the hook (or more accurately the taxpayer given it's a public sector scheme) for however much it takes to make good on the promise. Also you need to be aware that any employer contribution rates are 'composites' based on many employees, and won't relate to any one individual. 

I think your takeaway above is a sensible one, in the interests of your own sanity!

Thanks for the reply.

Just to touch on what you first said in the quote.....

I felt (and still feel) that what I asked for / was trying to achieve was pretty clear. 

I was asking about making contributions equal between two people across their different forms (SIPP / L-ISA / Workplace). So if one has £x going in each month then the other also has the same £x going in, be it their own money, with employer contributions or whatever.

I also felt (and still feel) that it was clear that I was talking about money going in. I said contributions. I wouldn't call getting money out at the other end a contribution to me. That'd be weird phrasing. So it would have to be ME contributing IN.

But I appreciate that just because it's clear to me doesn't mean it'll be clear to all. 

And at any rate, I'll be leaving this alone now anyway.