Struggling with additional pension contribution options

Mr_Crabbs

@Dazed_and_C0nfused

To be perfectly honest you seem happier prevaricating than just getting some money into the pension.

I'm just trying to sort it out with some degree of faith that I understand what I'm doing, that it's a reasonable approach and I'm not missing anything significant or digging any major holes.

I do very much appreciate your and everyone else's thoughts, and they are helping me sort my ideas out.

That is really what matters if you want to mitigate the higher rate tax being paid in the current tax year. Once you miss the providers deadline for contributions you have completely missed the boat for this tax year. Some may allow payment right up to 5 April but I don't know if they all do.

Yes, completely understood and that's what I took you to be saying.

Why do you think she has 6-9 months to decide on investment

My misreading of something I saw elsewhere, I think, and also not wanting to drift once it's in there.

@LHW99

Presumably you / your partner have maxed out your ISAs?

Yes, and good points on the tax differences; the reason we're thinking about additional pension is to put it away until it's needed while reducing the higher rate tax. Thankyou.

@claire111

Don't confuse purchase of NHS Additional Pension with contributions into SIPPS or NHS AVCs. Purchase of NHS Adittional Pension is similar to purchase of an Annuity - it is fixed, guaranteed and index linked … There is an online calculator you can play around with. Be sure to factor in Tax Relief. Do it in plenty of time for the tax year as NHSBS can be slow.

Thanks. Yes, understood. It would be under the 2015 scheme and I had calculated something like a 14 year payback from age 67, but I'm not confident I have my calculations right. I think the bigger concern though is whether we're in time to do anything this year given how slow NHSBS are, and there seem to be difficulties making lump sum contributions with them.

@Grumpy_chap

I think recycling is a concern, but I was wary of this turning into a discussion about recycling. I don't think we are recycling, but it seems difficult to be clear cut about it and it's something I'll probably take advice on.

@af1963 @Albermarle

Thanks, good points I'd missed by focusing just on charges not on % of a small sum. Thankyou.

Mr_Crabbs

@claire111

… When I did it some years ago, as a salary sacrifice purchase, it was unbelievable value but it may be different now ... Be sure to factor in Tax Relief. Do it in plenty of time for the tax year as NHSBS can be slow … I calculated that 9 years post age 65 was the break even point. My family seem live til their 90's so for me it was a good gamble.

Just had a look at this. Her income is £60k so £9730 over the higher rate tax threshold. We can't offset that exactly as the additonal pension is only in set increments. An extra £500 a year pension would cost £8900 now; an extra £750 would cost £13350.

Assuming we can claim the tax back at 40% £8900 effectively costs £5340. If I assume the pension is paid from age 67, increases by CPI = 2% a year but the pension payments are taxed at the basic rate, it looks to me as though the break even point is age 74 - 75. That, as you say, looks very good value.

£13350 is a bit more complex as it's £9730 higher rate and £3620 basic rate relief, but with the same assumptions payback looks to me like age 78 - 79; less good, but still not bad.

To timescale, NHSBSA say 6 weeks to process, so it's tight!