Ways to Increase your NHS Pension
Most doctors want to maximise their pension in order to have a higher retirement income to enjoy their retirement life. If you have scope within the Annual Allowance and Lifetime Allowance (more on these below) there various options to increase your NHS Pension.
Available only in the 1995 Scheme, eligible members contribute a fixed percentage of their pensionable pay to purchase an agreed number of years of additional service. However, the scheme is closed to new applicants so only those who already have an Added Years contract can benefit.
For those who are not eligible for Added Years, Additional Pension is available in both the 1995/2008 and 2015 Schemes.
All active contributing members of the Scheme, in good health and not absent from work for any reason, can apply to buy Additional Pension of up to £5,000 annual pension in the 1995/2008 Scheme or up to £6,500 in the 2015 Scheme.
Note if you have purchased Early Retirement Reduction Buy Out (ERRBO) in the 2015 Scheme you must take the value of those existing purchases into account when deciding how much Additional Pension to buy.
Additional Voluntary Contributions
The NHS supports two Additional Voluntary Contribution (AVC) schemes with other pension providers – Standard Life and Prudential. These allow NHS Pension scheme members to make additional contributions of any amount. These are taken directly from your pay and invested in your choice of funds to build up a separate ‘pot’ of money to access at retirement. The AVC does not increase the benefits paid from the main NHS Pension.
The AVC can be used to provide a tax-free cash sum (up to 25% of the fund value) and retirement income either at the same time as you retire from the main scheme or at a later date (but must be taken before age 75).
An alternative option is to increase your retirement benefits outside of the NHS Scheme. For example, you could contribute to a private pension such as a Stakeholder, Free-Standing AVC, Personal Pension or SIPP.
If you are considering making additional contributions by any means you should be wary of the Annual Allowance limit. This is the amount that can be saved in pensions each tax year before a tax charge applies.
The standard Annual Allowance is currently £40,000, although this reduces for higher earners (those earning £150,000+). For AVCs, Free Standing AVCs and other personal pensions the amount that counts towards the Annual Allowance is the value of your pension contributions. For final salary pensions such as the NHS Pension, the amount that counts is the growth in the value of your pension benefits each year and not the actual amount of your pension contributions.
For NHS Pension benefits, the Scheme will calculate the growth in the value of your pension for Annual Allowance purposes. Any Added Years or Additional Pension purchased during that tax year will be included in the calculation.
The Lifetime Allowance for pension benefits is currently £1 million. Benefits in excess of the Lifetime Allowance are subject to a tax charge when taken at retirement. When making additional contributions care is needed to ensure that the total value of your NHS Pension and private pension won’t exceed the Lifetime Allowance Limit.
Due to the Lifetime Allowance and Annual Allowance implications when making pension contributions you may want to seek financial advice before purchasing any added pension. If required, please contact Richard Higgs CFP FPFS on email@example.com or 0117 966 5699. Please note this article does not constitute personalised advice.