Can anyone help me with private pensions?

[KitKat1985]

Hello lovely Mumsnetters.

An anyone give me any advice on private pensions. I'm 35 and work as a nurse. I have being paying into my NHS work pension for 11 years now but have recently been thinking about trying to put a small amount away each month into a private pension fund too (ideally I'd like to be able to leave full time work at 60).

I don't have lots to put in each month (was thinking of about £100 a month, and maybe increase later in time). Is there any companies that will be okay with putting away such a relatively small amount each month? Also do you have to decide in advance whether you would want an annuity pension or a drawdown pension? And which is generally considered better? I always thought of having an annuity with a pension but I'm wondering whether it would be better to just have an annuity set up with my workplace pension (so that I know I always have some money coming in regularly), and have drawdown on my own pension so I can access larger sums of cash after retirement to be used as and when needed (e.g, to get a car, for house repairs etc)? Also as I understand with drawdown pension if I were to die younger than expected the remaining fund would be passed to DH / the kids, rather than just lost?

Many thanks.

Do it as AVCs through work is the most tax efficient way ;-)
BUT
No private pension will ever match what you'll get through the NHS scheme so just make sure you pay in all you can to that.

Annuities are crap nowadays.
A S&S ISA might be an option

I was pondering the same, especially as the new pension is so much less favourable than the old.
After doing some research I've decided to overpay the mortgage by £100 a month instead for a few years and revisit the figures then.
I understand the NHS pension is changing again so who knows what the new offering will be?!

£100pm is fine for lots of pension providers to accept as a regular saving. All personal pensions are an accumulation of a pot of money (defined contribution, or DC) and the death benefit is indeed a return of the fund value.

An annuity is a secure income, usually payable for the rest of your life. There are pros and cons but can be a good idea if you don't have enough other secure income streams in retirement to meet your essential living expenses.

A drawdown pension offers flexibility about how much and when you take any income from it, which again has advantages (tax efficiency, control) but biggest risk is that money will run out if not managed properly.

You don't need to choose between annuity or drawdown options until you are at the point of wanting to retire. Just focus on accumulation of pension savings for now. The rules may very well change several times before you reach the age at which you can access them!!

Make sure you don't miss out on any 'free' money by way of employer contributions though - do you get any incentives to put more in to your existing NHS scheme?

The NHS scheme is a DB scheme
which makes it better than any DC scheme
the deemed employer contributions in the NHS scheme are MASSIVE

DC schemes pay out a pittance compared with something like the NHS

but yes, paying down your mortgage is one of the best things to do with spare cash

Thank you. I think I'm in the in the 2008 pension scheme (I need to double check this), which has a normal retirement age of 65, and I'm not entitled to a state pension until I'm 68. So if I want to retire at 60 I would need something really to bridge the gap between being 60 and getting my workplace pension at 65, with enough money available to last the intervening 5 years (although assuming my health is okay I guess I could do some part-time NHS bank work to top up any savings, and all being well my mortgage will be paid by then), so realistically I think I would need to have about 15,000 per year (or whatever equivalent amount will be by then with inflation) to manage reasonably comfortably, so would need to squirrel away £75,000 I guess. Feels like a challenge!

But totally agree with mortgage overpayments being a good idea too.

I save £100 into a Stocks and Shares ISA each month, with the aim of that pot helping towards retiring a bit earlier. I do pay into a workplace pension as well but I want some cash available to me if I needed it...with ever changing pension rules regarding the age you can access them I prefer to have a few different options so pension/S&S ISA/mortgage etc

I have a stakeholder pension, in addition to my work pension. I pay £100 a month. But I'm thinking of stopping it and using it for debt/mortgage because I've actually lost money on it this year. The pot has gone from 30k last year to £28!

Just to throw in another suggestion, as you’re under 40 you could also consider a Lifetime ISA.

www.gov.uk/lifetime-isa

Otherwise quite a lot of pensions would accept £100 per month (and as others have said, you don’t need to decide on annuity vs drawdown yet)

One of the main advantages of a pension is the tax benefits, which you don’t get with a stocks and shares ISA. Whilst you don’t pay income tax or capital gains tax on shares in an ISA, you can only invest your post tax earnings. In this case, you invest £100 in an ISA but in a pension, it is topped up to £125. You then further benefit as if the shares increase 5%, in an ISA you would gain £5 (5% x £100) but in a pension £6.25 (5% x £125). It doesn’t sound like a lot, but over time it really adds up.

If you do go for a pension, just check the charges, they can quickly erode any gains.

And you can take 25% as tax free lump sum, at the moment as early as 55.

But the pension provision is a red herring
as its all about topping up the NHS

Pay down your mortgage
pay into the NHS scheme and sit tight

by the time you get to your mid 50's the rules will have changed anyway

Should have been clearer I was referring to a private pension which has nothing to do with the NHS.

The rules will have changed by the time you get to your mid 50s but you would hope they would still be favourable to private pensions, and therefore there would still be tax benefits, as it’s in the government’s interest for them to encourage some saving for retirement.

www.pensionsadvisoryservice.org.uk/

Thank you for all of the advice and the links. I will consider my options I think for a few days before making any decisions. As you say it could arguably be better to focus on mortgage over-payments instead which I hadn't really thought about, especially given the amount of interest we pay on our mortgage vs. the amount we could potentially lose in a pension fund. Thank you all. You've definitely given me some things to think about!

Some of your pension may be in the 2008 scheme but you should have been moved over to the career average 2015 scheme which has a retirement age the same as state pension age, currently 68 for you.

You could set up a private pension like a SIPP to give you a pot of money you can use to bridge that gap. £100 a month would build up very nicely especially with the govt adding 25%. And you have time on your side so you could go for slightly riskier investments which will grow a lot faster than inflation.

I’ve got a teacher’s pension so similar to yours in that it’s DB, pretty generous but also pretty inflexible. My intention is to use it as an annuity, a top up of the state pension.

I’m now a SAHM and have a SIPP which I manage though AJ Bell YouInvest + a LISA on the same platform. When you pay in money, they sort out the tax relief and the money gets added to the account within a few weeks. You can pay in whatever amount and whenever you want. My money is spread across several funds and I just set up regular payments to top them up every month. (we also have ISAs and JISAs on the platform so the whole portfolio can be easily managed).

My intention is to have that SIPP and LISA money as the flexible part of my retirement fund to use as and when I need it. I feel that should make things easier not having to rely on DB pension rules 100%.

Look at AVC’s thorough your NHS scheme. Tax efficient and you can take the money as a lump sum.

which is what I said at the start of the thread

The NHS pension has a lump sum and monthly pension payment thereafter, so you don't have to think about annuities etc. There's a limit to how much of the lump sum you can take, tax free, at the point of retirement, and it's then yours to do what you want with.

Some of your pension may be in the 2008 scheme but you should have been moved over to the career average 2015 scheme which has a retirement age the same as state pension age, currently 68 for you.

Oh no really! Damn it so if I want to retire at 60 I need enough money put aside to live off for 8 years then. Hmm, that could be a challenge!

This is the only issue for going down the 'AVC' route as I would then have to wait quite a while to access the money, and I really don't want to work all the way until I'm 68.

@Beecham

I have a stakeholder pension, in addition to my work pension. I pay £100 a month. But I'm thinking of stopping it and using it for debt/mortgage because I've actually lost money on it this year. The pot has gone from 30k last year to £28!

Shares go up and down and this year has been exceptional and you shouldn't base any long term decisions on it. If all you've lost this year is 7% you've done very well and probably after the vaccine announcements these last two weeks you may well be gaining again. The FTSE100 was at 5600 at the end of October and 6400 yesterday, an increase of 12% over a few days. Obviously there were big losses back in March but over the decades you are saving for retirement neither the sharp drop in March or the sharp increase this month will have much impact.

@CountFosco is correct, if you are a long way from retirement it's probably best just letting the payments go into your pension and forgetting about it, to a certain extent. Saving for retirement is a long game and although prices may go up and down the hope is that over the long term the general trend is up.

I'm a fine one to talk though as since my pension provider now has an app I check it multiple times a week! I should probably just delete the app.....

BUT
The OP's main pension is DB
so her returns are NOT affected by the stock market
she does NOT have a pension pot
she CANNOT draw down at 55

Oh no really! Damn it so if I want to retire at 60 I need enough money put aside to live off for 8 years then. Hmm, that could be a challenge!

You should be able to access the 2008 part of your pension before you’re 68. If you check your latest pension statement it should tell you how much you built up in years and days (‘pensionable service’). Divide that by 60 and multiply by your final salary (the full-time salary you think you’ll be on when you retire, not what you were on in 2015) and that’s how much you will get every year from the age of 65. You can choose to take it at 60 if you don’t mind taking less.

But if you want to stop working at 60 without touching your NHS pension then you’ll need to build up separate savings, eg though a SIPP. As you say, AVCs will not give you the flexibility you’re looking for.

But if you want to stop working at 60 without touching your NHS pension then you’ll need to build up separate savings, eg though a SIPP. As you say, AVCs will not give you the flexibility you’re looking for.

Yes thank you @BobbingPuffinsobbingPuffins. That is what I am thinking.

@Pepperwand do you use Wealthify by any chance (you mentioned using an app)? Are they any good?

Tax-wise, it would make more sense to start with a LISA and only pay into a SIPP if you’ve used your LISA allowance for the year. That’s assuming that you’re a base rate tax payer.