NHS 2015 Pension and possibly raising state pension age

[hungryKat]

I wonder if anyone can help, DH works for the NHS and is 43. He pays 12.5% into his pension and will get 1/54 back in retirement starting at state pension age, with a 5% reduction for every year of early retirement.

We appreciate that for him the state pension age is 68, but if it goes up to 70, would this mean he couldn’t get his NHS pension until 70 without penalties? I doubt they will reduce what he has to pay in, or increase its value to account for it being deferred extra years if they increase SPA.

Thanks

Yes that’s right. If that makes him feel a bit queasy he could start a separate private pension fund (eg a SIPP) to bridge him over between when he would actually like to retire and when he can get his NHS pension. A SIPP is a very tax efficient way to do that.

Yes, it’s one aspect that the headlines don’t seem to be focusing on so much - that many occupational pensions are linked to state pension age, so the effect of the change will be greater than eg losing just one year of SP.

DH and I fall just outside of it, if the dates given for the change are as reported, but it’s close so we are both nervous after a lot of careful calculations!

Investing into a SIPP (self-invested personal pension) alongside the workplace pension would give flexibility around the timing of retirement. Access to a SIPP is about 10 years prior to the state pension age.

If he is a higher rate taxpayer and likely to drop below that in retirement, the tax advantages of a SIPP would be worth thinking about. These advantages are somewhat limited if he is a basic rate tax payer with additional pensions.
In these circumstances a S&S ISA investment might be more advantageous for its greater flexibility of access.

A SIPP is great, but he currently pays 12.5% into his NHS pension so paying another couple of grand into a SIPP each year isn’t affordable for us at the moment. We have a plan but if they push the SPA higher and DH can’t access his private pension either without a reduction then it will somewhat derail our plans.
It’s completely unfair the impact on his personal scheme, I don’t have a problem increasing the SPA but they won’t give him any money back for the years he won’t get of his private pension or the extra years he will have to pay in for. The 1/54th at 12.5% was what was calculated based on the retirement age being 68.
I suspect that there will be a lot more public sector strikes over the pension changes as it’s effectively a pay cut in their salary and for the past 10 years he’s paid in thinking he will get 1/54th of the salary when he turns 68.

Do you mean the contribution is 1/54 of current salary per year ? He pays the 12.5% of his salary and is given a contribution of 1/54th every year,
and then he will get back the total of all the 1/54ths for the number of years he has worked ?
your post does not quite make sense.

We have a similar thing and have saved into a cash ISA, which we can take the money out of whenever we like, so when we have enough in there to pay a years living expenses we celebrate and plan to retire a year earlier than SPA.

You get back 1/54 for every full year of service you have, multiplied by the best salary from your last 3 years of service.

so if OPs DH had worked for 20 years they would be entitled to 20/54ths of their best salary from the last 3 years of service. If this was 50k for example, the pension would be 18.5k per year. if you chose to retire before the state pension age this is reduced as you will be receiving it for longer

He could speak to them about paying extra contributions to remove the early retirement reduction. That way, he will still be able to retire at the planned age of 68. If he starts doing that now in his 40's, it won't be 100's extra per month. Not sure how much it would cost, but it's worth him asking. He could also take partial retirement, work part time and continue paying into nhs pension.

The 2015 NHS pension is a career average scheme. So best salary of last 3 years won't apply.

He gets 1/54th of the salary for the year he has worked adjusted for inflation, it isn’t a final salary scheme. So say he earns £54k a year, he would pay an employee contribution of 12.5% - £6,750 from that salary and get £1,000 back every year in retirement after the state pension age (for him 68). If the government increase SPA to 70, he still pays in £6,750 but wouldn’t get his £1,000 a year pension until he is 70, unless he elects to take it “early” and loses 5% per year. In the scenario where the SPA is 70, retiring at 68 he’d lose 10% so he’d only get £900. There isn’t a pot you can cash in like with a defined contribution scheme.
I can’t see that it’s fair to have to pay extra contributions to top your pension up when they have moved the goal posts. If he had made AVCs to buy extra they would also be pushed back if the SPA goes up. With a DC scheme, pushing SPA back means you can’t access it until 10 years before SPA but the pot will still be the same it hasn’t reduced your pension amount/ size of pot.

Planning to "bridge the gap" will become more and more important as SPA rises.
Most do it via a private pension or ISAs / savings.
What about your pension? Do you have a DC pension that can be drained in early retirement, then rely on his DB once it kicks it?
It's all about knowing roughly how much you need / want to live on in retirement and working out a plan how to fund it over the years with varying amounts incoming.
When DC grow up and mortgage payments either end or feel smaller because of inflation, hopefully you will feel more able to build up some more pension / savings to bridge the gap. If not, and you cannot afford the early retirement reduction, you have to continue until SPA, whenever that may be.

I merged some smaller private pensions into this SIPP

Have a look at this link

https://www.pensionbee.com/uk/?rsCode=kAcgQEMhAtBk1&utm_source=saas&utm_medium=RAF

@Chewbecca we are planning to bridge the gap - with his NHS pension, he is currently saving 12.5% into his NHS pension and we can’t afford more. I am 6 years younger so don’t want to use my pension to bridge the gap for DH between when we thought he would get it and any new SPA, a widows NHS pension is only 1/3 of the pension so it could leave me in a difficult place later on.
I understand the need to push the SPA back, but I think it is completely unfair effectively reducing the private personal pension that DH has been saving for because it is linked to the SPA. If they do this they should either reduce his contribution rate as he will no longer need to save 12.5% to get the pension as the amount he will receive will be less, this would mean we could save into a SIPP, or increase the 1/54 so he cashes it in at 68 he gets the same amount.
I don’t think anyone is fully understanding where I am coming from. It’s effectively saying the pension you’ve been saving for is going to be reduced because we are increasing SPA and there is nothing you can do because thems the new rules. There is no option to choose a different type of pension with NHS, it is this DB scheme or nothing and with nothing you lose the employer contribution.

I’m in the same boat and it’s not great at all. Going to have to look at extra contributions I guess. Other consideration is buying a rental property and using that for income.

@hungryKat I understand where you're coming from. It's frustrating, but he hasn't actually been deprived of any pension benefits as such.
Here's why:
My understanding is, according to the McCloud remedy, your DH's pension is linked to the SPA only from 20215. He would have known this when the switchover came as it was widely publicised for the scheme members.

BUT: Someone at age 43 who has built up pension benefits before 2015 will still have those benefits governed by the rules of the 2008 scheme sections, including their respective retirement age. They could potentially access those benefits at age 65 (for 2008 section benefits) without reductions, even if their SPA increases to 70 and impacts the NPA for their 2015 scheme benefits. This part of the pension is protected from the rise in SPA.
In effect, the two schemes operate separately, and I believe can be accessed separately too.

Work out what he might be entitled to at 65 under the old scheme, then work out a 'bridge the gap' plan based on those numbers.

Also, if you work out the actuary reduction applied on taking the pension early of the 2015 scheme, I think you might discover you don't really lose money by doing so on average life expectancy calculations - its just the same total amount spread over a greater number of years.

Sorry about the typo ... should say 'your DH's pension is linked to the SPA only from 2015'

@freemoneyalwayswelcome unfortunately he didn’t start in the nhs until 2016, he worked for the DWP before then. I guess we will have to wait and see what happens, I can’t see him not being worse off by the pension changes, it would be better if the nhs gave you the option of a DC scheme or a DB scheme. Quite a few of his colleagues have opted out - which I think it crazy, but then if they increase the age and don’t change the contribution rate / ratio it’s an easy way to reduce the employer contribution.
I don’t think he will stay in the NHS, he’ll probably move to the private sector, the pay is a lot better and it’s just not a nice environment at the moment. It would also mean that he can pay into a different pension to tide him over even if it is only an auto enrolment pension. He should get a payrise equal to the nhs employer contribution if he moved to the private sector so he can put that in his pension.

So what about his pension from the previous job ?

it would be better if the nhs gave you the option of a DC scheme or a DB scheme

This is incredibly naive!

The amount of return you get for public sector pension contributions far exceeds what you would achieve contributing 12.5% to a private DC scheme. You would be cutting off your nose to spite your face wishing your DB pension (with its guaranteed increased fir life) away.

You don't mention your own pension at all? (A couple with one DB and one DC pension makes a great combination).

If he carries on paying in until he's 70, he'll have a bigger pension than at 68. I understand it's not what you planned, or what you want, but I can't see how he is getting less.

Re a choice of schemes, having gone through a TPS dispute in the independent sector, be careful what you wish for.