Understanding NHS Pension Schemes and Their Valuations

This week we devote an episode of the MMQ&A to pensions of all flavours, answering questions on public sector schemes, partial transfers, fund choices and much more!

Shownotes: https://meaningfulmoney.tv/QA12 

00:52  Question 1 Hi Chaps! I only recently got into podcasts and am frantically trying to listen to as many pension ones as I can. Yours are the most useful I’ve come across and now I can’t stop listening to them all!

A small question I hope you can clarify for me please: I am 48 and a few years away from possibly an early retirement (hopefully 58) but trying to plan ahead. I have both a DB pension through work (NHS) and a personal Vanguard SIPP pension I also add to monthly and am of the understanding that you can take 25% tax free (up to the set limit) from your pensions overall and therefore my question is- could I take all the 25% tax free amount from my SIPP and leave the rest of my SIPP and all my DB pension pot to pay me a pension from.

In example (arbitrary figures): my DB and SIPP are each worth £100000, totalling £200000. Therefore, under current rules, could I take £50000 tax free from the SIPP (the overall 25%) and the other £100000 in DB and £50000 left in my SIPP to pay me a pension monthly. Or is this not possible at all as they are different schemes, ie DB and DC?

Many thanks Jon, from Norfolk  

05:30  Question 2 Hi Guys, Firstly, a massive thank you for all the information you provide, it really has completely transformed my personal finances. I still have a long way to go until retirement (I've just turned 30) but thanks to you, I'm confident it won't have to be the state pension age!

My question is – I work in Local Government and, whilst the salary is distinctly average (37k) it does come with the benefit of a DB pension scheme. I'm now considering making some additional contributions but there are two options available and I'm struggling to find any useful information online…

– Make AVCs into what I understand to be a separate pension scheme more akin to a DC pension – Make APCs whereby I effectively buy more DB pension. It works out at approx an additional £10 guaranteed yearly income for every £80 (£100 if including tax relief) I contribute. In my head, this sounds good as long as I make it 10 years into retirement!

Is there an obvious answer to this question? Only obvious downside to the DB option is, if I were to pass away before retirement, the additional pension is effectively lost and not paid to my next of kin! But then again, I don't intend to go anywhere anytime soon!

Any thoughts appreciated and thanks again! Jack  

12:03  Question 3 I have a question relating to the upcoming change in minimum pension age and how it affects those of us in the 55 bracket before the 6 April 2028 change.  I don’t know if there is any clarity from government yet but if I am 55 in September 2027 and take a PCLS 25% tax free from an AVC DC running alongside my DB pension scheme, then want to retire fully and start taking the DB in September 2028 when I am 56 is that possible? There seems to be a grey area about what happens after the April 2028 cut off to those of us in this age range. It doesn’t even appear clear if someone taking early retirement at 55 would then stop being eligible for monthly payments after April 2028 until they were 57. So they think they have retired fully, then when April comes around their payments stop! Appreciate that sounds a dramatic scenario but I haven’t been able to find anything comprehensive on it so hope you can help.

I also have a question on DBs with AVCs which might be useful for others. If I have a DB pension valued at £300k and saved £75k in AVCs over the years, can I take the full £75k at 55/57 without it a) affecting the DB monthly amount which can be taken from age 60 in my case, and b) without it being classed as a pension event, so I can continue to contribute over £10k a year into a DC scheme as I plan to continue working until 60.

Appreciate they are specific to me but thought there must be others in a similar position.

Sorry for more long questions.

Thanks for all the great podcasts, look forward to the next. Thanks, Don

19:34  Question 4 Hi Pete! Hi Rog! I've been a long time listener to your dulcet tones and concise advise for a long time and love what you guys do, so please keep doing it!

Another pension Question I'm afraid!

A while ago I consolidated a few old workplace pensions in to a SIPP, but I still have my current workplace DC pension ticking away. Its not great, being the bare legal minimum (2.5% contribution from my employer) and the fees seem higher than they should be.

If I close that pension and transfer to my better performing and cheaper SIPP, I effectively opt-out of the employer contributions scheme.

My question is what should I do to be most efficient with my pensions to ensure I am getting the benefit of employer contributions without paying over the odds for an underperforming scheme?

I'm 34, and (thanks in no small part to you) feel somewhat on top of my finances. We have an almost balanced budget, regular savings (both short and longer term) in tax efficient wrappers and only a smidge of interest free debt all under control. My SIPP is knocking on for £50k, my DC around £18k.

Thanks again Tom

26:49  Question 5 Hi guys Thank you for the advice from your book, podcasts and videos. They encouraged me be brave enough to open a Stocks and Shares ISA, to begin my investing journey. They also encouraged me consider income protection, which I now have.

My question is about Additional Voluntary Contributions, compared with a SIPP. I am fortunate to be part a Local Government, Defined Benefit Scheme. I would like to contribute more to my retirement savings, each month a third into a pension and two thirds into a S&S ISA. My pension gives me the option of buying additional pension, however the rates are not very competitive.

I make AVC to a third party provider. I have also started a SIPP. This has lower fees and better customer service, then the AVC provider. Something I can't quite understand.

What are the benefits of making a AVC, which deducts my contribution pre-tax compared with making a contribution to a SIPP and claiming the tax back? I am a higher rate tax payer. My employer does not offer employer match or salary sacrifice.

Thanks for all the help. Rob

29:45  Question 6 Hi question for your podcast if you’d be so kind. My question is about salary sacrifice and its effect on relevant earnings for the annual allowance. I’ll use some figures to illustrate and for simplicity assume tax relief and employer’s contributions are included in the amounts going into the scheme. I have my employers scheme and a separate SIPP. My income comes from employment and rents from property. I generally put anything I can from the property into the SIPP and sacrifice as much as I can into AVCs in my company pension to benefit from Sal sac. Scenario; my salary before tax is £60000. If I where to sacrifice £500 per month under and electric car scheme and £1500 per month into my pension (combination of pension contributions and AVCs) that would be a total of 24000 sacrificed from 60000 leaving me with a pre tax wage of £36000 and £18000 in my pension pot for the year. My question is what is now left of my annual allowance. Are my relevant earnings now only £36000 and therefore the £18000 already sacrificed come off the £36000 or do I have the £36000 left? Or something else? What would be the amount of money that I could put into my SIPP from my income from property and not break the annual allowance. I hope this makes sense. For ease assume previous years are full in respect to carry forward. Thank you both! Love the podcast! John.

32:30  Question 7 Love the show. Listen whenever I get a chance. I know you’ve covered investments, savings, pensions etc, but I’m after some advice. To keep it short as requested last week, I’ve been a public sector worker for 10 years now and have not paid into a pension scheme due to personal financial issues. I got promoted 3 years ago and am now in a much better financial position. I have still got 25 years service until I can retire, but am concerned I’ve missed out on a a large contribution for the pension scheme. Would I be better opting into the pension or looking at other alternative such as S&S index, ISA, etc?

I do intend to promote a few more times before retirement so pension contributions/investments will increase with income.

Looking forward to your advice.

Regards, Raph