NHS Pension Benefits - Should You Increase Them?

One of the recurring themes we deal with as financialpension
planners is the subject of buying more NHS Pension- Abatement of pension on returning to work and
benefits.part time work whilst taking pension benefits
This is now worth a revisit as the situation is- Higher earners paying more towards their pension -
probably changing again! For the punch drunkso 6% now could go to 8.5% for example, although
amongst you, we will try to keep this as painless aslikely to be tiered
possible.- Earnings cap to disappear for high earners so more
To be serious for a moment though, these decisionsof your pay is pensionable
are often fundamental to your future standard of- A new facility to be able to "buy" up to
living and comfort in retirement, as well as the£5,000 per annum unrelated to service history
options to semi retire or retire earlier, so it's worth- The scrapping of the 40 years maximum service
taking the time to ensure you are making the rightrule!
decisions.As if this is not enough, we must remember the new
Traditionally it has always been agreed that the basicPension A Day rules that came into force in April.
NHS Pension Scheme is unbeatable, and that is stillThese give new rules on contributions and benefits,
the case. However, what about 'making up' for lostand introduced a new Lifetime Allowance of £1.5
benefits or attaining the 'magic 40 years service'?million in today's terms. If you build up a larger pot
What is the best way in which you can do this?there may be a tax penalty chargeable.
Well, the choices to date have been:Let's take a deep breath and see where this takes
Added Yearsus.
Here, for a percentage of your pay, you can buySummary
extra years service. For many, this is a good routeAren't we all pleased that the 'pension simplification'
as:rules and proposed NHS Pension changes have made
-They are guaranteed defined benefits and so riskit so much easier for you doctors and dentists to
freemake an informed decision?
-For married people they enhance your protection forNo? You cynical lot!
life and illness cover as wellAs we can see it is even more complex than ever,
But some would argue:and echoing the do nothing of above, we would
-They are inflexible as once started you areshare two things for now:
committed to them1. If after discussing your circumstances with
-Seen as "expensive" by some (typically 4-9% ofyourself, a planner or significant other, you do decide
your pay)to buy more pension, the added years route or
Additional Voluntary Contributionssimilar looks more attractive.
These are "in house" with the NHS (Standard Life,Why?
Equitable Life and Prudential) or you can buy them asWell, the ability to take more tax free cash will be
"Free Standing" policies with an insurance company oflooked upon favourably by most, and therefore
your choice.boosting benefits here would "add to your basic pot"
Advocates of such schemes would say:and mean more tax free cash.
-They are flexible as to what you contribute2. Do nothing - for many of our clients in their 50's
-Have the potential for growth over added years ifthis is the case. Once we have analysed their cash
the stock markets performflow projection based on their wealth built up over
But equally:the years and measured against their goals, time
-Since they are investment based there are noafter time if they have 35 years service plus, their
guaranteesmodel shows they will be fine presuming they have
Do Nothingsome investments and debt has been handled well.
This may be due to confusion, "I can't afford it" orSo there is a real danger that money could be
sheer apathy.'wasted' by investing in more pension.
However, it may be the "best" option for you,There are many alternatives available, including
especially if you are in your 50's.investing in ISAs, giving to the children or simply
The new proposed NHS Pension changes (ifspending more themselves.
approved) will come into effect in 2008, and will haveThe Financial Tips Bottom Line
a huge impact on a scheme largely unchanged sinceChoosing the right options for your pension planning is
1948.about to become (in 2008) even more complex.
You can read more at:Take your time with any decisions you make and
For brevity these changes include:don't be afraid to ask for expert advice as getting
- Ability to take more tax free cash from yourthis wrong could cost you dearly.