Q. I would like your opinion on the NHS superannuation scheme. I appreciate any answer would have to be in general terms. I am 43 and have paid into the NHS scheme for 20 years. I wrote to the Fleetwood office to get an estimate of accrued benefit and this is £19400 and lump sum £58000. I assume that this is index linked and will continue to grow even if I make no further contributions.
I am moving to private practice and will have a small kids and exempt contract that may well disappear in 18 months. Is my pension safe?
My questions are, am I right to leave the NHS fund (mythical fund I know) where it is and set up a suitable personal pension for future pension payments? Would you generally advise dentists to go the SIPP route where I can choose good performing funds to go in it and accept the high charges or go for an off the shelf Stakeholder pension with questionable fund choice but lower charges?
I am sure lots of dentists are facing this problem as the government seems to be determined to force as many as possible out of the NHS.
A. Thanks for the question.
Firstly, the NHS pension you have WILL increase with inflation (RPI) between now and when you take the benefits. Whilst you have the kids contract the pension actually increases at a slightly higher rate than RPI (marginally), assuming you continue to pay into the Pension Scheme. Your pension is effectively underwritten by the Government so it’s as safe as you continue to believe they will deliver on their promise. My advice is to leave the NHS pension where it is.
As for where to invest in the future you have choices. Whilst pension contributions attract tax relief, 75% of the accrued fund must be converted to income and is taxable at your rate of tax at the time. Non-pension investments such as ISAs etc will not get the tax relief but you can access 100% of the money in the future.
With regards the SIPP, I only recommend this if a client’s planning to use it to fund a property purchase (and you don’t have to choose a SIPP to access a wide selection of funds). If they are not (and a pension IS the right option for them), I recommend they invest in the pension only after we have determined how much risk they should be taking.
Getting the asset allocation (the % split between bonds, shares, property and cash) right is crucial as research shows that 70-90% of portfolio returns is down to this factor alone.
To achieve this we use low cost asset class institutional investment funds, not actively managed funds. Most new clients I deal with have not heard of this way of investing as you will only hear about it through a few advisers in the UK. You’d be surprised at the actual charges that active fund managers charge (there are hidden charges that many investors are not aware of).
I hope this helps!