No matter how much you enjoy your work, it’s impossible not to think about what your life will look like when you retire. If you’re like most of the population, you might even be wondering what it would take to reduce your retirement age and enjoy it sooner. Here are steps you can take to get there.
This does not constitute advice and advice should be sought in all instances before acting on it.
As an NHS worker, you should be actively thinking and planning for retirement. Start as early as possible so you can live the lifestyle you want after you’re done working.
How to reduce your retirement age
The first thing you need to do is identify which version of the NHS pension scheme you’re a member of. This will let you know what your normal retirement age (NRA) is and the rules for retirement.
- If you’re a member of the 2008 section, your NRA is 65
- If you’re a member of the 2015 version, your retirement benefits will be reduced if you choose to draw from your pension before your state pension age
- If you’re a member of the 1995 section, your NRA is 60 (55 for special classes) and the earliest you can draw from your pension is 50 but you will be penalised for doing so before your NRA
- As a general rule, deduct 5% for each year you take benefits early
This might seem like bad news if you wish to retire early, but there is a way to mitigate some of the consequences of early retirement.
Avoid a penalty with an ERRBO agreement
An Early Retirement Reduction Buy Out (ERRBO) agreement is a way for members of the 2015 Scheme only to buy themselves into early retirement.
With an ERRBO agreement, you or your employer will add supplemental contributions to your pension fund that will enable you to retire up to three years before the normal NHS pension age. You’re essentially buying out the reductions that would have applied to your pension benefits if you chose to retire earlier than your state pension age.
Of course, in an effort to reduce penalties for early retirement, you’ll need to be prepared to spend a little in return.
How much it will cost depends on your age on the 1st April of the year that the ERRBO agreement began and how many years reduction you are buying out. Your additional contributions will be a percentage of your salary per year purchased.
Is it worth the money?
That depends. If you value being able to retire one, two, or even three years ahead of time, then it’s absolutely worth the cost. You can offset the cost in other ways if you’re concerned about the money. You could use your full ISA allowance every year or even contribute to a personal pension – but be wary of the tax implications associated with breaching your allowance threshold.
Here to help
If you’re struggling to work out whether or not it’s possible for you to reduce your retirement age, I’m here to help. For years, I’ve provided pension advice to many NHS doctors and dentists and helped them achieve their retirement goals. Get in touch today.
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