Imagine being able to retire and enjoy your family and hard-earned lifestyle up to three years before your mandated state pension age. If you’re an NHS doctor or dentist enrolled in the 2015 NHS pension scheme, that dream is attainable.
This does not constitute advice and advice should be sought in all instances before acting on it.
Normally, you need to wait until you are 67 or 68 years old to retire, but as a member of this programme, you have the choice to initiate the Early Retirement Reduction Buy Out (ERRBO) agreement so you can retire as early as 65 years old.
A retirement strategy employing an ERRBO as well as a private pension is an easy way to retire sooner, with more money to take you into your golden years.
What is an ERRBO?
With an ERRBO agreement, you (or your employer) pay in extra money to your pension so you can reduce or even eliminate the reductions you’d usually be subject to if you retired before your state pension age. If you don’t use the ERRBO agreement, don’t worry, early retirement is still an option, but reductions to your pension benefits will be administered.
When to apply
It’s easy to apply for an ERRBO agreement on the NHS website. You only have to apply once since your enrolment renews automatically each year until the end of the agreement. If you’d like the agreement to take effect from the first year you are a member of the 2015 NHS pension scheme, you must make the agreement within the first 3 months.
After that, you must make the agreement in the first 3 months of any year thereafter, with a scheme year commencing 1 April. If you don’t apply within this timeframe, the agreement goes into effect the following scheme year instead.
Cost implications
How much the additional contributions will cost you depends on two factors: your age on 1 April the year you enter into the ERRBO agreement, and how many years reduction you want to purchase.
The contributions are paid on top of your regular payments and the rate is a percentage of your salary for each year you are buying out, ranging from 1.16% to 4.86. It’s important to remember that if you are planning to buy or have already bought an additional pension, your contributions are limited due to the additional benefits limit.
Too good to be true?
The ERRBO is a great option for NHS doctors and dentists to aim for an earlier retirement, but there are a few conditions:
- Early retirement due to health: the agreement becomes null and void in this case and unfortunately, you won’t be able to get back any additional contributions you have already made. On the upside, you can withdraw your pension early without reduction.
- Suspension: If you experience a hardship, you are allowed to suspend the agreement for up to 1 year. But if you do not re-establish contributions during that time then the agreement is canceled.
- Termination: This can be done at any time. If within the first year, you will be compensated for your contributions and the ERRBO is cancelled. You’ll still get repaid if you terminate after the first year and your buyout period limited to the end of the prior scheme year.
- Earlier retirement: You will face fines that will dwindle your pension benefits if you retire before your ERRBO retirement age – anywhere from 6%-45%. What age you retire and how much time is left on your agreement all factor into the penalty.
Benefits of a Private Pension
Employing an ERRBO is only one way to ensure you can retire early with enough money to last as long as you need it.
Another option is to pay into a private pension in addition to your NHS pension fund because it’s important to plan for the savings gap many face when they just rely on their NHS pension.
There are so many choices available to you, so working with an expert financial adviser will ensure you select the best option for your retirement goals.
With life expectancy increasing each year, the need for a pension that allows you to live the life you have worked so hard for, is even greater.
And with options like ERRBO and private pensions, there’s no reason why you can’t enjoy a few more years of retirement.
It might seem daunting or too far off to worry about planning for retirement, but our job is to make sure you come out of the retirement planning process armed with knowledge about how to achieve your goals.
Discuss your retirement plan with a specialist
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