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Pension top-up

Q: I am a GP aged 48 and I have an NHS Pension Scheme (NHSPS) added years contract, which runs until I am 60. I want to make more financial provision for my retirement and understand I can buy an additional pension in the NHSPS. What is the additional pension, are there any major snags with it and what should I take into consideration before making a purchase?

A: NHS additional pension (AP) offers members an additional fixed pension of up to £5,000 gross a year in today's money at age 60 or 65.

For example, assume a GP will be retiring at age 60 from the 1995 scheme section of the NHSPS, with a main pension and added years pension totalling £50,000 gross as well as an automatic tax-free lump sum of £150,000, and the GP had also purchased AP of £5,000 gross per year.

The GP's total benefits would be a pension of £55,000 gross annually and an automatic lump sum of £150,000.

AP does not include an automatic lump sum but, subject to HM Revenue & Customs (HMRC) limits, GPs can give up some of their pension at retirement to increase their tax-free lump sum entitlement.

AP benefits, which are inflation-linked, must be taken at the same time as the main scheme benefits. You can buy AP in multiples of £250 annual pension via regular instalments and/or lump sum payments.

The costs increase with age.

There is a calculator on the pensions section of the NHS Business Services Authority website (www.nhsbsa.nhs.uk/pensions), where you can obtain personalised AP quotes.

AP contributions will benefit from tax relief at your highest marginal rate, but GPs with income above £130,000 a year should take care as they may be caught by HMRC's 'anti-forestalling' provisions - ask your financial adviser to explain.

NHSPS members also need to consider whether they are likely to be affected by the reduction from 6 April 2011 in both the annual (contributions) allowance and the lifetime (value of benefits) allowance.

Given the potentially complex tax implications, GPs considering buying AP should get expert advice before buying.

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