How to make the most of your retirement savings

Introduction

A 'strong' retirement fund looks different for everyone. How much you’ll need will depend on your plans for retirement (we have a handy guide to help you out).

Whether you have ten or five years until the day you say goodbye to your patients, there’s still ample time to boost your savings, grow your pension and invest your current income.

Saving your way

There’s no straight path to building a retirement fund. Where you save and how much will depend on your role, your income and your money mindset.

For example, you could be opted into the NHS Pension Scheme (NHSPS). With its attractive benefits, it’s a smart way to save. But if you have extra cash sitting in your bank account, you may also want to open a personal pension or put some of it in an ISA.

If you solely undertake private work or run your own business, your options may look a little different. If you’ve contributed to the NHSPS before going private, you’ll have protected benefits that you’ll receive when you retire.

Outside of those benefits, it’s likely that a personal pension, such as a Self Invested Personal Pension (SIPP), will form a large part of your retirement fund. You may then choose to top this up with other investments or even a limited company pension set up through your company.

NHS Pension

If you’re a member of the NHS Pension Scheme, how much you receive on retirement will depend on a few factors, including your time in the scheme, your pensionable earnings throughout your career (and over the last 3-10 years if you’re in the Officer Scheme) and any opted out periods.

Your Total Reward Statement (TRS) will give you an annual update on your pensionable service and benefits. If you’ve changed roles throughout your career, you can request a service extract. This outlines each membership year in the scheme and pensionable earnings throughout. It’s often worth checking to make sure it accurately reflects your work history.

If you’re part of the 2015 scheme (all active members moved into it from 1st April 2022) you can buy additional pension in multiples of £250 up to a maximum of £9,053. The NHS website has a handy calculator to help you get started.

You can also make Additional Voluntary Contributions (AVCs) through a scheme-arranged provider. Your money will be invested and can be used to supplement your main scheme benefits.

If you’re thinking of retiring early and are part of the 2015 scheme, you may want to consider Early Retirement Reduction Buy Out (ERRBO). This allows you to make extra contributions to retire up to three years before your Normal Pension Age (NPA) but no earlier than age 65.

As with any financial decision, speaking with a Specialist Financial Adviser from Wesleyan Financial Services will give you an objective look at your options and potential outcomes.

Takeaway

• An attractive savings option for NHS workers
• Contributions are fixed but employer contributions are generous at 23.7%
• You may be able to buy additional pension and additional voluntary contributions
• ERRBO allows you to retire three years early without your pension being reduced

Personal pension/SIPP

Starting a personal pension gives you the flexibility to contribute as much or as little as you like. 

You can contribute up to 100% of your earnings, up to £60,000 per year. If you have a limited company, you can pay in up to the maximum as employer contributions, regardless of earnings. You can also carry forward any unused allowances from the past three tax years. If you’re a higher rate or additional rate taxpayer (40/45%), you may be able to claim an additional 20/25% tax relief from HM Revenue and Customs (HMRC).

With a personal pension, your money can be put into investment funds of varying risk levels, depending on your attitude to risk (the higher the risk, the higher the potential for reward). As with all investments, how much you get back will depend on how much you pay in, how long you leave your money invested and how your investments perform.

You may choose to opt for a SIPP. It offers a wider range of investment types, but it’s typically up to you to manage and review your pension investment.

When it’s time to retire, you’ll receive a set fund value or ‘pot’ to spend how you like. You can choose to take this as an annuity (guaranteed income), in lump sums or as a flexible pension income.

Takeaway

• Save in monthly, quarterly, half yearly or lump sum payments
• Ready-made or choose your own investment funds
• Offers tax relief for the self employed

Please remember the value of investments can go down as well as up and you may get back less than you invest.

ISAs and investments

You get an annual ISA allowance of £20,000. If you’re under the age of 65, it’s worth noting that you’ll only be able to contribute a maximum of £12,000 into a cash ISA from April 2027. The remainder of your allowance can be used towards a stocks and shares ISA or alternative. With your ISA allowance there’s no carry over into the next tax year, so it really is a case of use it or lose it.

If you’re thinking of investing, you’ll need to factor in when you realistically need your money back. Typically, the longer you invest, the more time you can ride out market highs and lows. We’d suggest a minimum five-year term. But if a longer investment term means you’ll be without much needed retirement income, it may not always be worth the potential reward.

If you’re a seasoned investor you may want to manage your own portfolio. Those new to investing should seek advice to understand the potential risks and rewards.

Takeaway

• Tax-free growth and withdrawals on ISAs
• No access restrictions on ISAs
• Can be used to bridge the pension gap (if you retire before your pension age)
• Investments bring greater reward potential, but you can get back less than you invest

Please remember the value of investments can go down as well as up and you may get back less than you invest.

Clearing debt and future costs

Starting retirement with a clean slate will put you in the best financial position.

If you’re still paying towards a mortgage, consider paying it off before your intended retirement date. You may have other expenses to consider, now or in the future, such as education costs for your grandchildren.

Looking beyond your current financial situation is key for successful retirement planning.

Specialist advice

Lastly, when it comes to making smarter financial decisions, receiving specialist advice can make a real difference. A Specialist Financial Adviser trained in your profession can:

• Create a tailored plan to help you build your retirement fund
• Advise you on your available allowances, tax relief options and ways to save strategically
• Help you make the most of the NHS Pension Scheme

At Wesleyan Financial Services, we’re recognised by the NHS to give guidance to scheme members. Whether you’re looking to make the most of the scheme or form a plan to boost your retirement savings, we can help. Charges may apply.