NHS Pension Scheme – Top Up Options

NHS-Pension-AgencyA prudent way of saving for retirement can be to take advantage of the tax benefits by investing into pension plans in addition to the NHS Pension Scheme.

The main top up options are:

Buy Back Additional Pension

This can be bought in units of £250 annual pension, up to a permitted maximum of £5,000 annual pension. The amount purchased will be index linked to protect it against inflation.

In house Additional Voluntary Contribution

This is a savings/investment arrangement designed to help you to build up a pot of money to provide an additional pension and/or lump sum for your retirement and is subject to the NHS Pension Scheme (Additional Voluntary Contributions) rules.

Personal Pension Plan

This is also a savings/investment arrangement designed to help you build up a pot of money to provide an additional pension and/or lump sum for your retirement. However it is NOT subject to the NHS Pension Scheme rules.

Why you should top up?

The Government sets a lifetime allowance limit for the amount of retirement provision an individual makes. The lifetime allowance is now £1.25m, it was previously £1.5m. This means that to avoid any large tax charges, a total retirement fund (including the NHS Occupational Scheme, Additional Voluntary Contributions (AVCs) or any personal pensions) cannot total more than £1.25m. In reality however, the majority of individuals’ total retirement funds will fall FAR short of this because they have not taken advantage of their allowance

Each individual currently has an allowance from which they can benefit from certain tax advantages such as a tax free lump sum and tax relievable contributions. It is more than likely that even a senior consultant will not take full advantage of it without investing into a private scheme as well. This means there is an opportunity to maximise a retirement fund.

Personal pensions can provide a top up to earned income should you wish to reduce working hours at age 55 as there will be no reduction applied to your pension income taken from your personal pension.

Contributing into a scheme outside of the NHS Pension Scheme will allow you to make the most of your lifetime allowance and help to build a fund that can offer the opportunity to maximise your retirement planning.

It is much greater value for money if you start early as the later you begin, the greater the cost of delay as illustrated in the following table.


Monthly contribution

Total contributions

Cost of delay

















*Assuming one invests in a pension plan to age 65, at an estimated return of 7% per annum and has achieved a fund value of £444,000. Data derived from O&M Systems Pension Profiler on 27th January 2014

Tax Benefits

The benefits of using personal pensions to maximize your retirement planning is evident, however on top of that the government provides further incentives to individuals saving in a pension plan.

An individual who is a higher rate taxpayer and wishes to achieve £100 per month into a personal pension would do so in the following way:

  • Initial contribution of £80 to the pension company
  • The Pension provider takes £20 from HMRC which is a refund of basic rate tax assumed to have been paid on £100 when it was earnt.
  • Inform HMRC via annual Self-Assessment that £100 gross was contributed into a personal pension scheme.
  • HMRC credits the individual with a further £20 by way of a reduction to Income Tax

Therefore this individual has contributed only £60 to achieve a pension investment of £100. This is equivalent to a 66% growth in investment.