Retire on full benefits before your State Pension age by buying out the early retirement reduction factor
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- Early Retirement Buyout Reduction
If you’re a member of the NHS Pension Scheme (Scotland) 2015, you can take your benefits in full when you reach your State Pension age.
You can, of course, retire before you reach State Pension age but if you do, your pension will be reduced for early payment.
However, if you plan to retire after your 65th birthday but before your State Pension age, you can elect to pay extra contributions that reduce, or remove, this reduction.
To benefit from the early retirement reduction buyout, you must still be paying into the scheme when you retire and your State Pension age must be over 65.
For example, if you have a normal pension age of 68 you could buy out the reduction for three years and retire at 65. Alternatively, you could buy one year or two years and retire at 67 or 66 respectively.
Early retirement reduction buyout elections must be made within three months of joining the NHS 2015 scheme for it to be effective from your first year within the scheme. If you don't apply within your first three months of joining the scheme, your application will only be effective from the beginning of the following financial year as highlighted in the examples below.
Member joined 2015 scheme on 1 April 2015 (2015/16 year)
Scenario 1: Provided an early retirement reduction buyout application was submitted by 30 June 2015 the agreement would be backdated and effective from the beginning of the 2015/16 scheme year on 1 April 2015, and their employer would collect the arrears for their additional contributions.
Scenario 2: If the application was not submitted until September, the early retirement reduction buyout would only be effective from the start of the next scheme year (2016/17) beginning 1 April 2016 with additional contributions collected from this date.
Please note, you don't have to elect to purchase an early retirement reduction buyout within your first year - you may choose to do this at the start of a subsequent financial year.
How much will it cost?
The cost of an early retirement reduction buyout depends on your age in complete years at the day before the effective date of the arrangement and the number of years’ reduction covered by the arrangement. The effective date is your age at 31 March immediately before the intended start date of the agreement.
The contributions are payable in addition to your normal tiered contributions and on all your pensionable earnings. For example, if you have more than one employment contract you must pay the extra contributions on each contract up to your retirement date.
Important: If you change employment you must notify your employer with details of the extra contributions you are paying for the early retirement reduction buyout in order for it to continue.
A 35 year old member joins the NHS 2015 scheme with a normal pension age of 68 and enters into an agreement to buy out the maximum three years allowed immediately upon joining the scheme.
They’ll pay the additional contributions until age 65 when they can retire and claim their pension in full, three years before the scheme’s normal pension age.
In this case, the member will have paid extra contributions totalling 3.9% of pay before tax relief*, in addition to their normal tiered contributions for 30 years allowing them to claim their 2015 scheme benefits without reduction three years before their normal pension age.
*Early retirement reduction buyout contributions do not count towards the annual limit of tax relief on pension contributions, although high earners may need to consider the overall limit for Annual Allowance.
How to apply
Complete the ERRBO Quotation form to find out if you’re eligible to enter into a buyout agreement and to confirm the rate of the additional contributions you would pay. If you want to go ahead with the agreement, you’ll need to sign and return the form.
Once your election has been confirmed, your employer will be instructed to deduct the additional contributions from the effective date.
Revoking a buyout election
You can revoke your buyout election at any time by informing SPPA in writing. If you cancel your buyout election, you'll be credited with a proportion of your buyout based on the contributions you've made.