Why buying “added years” was so beneficial for doctors and dentists compared to FSAVC plans

Many of my clients were advised to save extra for their retirement with an FSAVC (which stands for Free-standing Additional Voluntary Contribution) Pension Plan. The vast majority, however, would have been better advised to buy “added years” in the NHS Pension Scheme itself. Here’s why “added years” would have been such a better choice.

In the UK, the National Health Service (NHS) Pension Scheme offers a defined benefit pension plan to eligible members, including doctors and dentists. “Added years” is a concept within the NHS Pension Scheme that allows members to purchase additional years of pensionable service. This can be a valuable option for doctors and dentists, as it can enhance their retirement benefits in several ways:

Increased Pension Income: Buying added years allows you to increase the number of years of pensionable service used to calculate your pension benefits. Since the NHS Pension Scheme is a defined benefit scheme, the amount of pension income you receive is based on a formula that considers your pensionable earnings and the length of your pensionable service. By adding more years to your service, you can potentially increase your annual pension income.

Early Retirement: Purchasing added years can enable you to retire earlier with an unreduced pension. The standard retirement age for the NHS Pension Scheme is typically 60, but some doctors and dentists may want to retire earlier. Adding extra years to your service can help you achieve this without a significant reduction in your pension benefits.

Retirement Planning Flexibility: Added years provide flexibility in retirement planning. You can choose to buy added years at different stages of your career, depending on your financial situation and long-term goals. This flexibility allows you to adjust your pension benefits to suit your individual needs.

Tax Efficiency: In some cases, contributions made to purchase added years may be tax-deductible. This can provide tax benefits to doctors and dentists, making the added years option even more attractive.

Protecting Loved Ones: The NHS Pension Scheme also includes survivor benefits. By increasing your pensionable service through added years, you can potentially enhance the financial security of your beneficiaries in the event of your death, ensuring they receive a higher pension or lump sum.

It’s important to note that the value of buying added years in the NHS Pension Scheme will depend on your specific circumstances, such as your current pensionable service, your earnings, your financial situation, and your retirement goals. Doctors and dentists should seek advice from a qualified financial advisor or the NHS Pension Scheme administrators to understand the cost and benefits of purchasing added years in their particular situation.