NHS ERRBO Calculator

ERRBO lets you pay extra now so that some of your 2015 Scheme pension can be taken earlier without the usual actuarial reduction. This works out what that costs you over the life of the agreement, what it buys you a year in retirement, how long you have to live to come out ahead, and how it compares with simply investing the same money instead.

It also models the trap: retire earlier than the age you bought and you pay for the agreement and take a reduction anyway. For the scheme rules, the deadlines and what happens if you need to stop paying, read the ERRBO guide.

• The cost rate is looked up, not estimated. It comes from NHSBSA’s published table, by your age at the 31 March before the agreement starts and the number of years you are buying. Once set it is fixed, and you pay it as a percentage of pensionable pay every scheme year until you retire.
• You can buy one, two or three years, and never below 65. With a normal pension age of 68 the most you can buy is 3 years; with a normal pension age of 67 it would be two. The tool blanks out combinations the scheme does not sell rather than pricing something you cannot have.
• The benefit is the reduction avoided. Claiming 3 years early normally leaves you 85.5% of your pension, so the agreement is worth the 14.5% it removes — applied to the pension you accrue while the agreement is running, not to benefits you already held.
• Cost is net of tax relief. Contributions attract relief at your marginal rate, so the tool works from the after-tax cost. Everything is in real terms, above inflation, so no forecast of it is needed.
• Break-even is a date, not a ratio. Net cost divided by the annual benefit gives the number of years of pension needed to recover it, added to your retirement age. That is the age you have to reach for the agreement to have paid for itself.
• The alternative is priced too. The same contributions invested instead build a bridging pot, shown both as an income spread evenly across the years you were trying to bridge and as a 4% withdrawal you could take indefinitely.

NHSBSA’s own published scenario, which this engine reproduces: a GP aged 35 with a normal pension age of 68, £70,000 of pensionable pay, buying 3 years to retire at 65. The cost rate is 5.01% of pay, payable for 30 years.

• Cost: £121,991 of contributions over the agreement, or £73,194 after 40% tax relief.
• Benefit: the agreement protects £56,638 a year of pension from a 14.5% reduction, worth £8,212 a year for life.
• Break-even: 8.9 years of retirement, so age 73.9. Live to 88 and the agreement is £115,692 ahead.
• The alternative: those same contributions invested at 4.5% above inflation reach £251,037. Note what that produces — a 4% withdrawal is £10,041 a year, which is more than the £8,212 the ERRBO buys, and the capital remains yours.

That last line is the comparison the tool exists to make, and it does not settle the question: the ERRBO benefit is guaranteed and index-linked for as long as you live, while the pot depends on returns that may not arrive and can be exhausted. But it does mean the agreement is not obviously good value, which is the opposite of how it is usually presented.

Now the trap. Suppose you retire at 62 rather than the 65 you bought. The reduction is measured from your ERRBO age instead of your normal pension age, so you retain 85.5% rather than 74.3% — better, but you are still losing £7,120 a year to a reduction you paid £64,853 to avoid. The agreement is worth £5,499 a year in that scenario, and would not break even until age 73.8.

Arithmetic on the assumptions you enter. It never recommends a course of action, and this is not financial advice. What it leaves out:

• An uninterrupted agreement. It assumes you keep paying at the same rate on steadily growing pay until the ERRBO age. In practice pay moves in steps, and stopping the agreement is only permitted in limited circumstances — with consequences for restarting it. The guide covers that.
• The application deadline and paperwork. Agreements run from the start of a scheme year and the application deadline sits well before it, so a decision taken late costs a year. Deadlines, the forms and where they go are in the ERRBO guide.
• Tax-allowance interactions. Relief is applied at the flat marginal rate you enter. The way ERRBO contributions are treated for the annual allowance is a separate question covered in the guide, and your overall position is worth checking with the annual allowance calculator.
• Ill health, death and leaving the scheme. Ill-health retirement pays unreduced regardless, which makes the agreement worth nothing in that scenario and the contributions are not refunded. Death benefits and the effect of opting out are not modelled.
• Legacy service, McCloud and fractional pension ages.Only 2015 Scheme accrual is modelled, at a whole-year normal pension age. Benefits in the 1995 or 2008 sections are untouched by an ERRBO — see the McCloud remedy guide.
• Longevity is a guess. The whole case turns on how long you live, and the life expectancy you type in is the single most influential number on the page. Move it and watch the answer move.