ERRBO Explained: Buying Out Early Retirement Reductions in the 2015 NHS Pension Scheme
If you are a member of the 2015 NHS Pension Scheme, you may have heard of ERRBO — the Early Retirement Reduction Buy Out.
It is one of the options available to NHS pension members who want to take their 2015 pension earlier than their normal pension age, without facing the full early retirement reduction.
For many NHS professionals, especially doctors, consultants, nurses and senior staff, ERRBO can be an important part of retirement planning. But it is not always easy to understand whether it is worthwhile.
This guide explains what ERRBO is, how it is calculated, what it could mean for your retirement income, and how Your NHS Pension can help you understand what an ERRBO arrangement may look like for you.
What is ERRBO?
ERRBO stands for Early Retirement Reduction Buy Out.
It is available in the 2015 NHS Pension Scheme and allows you to pay extra pension contributions to reduce, or remove, the reduction that would normally apply if you take your 2015 pension before your normal pension age.
In the 2015 scheme, your normal pension age is linked to your State Pension Age, or age 65 if that is later. This means many members have a normal pension age of 67 or 68.
Without ERRBO, taking your 2015 pension before that age means your pension is reduced because it is being paid earlier and for longer.
ERRBO is designed to help reduce that early retirement reduction.
What retirement age can ERRBO target?
An ERRBO agreement can buy out the reduction for:
1 year
2 years
3 years
However, it cannot reduce your effective retirement age below 65.
For example:
If your normal pension age is 66, you may be able to buy out 1 year and take benefits at 65 without that year’s early retirement reduction.
If your normal pension age is 67, you may be able to buy out 1 or 2 years.
If your normal pension age is 68, you may be able to buy out 1, 2 or 3 years.
This is why ERRBO is most relevant for members whose 2015 scheme normal pension age is above 65.
How is ERRBO calculated?
ERRBO is calculated as an additional contribution percentage of your pensionable pay.
The percentage depends mainly on:
your age when the agreement starts
how many years of early retirement reduction you want to buy out
your pensionable earnings
how long you continue paying the additional contributions
The contribution rate is based on your age at the effective date of the agreement and the number of years being bought out. The effective age is your age at 31 March immediately before the intended start date of the agreement.
The younger you are when the agreement starts, the longer you will pay contributions, but the annual percentage is generally spread over a longer period. If you start later, the contributions are still be available but will apply only to pension built up during the period covered by the agreement.
A simple example
Your 2015 scheme normal pension age is 68.
You may decide you want to target retirement at 65 without the usual early retirement reduction on the pension covered by the ERRBO agreement.
That would mean buying out 3 years.
If your ERRBO agreement is in place and you pay the required extra contributions each year, the pension built during the covered period can be treated as payable from age 65 without the normal actuarial reduction for those bought-out years.
This example shows a member with a normal pension age of 68 who takes out a 3-year ERRBO agreement at age 35. The member pays additional contributions until age 65, removing the normal reduction that would otherwise apply to pension paid three years early. In this example, the additional contribution rate is 5.01% of pre tax income on top of normal scheme contributions.
Does ERRBO apply to all of your pension?
No
This is one of the most important points.
ERRBO applies to the pension built up during the period covered by the ERRBO agreement.
If you start an ERRBO agreement later in your career, it will not apply retrospectively to earlier years of 2015 scheme pension.
Retrospective applications for earlier scheme years are not permitted. Applications must be made within three months of joining the 2015 Scheme or within three months of the start of a later scheme year for the agreement to apply from that scheme year.
What if your plans change?
ERRBO needs careful thought because plans often change.
There are several important points:
If you retire before your ERRBO retirement age, your pension will still be reduced because it is being paid even earlier.
If you retire later than the ERRBO retirement age, you may need to continue paying ERRBO contributions until retirement or normal pension age.
If you have a break in NHS pensionable employment of five years or less, the agreement usually restarts on the same basis.
If the break is more than five years, the agreement ends, but the pension built during the payment period still keeps the reduced retirement age.
ERRBO and Annual Allowance
ERRBO can also interact with pension tax planning.
ERRBO contributions themselves do not count towards the Annual Allowance limit on pension growth.
However, your wider NHS pension growth may still create Annual Allowance issues, especially if you have:
pay increases
extra sessions or PAs
promotions
Clinical Excellence Awards
McCloud-related adjustments
other pension savings
NHS pension Annual Allowance is based on pension growth, not simply what you pay in contributions. Growth above the Annual Allowance is taxable at your marginal rate, although unused allowance from previous years may be available to carry forward.
So even though ERRBO contributions do not count towards the Annual Allowance, the overall pension picture still needs to be reviewed.
ERRBO and McCloud
ERRBO is only available in the 2015 Scheme.
This matters because some NHS members have had service between 1 April 2015 and 31 March 2022 moved back into their legacy 1995/2008 scheme under the McCloud remedy.
ERRBO is not available in the 1995/2008 Scheme, and members affected by McCloud may need to review their options for payments made during the remedy period.
If you paid ERRBO during the McCloud period, or you are unsure how McCloud affects your 2015 pension, this should be checked carefully.
Is ERRBO worth it?
The answer depends on your circumstances.
ERRBO may be useful if you are confident that you want to take your 2015 pension before your normal pension age and want to reduce the early retirement reduction.
But it may be less suitable if:
you are unsure when you will retire
you may leave NHS pensionable employment
you expect major changes in working pattern
you are close to retirement and the covered period is short
McCloud has changed which scheme your service sits in
you have wider tax planning issues
The key question is not simply:
“Can I buy ERRBO?”
It is:
“What does ERRBO actually do to my projected pension, tax position and retirement income?”
How Your NHS Pension can help
At Your NHS Pension, we help NHS professionals understand what ERRBO could look like in real numbers.
We can project:
your projected 2015 pension with and without ERRBO
the cost of additional contributions
the impact of taking benefits at different ages
how ERRBO interacts with Annual Allowance
Our aim is to give you a clear comparison, so you can see whether ERRBO supports your retirement plans.
We do not provide financial advice. We provide technical NHS pension analysis and projections, giving you and your advisers the information needed to make informed decisions.
Final thoughts
ERRBO can be a useful option for 2015 NHS Pension Scheme members who want to retire earlier than their normal pension age.
But it is not automatic, it is not retrospective, and it does not apply to your whole pension.
The value depends on your age, earnings, retirement plans, service history and wider pension position.
Before committing to additional contributions, it is worth understanding the numbers clearly.
Your NHS Pension helps you see the impact before you decide.
