NHS Pension Confusion
Comments
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As others have said, you're thinking of this the wrong way. There isn't a 'pot' as such.So let's say I accrue £555 per year + the 3K I contributed = £3555 per year ... am I right in thinking that will attract compound interest for the 40 years I will be in the scheme? Many thanks for helping everyone �
Each year, you're buying a promise of a certain amount of income for every year of retirement.
That promise is highly valuable - especially with the inflation link that has been built in.0 -
In the modelling I have done, it varies in every case by personal circumstances. Generally if someone is only affected by Annual Allowance it is still best for them to stay in the scheme but not to pay anything extra except possibly ERRBO.Would it be true for those affected by tapered allowance as well? E.g. someone who earns 210k and has only 10K tax relief or lower amount than 210k but above 150k
I wonder if the high earners in nhs scheme are the losers?!
If they are also affected by Lifetime Allowance it becomes much more questionable, especially if they are relatively young. In that case they are (probably) paying 14.5% member contributions, 40/45% tax on most of of their pension input, 25% Lifetime Allowance charge on the benefits built up and finally 40% income tax on the pension when drawn.0 -
I'm not sure there could be people earning that much in pensionable earnings and certainly not right from the start of their career. GPs with 6 figure earnings don't accrue 1/54th of all that into pension per annum.
I'd say that someone who got to consultant level pretty rapidly would be hard pushed to get to LTA before age 53.Save 12 k in 2018 challenge member #79
Target 2018: 24k Jan 2018- £560 April £26700 -
Thanks
Stoozie1- What’s the difference with GPs?
Why can’t they get 1/54th of annual pay? I’m confused
Hugheskevi- With regards to your calculations: how’s reaching AA and paying taxes on AA / tapered allowance still beneficial? Please can you clarify your model?I'm not a Financial advisor.
Please seek independent financial advice.0 -
If you breach the Annual Allowance (with or without a tapered Annual Allowance) you can pay the tax charge through Scheme Pays, which reduces the accrued pension in return for the scheme paying the Annual Allowance charge. Looking it on a single year of accrual basis, that means you pay 14.5% (or whatever an individual's contribution rate is) in return for building up a pension net of the Annual Allowance charge.Hugheskevi- With regards to your calculations: how’s reaching AA and paying taxes on AA / tapered allowance still beneficial? Please can you clarify your model?
The Annual Allowance charge is calculated in the same way for all members, at factor 16. But the Scheme Pays factor used to calculate the pension is set on an actuarial basis and so the debit is higher for younger members, and so for any given level of Annual Allowance charge, a younger member's pension will be reduced by more than an older member if they use Scheme Pays. That is where individual member characteristics come into the calculation.
If you have access to scheme pays factors you can pretty easily knock up a spreadsheet which calculates what is accrued net of the Annual Allowance charge, then it is simply a matter of considering whether what is accrued is worth the cost (the employee contribution, including effect on income tax via tax relief).
It basically comes down to the point that even if you are paying high taxes on something, it is still better to pay the taxes and have something left, than not have anything at all but pay no taxes. If the individual could negotiate a higher salary (as would be commonplace in the private sector) in return for lower or no pension contributions, that would probably be better but that is not usually offered in the public sector. Once the Lifetime Allowance also become an issue, it is quite likely that what is accrued is not worth the contribution, especially for relatively younger members.0 -
As others have said, you're thinking of this the wrong way. There isn't a 'pot' as such.
Each year, you're buying a promise of a certain amount of income for every year of retirement.
That promise is highly valuable - especially with the inflation link that has been built in.
Just on that £30,000 annual salary example with 3K per year pension contributions .
So instead of that £3K being amassed as a lump sum I would be in receipt of £555.55 every year from just one year's contribution?
Let's say CPI is 0 the following year and I put in another £3000.
£555.55 + £555.55 = £1,111.10 per year (after year two)?
Again - apologies for my total ignorance.
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^^^ yes, you're getting it
......Gettin' There, Wherever There is......
I have a dodgy "i" key, so ignore spelling errors due to "i" issues, ...I blame Apple
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Be careful of lease car scheme payments!
You can check on-line expected pension.
Is it the gross or net salary that is pensionable?
I have various deductions: tuition fees from self-funded training, Student Loan, car parking etc.
I had considered getting a lease car but it was so expensive. If it also affects pension then it would have been a terrible idea.0 -
^^^ yes, you're getting it
Great - Now I just need to look at the restrictions of taking it early, how taking part of it as a lump sum can be detrimental, LTA, and any potential areas of losing investment.
... Does anyone know where I can find a relevant online pension forecasting tool?
... Is there anyone I can contact about the scheme to get more advice?0 -
Check with your scheme administrator as to what constitutes "pensionable" salary, they will also be able to tell you which of your loans, fees etc. will affect it.......Gettin' There, Wherever There is......
I have a dodgy "i" key, so ignore spelling errors due to "i" issues, ...I blame Apple0
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