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  • FIRST POST
    • katy123
    • By katy123 13th Oct 16, 10:54 AM
    • 137Posts
    • 5Thanks
    katy123
    NHS Pension Scheme (opting out + receiving employer contributions)
    • #1
    • 13th Oct 16, 10:54 AM
    NHS Pension Scheme (opting out + receiving employer contributions) 13th Oct 16 at 10:54 AM
    I am currently an active member of the 2015 career average revalued earnings (CARE) scheme. I understand the employee and employer contribution amounts and wanted to opt of the scheme but want the employer contributions to be directed to a DC scheme of my choice. It is clear that the employer will be no worst off given that the contribution amount would be the same as if I was in the 2015 CARE scheme. My reasons for this is all solid and checked by an adviser – flexibility, move overseas, purchase commercial building etc….I have been told it’s not possible over the phone and but written to them for a precise reason. Does anyone know if I’ve been told the correct answer and also the exact reason. I suspect the real reason is because it is an unfunded scheme and the employer contributions don’t actually exist, i.e all pensions in payment are paid by the treasury…
Page 1
    • Triumph13
    • By Triumph13 13th Oct 16, 11:19 AM
    • 714 Posts
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    Triumph13
    • #2
    • 13th Oct 16, 11:19 AM
    • #2
    • 13th Oct 16, 11:19 AM
    Leaving aside the advisability or otherwise of what you are trying to do, whilst employers now have a legal obligation to offer a pension scheme, they are under no obligation whatsoever to pay equivalent contributions to a completely different scheme for someone who opts out. I would be astounded if they agreed to your request.
    • hugheskevi
    • By hugheskevi 13th Oct 16, 11:20 AM
    • 1,832 Posts
    • 2,155 Thanks
    hugheskevi
    • #3
    • 13th Oct 16, 11:20 AM
    • #3
    • 13th Oct 16, 11:20 AM
    Does anyone know if I’ve been told the correct answer and also the exact reason.
    Yes you have been informed correctly. Among the main public service pension schemes only the Civil Service has a Defined Contribution alternative to the main scheme which can receive an employer contribution.

    Your specific employer would be no worse off, but the general Exchequer would be worse off. Your employee and employer contributions to the CARE scheme are returned to the Exchequer and so benefit the national accounts. The funds are used to pay existing pensioners (I think the NHS scheme is cashflow positive, so the scheme takes more in contributions than it uses to pay pensioners). If instead the contributions were sent to a Defined Contribution provider, additional borrowing would be required. Insignificant in an individual case, but if offered generally the loss of revenue could be significant.

    In addition, the employer contribution almost certainly includes an element of deficit reduction funding, which would be inappropriate to offer to members even if a DC alternative was available. The member contribution rate is also calculated across the scheme as a whole, and can therefore be significantly different to the value of benefits any given individual is accruing. Very generally, if members had a choice to take the employer contribution and put it into a DC scheme, younger members would be expected to be better off doing this, and older members worse-off (adverse selection). That is one of the reasons the Civil Service DC alternative scheme has tiered employer contribution rates which increase with age.
    • katy123
    • By katy123 13th Oct 16, 5:06 PM
    • 137 Posts
    • 5 Thanks
    katy123
    • #4
    • 13th Oct 16, 5:06 PM
    • #4
    • 13th Oct 16, 5:06 PM
    Yes you have been informed correctly. Among the main public service pension schemes only the Civil Service has a Defined Contribution alternative to the main scheme which can receive an employer contribution.

    Your specific employer would be no worse off, but the general Exchequer would be worse off. Your employee and employer contributions to the CARE scheme are returned to the Exchequer and so benefit the national accounts. The funds are used to pay existing pensioners (I think the NHS scheme is cashflow positive, so the scheme takes more in contributions than it uses to pay pensioners). If instead the contributions were sent to a Defined Contribution provider, additional borrowing would be required. Insignificant in an individual case, but if offered generally the loss of revenue could be significant.

    In addition, the employer contribution almost certainly includes an element of deficit reduction funding, which would be inappropriate to offer to members even if a DC alternative was available. The member contribution rate is also calculated across the scheme as a whole, and can therefore be significantly different to the value of benefits any given individual is accruing. Very generally, if members had a choice to take the employer contribution and put it into a DC scheme, younger members would be expected to be better off doing this, and older members worse-off (adverse selection). That is one of the reasons the Civil Service DC alternative scheme has tiered employer contribution rates which increase with age.
    Originally posted by hugheskevi
    So a ponzi scheme? take from young to pay for old!!!!!!shoddy practice.Call the Police
    • hugheskevi
    • By hugheskevi 13th Oct 16, 5:16 PM
    • 1,832 Posts
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    hugheskevi
    • #5
    • 13th Oct 16, 5:16 PM
    • #5
    • 13th Oct 16, 5:16 PM
    So a ponzi scheme?
    More commonly called unfunded pension schemes. The difference being that ponzi scheme is not sustainable, whereas unfunded pension schemes are sustainable in perpetuity.

    Economically-speaking, it doesn't matter whether schemes are funded (redistribute resources from active workers to inactive pensioners via ownership of profits and dividends) or unfunded (redistribute resources via tax and spend) - although with funded schemes you would get all the costs of investment and the govt. being in control of 100s £billions of investments.

    The implicit promise of NHS healthcare, future provision of teaching, etc, are all future liabilities which will need to be paid for in future when the costs fall due.

    take from young to pay for old
    That is what every single pension scheme does, one way or another - redistribute resources from the active to the inactive.

    Call the Police
    They also have unfunded pension arrangements - no DC alternative there either
    • atush
    • By atush 13th Oct 16, 5:19 PM
    • 15,283 Posts
    • 9,159 Thanks
    atush
    • #6
    • 13th Oct 16, 5:19 PM
    • #6
    • 13th Oct 16, 5:19 PM
    How do you think state pensions are funded?
    • dunstonh
    • By dunstonh 13th Oct 16, 5:51 PM
    • 85,087 Posts
    • 50,110 Thanks
    dunstonh
    • #7
    • 13th Oct 16, 5:51 PM
    • #7
    • 13th Oct 16, 5:51 PM
    I understand the employee and employer contribution amounts and wanted to opt of the scheme but want the employer contributions to be directed to a DC scheme of my choice.
    There is no direct employer contribution with that scheme.

    It is clear that the employer will be no worst off given that the contribution amount would be the same as if I was in the 2015 CARE scheme.
    That would be an incorrect assumption.

    My reasons for this is all solid and checked by an adviser – flexibility, move overseas, purchase commercial building etc….
    Was that a real adviser or a pretend one? (that is not a joke, there are a lot of non-advisers pretending to be advisers - especially in the overseas investment area). The "adviser" doesnt appear to know UK pensions.

    have been told it’s not possible over the phone and but written to them for a precise reason
    That is correct. it is not possible. And thankfully not as what you propose would almost certainly be a costly error on your part.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • katy123
    • By katy123 14th Oct 16, 12:12 PM
    • 137 Posts
    • 5 Thanks
    katy123
    • #8
    • 14th Oct 16, 12:12 PM
    • #8
    • 14th Oct 16, 12:12 PM
    There is no direct employer contribution with that scheme.



    That would be an incorrect assumption.



    Was that a real adviser or a pretend one? (that is not a joke, there are a lot of non-advisers pretending to be advisers - especially in the overseas investment area). The "adviser" doesnt appear to know UK pensions.



    That is correct. it is not possible. And thankfully not as what you propose would almost certainly be a costly error on your part.
    Originally posted by dunstonh
    Yes, real adviser, chartered and certified with years of experience. It would not be a costly error if employer contributions are paid, the flexibility in a dc environment so far superior.....i'm sure you are aware being an adviser yourself, thanks.
    • Silvertabby
    • By Silvertabby 14th Oct 16, 12:21 PM
    • 369 Posts
    • 394 Thanks
    Silvertabby
    • #9
    • 14th Oct 16, 12:21 PM
    • #9
    • 14th Oct 16, 12:21 PM
    “ My reasons for this is all solid and checked by an adviser – flexibility, move overseas, purchase commercial building etc….

    Was that a real adviser or a pretend one? (that is not a joke, there are a lot of non-advisers pretending to be advisers - especially in the overseas investment area). The "adviser" doesnt appear to know UK pensions.
    Yes, real adviser, chartered and certified with years of experience. It would not be a costly error if employer contributions are paid, the flexibility in a dc environment so far superior.....i'm sure you are aware being an adviser yourself, thanks.
    So, you are saying that this 'real advisor' recommends a DC pension scheme/overseas investments/commercial property over and above a public sector defined benefit pension scheme? In my experience (retired LGPS administrator) no reputable IFA would recommend a transfer out of such a scheme in these circumstances.
    • jimi_man
    • By jimi_man 14th Oct 16, 2:35 PM
    • 82 Posts
    • 74 Thanks
    jimi_man
    Leaving aside the wisdom (or not) of leaving the NHS scheme, surely any bone fide advisor would be aware of the impossibility of diverting 'employer contributions' from the NHS into a private scheme?
    • dunstonh
    • By dunstonh 14th Oct 16, 3:24 PM
    • 85,087 Posts
    • 50,110 Thanks
    dunstonh
    It would not be a costly error if employer contributions are paid, the flexibility in a dc environment so far superior
    It would be costly as the scheme benefit in monetary terms is worth around 25-30% of your salary if you bought an equivalent yourself. No employer is going to pay you anywhere near that amount.

    i'm sure you are aware being an adviser yourself, thanks.
    Im am very aware of the benefits and what you say does not match reality. If it was a real adviser then they need a few more years experience.

    1 - you cant do it - any real adviser would know that
    2 - if you could do it then you would never be able to match the benefits with what their hypothetical contribution could be.

    It is different if you were talking about a money purchase scheme where the employer is willing to contribute the same amount to your individual scheme. Then what you say would be reasonable if the employer was willing. However, not the NHS scheme.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • Thrugelmir
    • By Thrugelmir 14th Oct 16, 4:41 PM
    • 51,222 Posts
    • 43,004 Thanks
    Thrugelmir
    Does anyone know if I’ve been told the correct answer and also the exact reason.
    Originally posted by katy123
    With over 500,000 employees in the NHS. Who is going to administer this number of individual choices and what would it cost. Sometimes the answer is simply common sense nothing more. Micro vs Macro view.
    “A man is rich who lives upon what he has. A man is poor who lives upon what is coming. A prudent man lives within his income, and saves against ‘a rainy day’.”
    • atush
    • By atush 14th Oct 16, 5:01 PM
    • 15,283 Posts
    • 9,159 Thanks
    atush
    It would not be a costly error if employer contributions are paid, the flexibility in a dc environment so far superior..
    It isnt superior to give up a guaranteed income for an uncertain income, but yes it is mreo flexible.

    You DO have one option. To open an DC pension and run it alongside.
    • darkidoe
    • By darkidoe 27th Oct 16, 8:09 PM
    • 638 Posts
    • 683 Thanks
    darkidoe
    I am currently an active member of the 2015 career average revalued earnings (CARE) scheme. I understand the employee and employer contribution amounts and wanted to opt of the scheme but want the employer contributions to be directed to a DC scheme of my choice. It is clear that the employer will be no worst off given that the contribution amount would be the same as if I was in the 2015 CARE scheme. My reasons for this is all solid and checked by an adviser – flexibility, move overseas, purchase commercial building etc….I have been told it’s not possible over the phone and but written to them for a precise reason. Does anyone know if I’ve been told the correct answer and also the exact reason. I suspect the real reason is because it is an unfunded scheme and the employer contributions don’t actually exist, i.e all pensions in payment are paid by the treasury…
    Originally posted by katy123
    Did your IFA really told you that the employer contributions can be directed to a DC scheme with your own contributions going to the DC scheme?? I doubt that would be true. Isn't the NHS 2015 scheme a DC scheme itself? Would there be much difference then at the end of the day?

    Would be more interested to know if there's anyone who know if the employer contributions can go into a SIPP?
    Save 12K in 2016 # 8 £16 253.55/12 000 (135.45%) Achieved!
    • hyubh
    • By hyubh 27th Oct 16, 9:07 PM
    • 1,553 Posts
    • 1,043 Thanks
    hyubh
    Isn't the NHS 2015 scheme a DC scheme itself?
    Originally posted by darkidoe
    It isn't, it's an unfunded DB one.

    Would there be much difference then at the end of the day?
    It would be giving up a government guaranteed, salary-related pension, so yes, it would be quite a different.

    Would be more interested to know if there's anyone who know if the employer contributions can go into a SIPP?
    NHS ones, no.
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