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  • FIRST POST
    • Adamc
    • By Adamc 6th Jan 18, 2:06 PM
    • 30Posts
    • 4Thanks
    Adamc
    NHS Pension Confusion
    • #1
    • 6th Jan 18, 2:06 PM
    NHS Pension Confusion 6th Jan 18 at 2:06 PM
    Hi all

    I'm relatively young guy working in the NHS and I am in the latest pension scheme. The only problem is I don't understand it.

    Could anyone advise me on how it works?
    Whether it's worth considering other pension schemes?

    I'm ashamed to say, I'm very clueless regarding the £300-400 that is being deducted from my income each month.

    Thanks for any advice.
Page 1
    • stoozie1
    • By stoozie1 6th Jan 18, 2:32 PM
    • 430 Posts
    • 307 Thanks
    stoozie1
    • #2
    • 6th Jan 18, 2:32 PM
    • #2
    • 6th Jan 18, 2:32 PM
    It's a great scheme.

    You accrue 1/54th of your pensionable earnings each year (increased above inflation) as an annual income in retirement.
    Save 12 k in 2018 challenge member #79
    Target 2018: 24k
    • Tom99
    • By Tom99 6th Jan 18, 3:04 PM
    • 1,016 Posts
    • 620 Thanks
    Tom99
    • #3
    • 6th Jan 18, 3:04 PM
    • #3
    • 6th Jan 18, 3:04 PM
    You would probably have to pay 20%+ of your income to get an equivalant pension elsewhere so if you are paying say 9.3% it is a very good deal.
    • crv1963
    • By crv1963 6th Jan 18, 6:53 PM
    • 201 Posts
    • 508 Thanks
    crv1963
    • #4
    • 6th Jan 18, 6:53 PM
    • #4
    • 6th Jan 18, 6:53 PM
    Hi all

    I'm relatively young guy working in the NHS and I am in the latest pension scheme. The only problem is I don't understand it.

    Could anyone advise me on how it works?
    Whether it's worth considering other pension schemes?

    I'm ashamed to say, I'm very clueless regarding the £300-400 that is being deducted from my income each month.

    Thanks for any advice.
    Originally posted by Adamc


    You are in a great scheme, under written by the government, don't be persuaded to leave it! As said earlier you would pay a lot more into a private scheme to get the same benefits.


    You can ring your Pensions Officer and they will run through the benefits (but not offer you any advice), you can increase your retirement income with AVCs, ISAs or other savings. Basically in your scheme any salary sacrifice affects your pension so be careful of lease car scheme payments!


    You can check on-line expected pension.
    CRV1963- Light bulb moment Sept 15- Planning the great escape- aka retirement!
    • justme111
    • By justme111 6th Jan 18, 7:09 PM
    • 2,906 Posts
    • 2,804 Thanks
    justme111
    • #5
    • 6th Jan 18, 7:09 PM
    • #5
    • 6th Jan 18, 7:09 PM
    It's a great scheme.

    You accrue 1/54th of your pensionable earnings each year (increased above inflation) as an annual income in retirement.
    Originally posted by stoozie1
    ..every year. so if you earn lets say 3O k each year and pay 3k in contributions you are buying with it 3Ok÷54= £555 paid to you every year of your retirement.
    If you invested that money and the average growth would been 3% after inflation it would become 1O k after 4O years of investment. You could take the same £555 from it ( roughly 5%( but if investment does not grow at a quite optimistic rate of 5% after inflation you would deplete the pot in a couple dozens of years. you may think it does not matter because you would be dead by then but if you cam get the same without sweating and risking then why not. Besides in 1O years time you will not have 4O years left for investment to grow so the outcome of self investment would be worse
    Last edited by justme111; 06-01-2018 at 7:14 PM.
    • Adamc
    • By Adamc 6th Jan 18, 9:04 PM
    • 30 Posts
    • 4 Thanks
    Adamc
    • #6
    • 6th Jan 18, 9:04 PM
    • #6
    • 6th Jan 18, 9:04 PM
    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 �
    Last edited by Adamc; 06-01-2018 at 9:04 PM. Reason: Error
    • hugheskevi
    • By hugheskevi 6th Jan 18, 9:31 PM
    • 1,948 Posts
    • 2,404 Thanks
    hugheskevi
    • #7
    • 6th Jan 18, 9:31 PM
    • #7
    • 6th Jan 18, 9:31 PM
    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 �
    No, you are not thinking about this in the right way.

    Forget about your employee contribution, that is just what it costs you to be in the scheme and is not directly related to what you get out.

    In return for your contribution, each financial year you build up an annual pension. What you build up is based on your salary, and you build up a annual pension of 1/54 of your salary. So, if your salary was £30,000 you build up annual pension payable from your State Pension age of £556 per year of work.

    That £556 then increases by the rate of CPI+1.5% whilst you remain in active service. So, for example, if CPI is 2% in a particular year the £556 gets increased by 3.5% to £575. If you leave service, it just goes up by CPI each year. Every year it gets increased (unless CPI is zero or negative).

    The following year you build up another piece of annual pension, in the same way as above, which gets increases in the same way.

    When you retire you add up all the revalued pension from each year of accrual to get your total pension.

    You have a very easy decision to remain in the scheme. Your considerations should be about whether you want to contribute more to a pension, either within the scheme (eg ERRBO or Added Pension or AVC - see scheme website for more details on these) or externally (eg to a personal pension or SIPP).
    • Silvertabby
    • By Silvertabby 6th Jan 18, 9:37 PM
    • 2,131 Posts
    • 2,830 Thanks
    Silvertabby
    • #8
    • 6th Jan 18, 9:37 PM
    • #8
    • 6th Jan 18, 9:37 PM
    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 �
    Er - no. Forget your pension contibutions - they have no bearing on your eventual pension - they (and your employer's contributions) have just been set at this level in order to finance the pension fund.

    Using justme's example of £30K per year salary, one year's pension accrual will give you £30K / 54 = annual pension of £555.55 plus revaluation.

    So in return for your one year of pension contributions (£3k) you will receive an index linked annual pension of over £555 for the rest of your life. If you live for the average 20 years post retirement, that's a return of at least £11K - actually a lot more with index linking - which is a pretty good deal.
    • Stubod
    • By Stubod 6th Jan 18, 9:38 PM
    • 445 Posts
    • 297 Thanks
    Stubod
    • #9
    • 6th Jan 18, 9:38 PM
    • #9
    • 6th Jan 18, 9:38 PM
    ....as all the above, it really is a no brainer, stay in the scheme and never leave it until you retire....you won't get anything better, and its index linked and guaranteed....
    • andy001
    • By andy001 7th Jan 18, 7:39 AM
    • 15 Posts
    • 3 Thanks
    andy001
    This is great information
    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?!
    • andy001
    • By andy001 7th Jan 18, 7:51 AM
    • 15 Posts
    • 3 Thanks
    andy001
    To add to above (sorry couldn’t find edit button) . Apologies . New member!
    The high earners will reach LTA quickly
    They don’t need to keep putting money in pension after reaching LTA.
    Hence they will lose more as won’t be able to add money even in private pensions after reaching LTA
    • marlot
    • By marlot 7th Jan 18, 8:30 AM
    • 3,206 Posts
    • 2,335 Thanks
    marlot
    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 �
    Originally posted by Adamc
    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.
    • hugheskevi
    • By hugheskevi 7th Jan 18, 8:47 AM
    • 1,948 Posts
    • 2,404 Thanks
    hugheskevi
    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?!
    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.

    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.
    • stoozie1
    • By stoozie1 7th Jan 18, 8:49 AM
    • 430 Posts
    • 307 Thanks
    stoozie1
    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
    • andy001
    • By andy001 7th Jan 18, 9:05 AM
    • 15 Posts
    • 3 Thanks
    andy001
    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?
    • hugheskevi
    • By hugheskevi 7th Jan 18, 9:39 AM
    • 1,948 Posts
    • 2,404 Thanks
    hugheskevi
    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?
    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.

    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.
    • Adamc
    • By Adamc 7th Jan 18, 10:33 AM
    • 30 Posts
    • 4 Thanks
    Adamc
    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.
    Originally posted by marlot
    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.
    • GunJack
    • By GunJack 7th Jan 18, 10:41 AM
    • 9,933 Posts
    • 7,396 Thanks
    GunJack
    ^^^ yes, you're getting it
    ......Gettin' There, Wherever There is......
    • Adamc
    • By Adamc 7th Jan 18, 10:57 AM
    • 30 Posts
    • 4 Thanks
    Adamc

    Be careful of lease car scheme payments!


    You can check on-line expected pension.
    Originally posted by crv1963
    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.
    • Adamc
    • By Adamc 7th Jan 18, 11:00 AM
    • 30 Posts
    • 4 Thanks
    Adamc
    ^^^ yes, you're getting it
    Originally posted by GunJack
    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?
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