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    • 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 2
    • GunJack
    • By GunJack 7th Jan 18, 11:02 AM
    • 9,933 Posts
    • 7,396 Thanks
    GunJack
    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......
    • andy001
    • By andy001 7th Jan 18, 11:02 AM
    • 15 Posts
    • 3 Thanks
    andy001
    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.
    Originally posted by Adamc
    That's right.
    But if you take pension before retirement age then there would be some penalty
    Im not too sure how they calculate penalties'?
    Either on Life time earning deductions or the above pension figures? One of the experts may be able to shine light on this!
    • andy001
    • By andy001 7th Jan 18, 11:05 AM
    • 15 Posts
    • 3 Thanks
    andy001
    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.
    Originally posted by hugheskevi
    That's great analysis!
    • marlot
    • By marlot 7th Jan 18, 11:11 AM
    • 3,206 Posts
    • 2,335 Thanks
    marlot
    That's right.
    But if you take pension before retirement age then there would be some penalty
    Im not too sure how they calculate penalties'?
    Either on Life time earning deductions or the above pension figures? One of the experts may be able to shine light on this!
    Originally posted by andy001
    It'll be based on an assumption of your lifespan. It's not a 'penalty'.

    If I take my civil service pension at 65 and assume I live to 85, that's 20 years of pension.
    If I take it at 55 instead, the pension is paid for 30 years. So naturally it's rather lower.

    It works for me, because I don't intend to work beyond 55.
    • justme111
    • By justme111 7th Jan 18, 11:14 AM
    • 2,906 Posts
    • 2,804 Thanks
    justme111
    nhsbsa website
    i would not sweat too much finer detail as it may/it will change anyway .
    If you just startrd working there would be surely many other areas of your life and finances requiring your attention that are more relevant.
    pensionable age is 67 , the deductions for taking it early are about 4%/year ( depending on year the nimbers are far more detailed but taking 4 % as a guide is good enough for approximate planning. Ie if by the age of 6O you accrued 25 k payable from the age 67 but you take it at 6O you will get 25OOO - 7OOO(1OOO×7(=18 k
    • marlot
    • By marlot 7th Jan 18, 11:24 AM
    • 3,206 Posts
    • 2,335 Thanks
    marlot
    After tax, the two options can be remarkably similar if you're no longer working...

    Taking the lifespan assumptions I gave earlier:
    • If I take my civil service pension at 65 and assume I live to 85, that's 20 years of pension.
    • If I take it at 55 instead, the pension is paid for 30 years.

    Let's say my pension is £20k a year at 65. They will pay out £20k x 20 = £400k gross.
    On that, I'd pay 20% tax on everything over £11,500 a year = £1700. So net income = £18300 x 20 = £366k.

    Alternatively, I decide to take it at 55. The early retirement factor is 0.607 = £12,140 a year. £12,140 x 30 = £364k gross.
    Tax is £128 per year, so net income = £360k.
    Last edited by marlot; 07-01-2018 at 11:26 AM.
    • crv1963
    • By crv1963 7th Jan 18, 11:27 AM
    • 202 Posts
    • 510 Thanks
    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.
    Originally posted by Adamc



    Gross salary, so paying for a lease car reduces pensionable pay and as your pension is career average then you reduce pension in the longer term. But you need to weigh up advantages/ disadvantages in your own circumstances and if you can increase contributions to an alternative such as AVC to mitigate any reduction in pension because of lease car payments.


    Personally I have always shunned lease cars because of the costs of personal mileage disadvantages me due to the high miles I do, you need to weigh up increased tax costs, lease cost and pension reduction/ cost of compensating for reduced pension against the cost of privately buying and running a car.


    Lease cars do have advantages - one payment per month, no ongoing costs other than fuel, no worries about reliability and of course if you aren't fussy about what you drive there are some great deals about that some I work with like - some claim and I don't doubt them that some months they actually get paid to have the car. And if you put an inexperience driver on the insurance the cost is really cheap- a friend has two of his children on the insurance for £10 per month per child a lot cheaper than if he put them on a private policy.


    I'd speak to pension officer, colleagues about the pension scheme and lease cars and other salary sacrifices that affect not only pension but mortgage ability. You need to decide for your self after doing a bit of learning.
    CRV1963- Light bulb moment Sept 15- Planning the great escape- aka retirement!
    • paparossco
    • By paparossco 7th Jan 18, 11:35 AM
    • 175 Posts
    • 117 Thanks
    paparossco
    Take into consideration that the NHS Pension age is now pegged to the State Pension age so as this rises so does age at which you can access your NHS one without an actuarial reduction. It is still one of the best out there, apart from MPs of course... Also the NHS is one of the few employers left that you can probably still see yourself working for during your whole working life so it pays to join this scheme.
    The highest form of ignorance is when you reject something you don't know anything about.
    Wayne Dyer
    • Andy L
    • By Andy L 7th Jan 18, 11:56 AM
    • 8,708 Posts
    • 7,088 Thanks
    Andy L
    Thanks
    Stoozie1- What’s the difference with GPs?
    Why can’t they get 1/54th of annual pay? I’m confused
    Originally posted by andy001
    GPs are an odd case when it comes to NHS pensions. Many of them are not NHS employees but are self-employed/small business owners who provide services to the NHS. Most of their NHS earnings aren't salary but turnover, and thier business model determines how the profit is turned into salary.
    In addition, as effectively NHS employers rather than employees they have to pay both employers and employees contributions
    • stoozie1
    • By stoozie1 7th Jan 18, 12:23 PM
    • 430 Posts
    • 307 Thanks
    stoozie1
    AdamC have you accessed your total rewards statement yet? I think it will help with a few of your questions.

    I work out OH's projected pension using a spreadsheet which I use a guesstimate of the dynamising, and where he will likely be on his NHS payspine in certain years of his career. It wouldn't be too hard for you to build one.

    Are you a GP?
    Save 12 k in 2018 challenge member #79
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    • hugheskevi
    • By hugheskevi 7th Jan 18, 1:45 PM
    • 1,948 Posts
    • 2,404 Thanks
    hugheskevi
    It is still one of the best out there, apart from MPs of course...
    What makes you think the MP scheme is better?

    MP contribution rate is 11.09% compared to 13.5% for a comparable salary in NHS scheme. The accrual rate in MP scheme is 1/51 compared to 1/54 in NHS.

    Both are career average schemes with Normal Pension age equal to State Pension age.

    Revaluation in MP scheme is CPI, in NHS scheme it is CPI+1.5% for active members.

    I don't think there is much between the schemes? MPs better for short-service, NHS better for those who stay a long time?
    • paparossco
    • By paparossco 7th Jan 18, 4:09 PM
    • 175 Posts
    • 117 Thanks
    paparossco
    Hands up! I missed that the Hutton reforms had actually reached MPs.
    The highest form of ignorance is when you reject something you don't know anything about.
    Wayne Dyer
    • hyubh
    • By hyubh 7th Jan 18, 4:48 PM
    • 2,014 Posts
    • 1,522 Thanks
    hyubh
    Hands up! I missed that the Hutton reforms had actually reached MPs.
    Originally posted by paparossco
    The final salary scheme the current CARE one for MPs replaced had the choice of 1/60, 1/50 and 1/40 accrual rates at contribution levels of 7.75%, 9.75% and 13.75% respectively. In contrast, the final salary scheme the current CARE NHS scheme replaced had a single 1/60 accrual rate with the contribution rate between 5.0% and 14.5% tiered by whole-time equivalent pay.

    Other than that, NRAs, increases, death benefits, ill health retirement terms, etc., were all either the same or very similar between the two final salary schemes.
    • Thrugelmir
    • By Thrugelmir 7th Jan 18, 5:02 PM
    • 56,755 Posts
    • 50,116 Thanks
    Thrugelmir
    Let's say my pension is £20k a year at 65. They will pay out £20k x 20 = £400k gross.
    On that, I'd pay 20% tax on everything over £11,500 a year = £1700. So net income = £18300 x 20 = £366k.

    Alternatively, I decide to take it at 55. The early retirement factor is 0.607 = £12,140 a year. £12,140 x 30 = £364k gross.
    Tax is £128 per year, so net income = £360k.
    Originally posted by marlot
    Two things immediately spring to mind.

    Firstly is that if you carry on working you'll continue to accrue further pension benefits. Another 10 years would increase the base pension considerably.

    Secondly the pension will continue to grow with index linking. The £20k pension at a compound rate of 3.5% will have grown to £28,212 pa at age 65. Meanwhile the early drawn pension growing at 2% will have only grown £16,877.

    Depending on life expectancy. The gulf is therefore far far wider than you suggest.
    “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”
    ― Warren Buffett
    • marlot
    • By marlot 7th Jan 18, 5:50 PM
    • 3,206 Posts
    • 2,335 Thanks
    marlot
    ... Firstly is that if you carry on working you'll continue to accrue further pension benefits....Secondly the pension will continue to grow with index linking.
    Originally posted by Thrugelmir
    Both points are true. If one is prepared to continue working. Not for me!
    • stoozie1
    • By stoozie1 7th Jan 18, 6:24 PM
    • 430 Posts
    • 307 Thanks
    stoozie1
    I thought both the 1995 and the 2008 schemes had a 1/80th accrual rate?
    Save 12 k in 2018 challenge member #79
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    • hyubh
    • By hyubh 7th Jan 18, 9:21 PM
    • 2,014 Posts
    • 1,522 Thanks
    hyubh
    I thought both the 1995 and the 2008 schemes had a 1/80th accrual rate?
    Originally posted by stoozie1
    No, the 2008 scheme, like the 2008 versions of the TPS and LGPS, switched from 1/80 pension + 3/80 lump sum to 1/60 pension + no standard lump sum.
    • Windofchange
    • By Windofchange 8th Jan 18, 3:25 PM
    • 678 Posts
    • 755 Thanks
    Windofchange
    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
    Hi Adam,

    You've had some brilliant advise already, and I can only echo - STAY IN THE NHS PENSION SCHEME!!

    I also work in the NHS, and up until recently was pretty similar to you probably in not fully understanding how it all worked. There are basically three sections:

    1) The 1995 scheme
    2) The 2008 scheme
    3) The 2015 scheme

    Which one you were in will depend on your length of service. If you joined before 2008, you will likely be in the 1995 section, if you joined between 2008 and 2015 you will likely be in that one, or after 2015 in that one. I remember a while back we had a pack that said basically we are moving you to the 2015 scheme, which is to my understanding better than the 2008 section. You will likely be in the 2015 section if you are a recent joiner.

    Again, as others have said, you pay in, but what you pay in is just a membership fee. End of each year, you accrue 1/54th of that years salary, and that is then revalued each year until you hit retirement. So, in 40 years of service for instance, you will have built up 40 pots of money, which will have been revalued each year, and the sum of those 40 pots will be your yearly pension. Very simply, if you build £500 a year, you would receive 40 x £500, so £20,000 per annum as your pension - this is very basic and ignores the revaluing of your pots each year. The reality is your yearly income would be much higher.

    Things to bear in mind.

    1) Things like bike to work, PCP car deals etc take away from your pensionable pay, so will affect your final sum. It won't be dramatic if you just did it once for a few years in your career, but if you did it regularly that could add up.

    2) Pensionable pay does not include overtime payments - your pot for each year is just calculated on your actual base pay. This is a shame as I log thousands of pounds of overtime - probably about a third ontop of my actual base salary.

    3) The 1995 section was supposedly the best, but unfortunately that has closed a long time ago to new applicants. I think that our current 2015 section however is outstanding, and if you build up enough years service, you will retire very comfortably. I don't know what you do, or what your career prospects are, but think of this:

    40 years of service. If you start as a band 5 clinical as an example, that is around £25k London, £21k elsewhere. If we take London as that is my area:

    Year 1 pot somewhere around £400. You then go up through the pay bands, get some promotions and end up year 40 as a Band 8a/b/c. Your pot for that year may be in the region of £1200 - £1500 or so (at current prices, a 60 - 90k salary).

    So, if you had done 10 years at band 8 level, you will have accrued around £15k per year of pension just in those ten years, let alone the 30 preceding that. I joined a little later having had a career before, but even I can expect to have 30 - 35 years of service assuming I stay in the NHS. Having already been promoted a couple of times from graduate level, I am also quite hopeful that I will end my career at a decently senior level. A rough guesstimate will be that I will quite easily be a higher rate tax payer once my NHS pension is added to my state pension, and that is added to any annuity I buy with the sizeable pot I built in the private sector prior to joining the NHS. Retirement for me looks pretty rosey!

    TL;DR - Stay in the NHS scheme!!
    Last edited by Windofchange; 08-01-2018 at 3:28 PM.
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