NHS Pension Scheme

AlphaBravo123

Hi guys! I'll apologise in advance for my naivety. I know absolutely nothing about pensions whatsoever!

I'm 18 years old, and I'm just about to start working for an NHS Ambulance Service in a Band 3 role. I've been told that I'll automatically be entered into the NHS Pension Scheme unless I choose to opt out.

My basic salary is £15,610, but due to my shift pattern, I also receive a 25% unsocial hours allowance which takes my pay up to £19,512. Over the next 2 years, I will obviously get an increment pay rise, as well as a fixed £250 cost of living pay rise each year.

Using the listentotaxman website, I've calculated that my 'take home' pay after income tax and national insurance is £15,388. I've used this figure to calculate how much money I'll have left over to pay for my rent, bills, car insurance etc.

Problem is, I've just realised that I'm also going to have pension contributions taken from my salary. I'm scared that when I find out how much money is taken away and put into my pension, there won't be enough left to pay for the rent etc that I've budgetted for. I was perhaps considering opting out of the pension scheme for a few years, just so I know I'm going to be able to afford everything I need, and then re-joining when I'm 21 and my finances are all stable.

But before I do that, I wanted some advice from people 'in the know'. I hope you don't mind me asking a few questions.

1) What percentage of my salary will be deducted as pension contributions? If it's 10% for example, then is that 10% of my basic £15,610? Or is it 10% of my monthly salary, including any unsocial hours allowance and overtime that I work?

2) I understand that whatever I put into my pension pot, the NHS will 'match' and add themselves? Does this mean that if I opt out of the scheme for 3 years, I lose out on these matched contributions?

3) Is a pension pot basically a bank account that both you and your employer pay into, and whatever the balance is when you retire, is what you have left to live on? Can you get statements and make withdrawels etc as you're still working, obviously on the understanding there will be less left when you retire?

4) Somebody told me that if you contribute to a private pension scheme, you only have to pay a reduced level of NI contributions, because you're effectively saving for your own retirement instead of relying on the Government. Is this true? Is so, what is the reduced rate of NI that would be deducted?

5) Presuming I retire at 65, how is my pension paid? Will I be told how much I've got saved up and given it in full to live off for however many years I live for? If not, how much will I get per week or per month? Do I still get a small pension from the Government? If I were to live to 100, would I still get paid my full pension every year, even if it was now working out at more than I contributed in the first place? Likewise, if I died at 66, would all the thousands of pounds worth of contributions I paid into the scheme disapear, or would they form part of my estate and be inherited by my next of kin?

I suppose my major question at the moment, is should I opt out for a few years and keep the extra money? I don't know any 18 year olds who are paying into a pension, and my grandparents didn't start paying into one until they were 25. Will contributing to a pension straight away at 18 mean I'm significantly better off when I retire? Or does everybody whose contributed for more than say, 40 years, get the same amount?

A slight worry is "Are pensions safe?". I sometimes hear people saying that Gordon Brown stole peoples pensions that they'd paid into for years. Does this mean I could contribute 10% of my salary for 47 years, only for all the money to disapear because a politician has c*cked up?

Many thanks in advance for all your help!

molerat

http://www.nhsbsa.nhs.uk/pensions

Opting out is not generally considered a wise move. The NHS offer a gold plated public sector final salary pension scheme underwritten by the government. The scheme is very likely to change in the future and you may not be able to join on as good terms as are available now.

Loughton_Monkey

You will get many of your questions asked on the web link, helpfully provided by molerat.

I would strongly advise you to join straight away. Reasons for this are:

1. With employer contributions at a level much higher than your own contribution, a decision not to join is irrational and equates to 'throwing money down the drain'. Tell me an 18 year old who would not save 5% of their salary in Lloyds Bank if Lloyds said that for every £5 you put in, we will add £15 free. I imagine you would be the only person in the country not in the queue?

2. Your scheme is a 60ths scheme. If you in any way assume you will get pay rises, promotions, or escalation through the payscale, benefits will actually relate to your salary when to take it or when you leave the service. These are the cheapest 3 years you can buy! Imagine the scheme being withdrawn in 10 years, in favour of 'money purchase'. At the time of 'freezing' [wrong word, but you know what I mean], you would have 7 60th's entitlement. All your mates would have 43% more entitlement (10 60th's). That would be rather ironic wouldn't it, especially if by then you were the one who had been promoted?

3. If your contributions are 5% - and you get tax relief - then you are talking of, say, £624 a year. Ask yourself what would have happened if you had struggled more to find a job. And your starting salary were £624 less. Are you saying you couldn't possibly live on such 'low' money? Of course not. Hundreds of thousands of people live on that money. Spending evey penny that you earn is a 'disease'. Millions of pensioners are retiring whilst I write, and a huge proportion of them are heavily regretting not saving for their retirement. It's a lesson everyone learns in the end, but to learn it at age 60 (or even 40) is as useful as a chocolate teapot. By deferring your membership 3 years, you are deliberately subjecting yourself to the 'disease'. What 'magic' is going to occur in 3 years time that makes you wake up and say "Ah! I can now afford to join the pension scheme?". I can assure you there will be no such magic. Spending all you earn becomes a habit worse than smoking.

Join the scheme. Now.

AlphaBravo123

Thanks for the replies guys.

I've had a look into the scheme further. Basically, if my best pensionable pay for 3 consecutive years in the last 10 years of employment is £30,000 per year, then if I join at 18, my pension will be £23,500 a year when I retire. If I delay until 21, then my pension is reduced to £22,000 a year. If I lived until I was only 85, that would work out at £30,000 less overall. Seeing as my contributions for these 3 years are going to be the lowest I'll ever make, and certainly less than £30k, I would be stupid to opt out!

I still don't understand how much I'm going to have deducted from my salary in contributions. The NHSBSA say that the contribution rate varies depending on your salary. What is the rate for my salary? I still don't know whether my 'pensionable pay' includes the unsocial hours allowance and overtime payments which are likely to make up 30/40% of my annual salary?

I understand that pension contributions are taken after NI has been deducted, but before income tax is charged. Does anybody know whether I will pay a reduced level of NI if I'm paying into my own pension?

Finally, is there a decent pensions calculator on the web where I can input all the scheme and salary details to find out how much I will be putting in each week?

claire111

Follow the links given previously for the information you want

http://www.nhsbsa.nhs.uk/Pensions/Documents/Pensions/Tiered_Employee_Contributions_2010-11_Factsheet.pdf

http://www.nhsbsa.nhs.uk/Documents/Pensions/SD_Guide_-_(V5)_01.2011.pdf

It does take some reading but all the answers are there.

paparossco

AlphaBravo123 wrote: »

I will obviously get an increment pay rise, as well as a fixed £250 cost of living pay rise each year.

Err perhaps not going by current goverment proposals.

AlphaBravo123

paparossco wrote: »

Err perhaps not going by current goverment proposals.

The government have guaranteed a £250 pay rise every year for NHS workers who earn less than £21,000.

The proposed increment freeze has been abandoned after every virtually every union said it would not tolerate it.

AlphaBravo123

claire111 wrote: »

Follow the links given previously for the information you want


It does take some reading but all the answers are there.

The documents say that I 'might' pay a reduced level of national insurance if I'm contributing to a private pension scheme. It doesn't say when I might not, nor does it clarify what the reduced rate is.

It also says that contribution rates vary depending on salary, but doesn't tell you what rate = what salary, nor does it tell you whether your salary includes unsocial hours, or overtime allowances.

bilbo51

AlphaBravo123 wrote: »

The documents say that I 'might' pay a reduced level of national insurance if I'm contributing to a private pension scheme. It doesn't say when I might not, nor does it clarify what the reduced rate is.

It also says that contribution rates vary depending on salary, but doesn't tell you what rate = what salary, nor does it tell you whether your salary includes unsocial hours, or overtime allowances.

Have you read this?
http://www.nhsbsa.nhs.uk/Documents/Pensions/Cost_and_Contributions_Factsheets-_All_NHS_Sheme_Members.pdf