stopping NHS pension to concentrate on mortgage

dejo75

Hi
i'm looking for some opinions regarding this issue,
with pension contributions on the up and pension payments going down added to the fact i will have to work longer before i get my pension , i had an idea .
currently im 46 and my wife 41 both in the nhs pension scheme i've paid 16 years and she has paid 12 years.
we currently pay in around around £400 between us , and this will rise to around £450 over the next couple of years.
bearing in mind we will only be able to retire at 66 for me and 67 for my wife thats over 20 more years,
we both wish to retire earlier say in 10 years time , and we thought that if we stopped paying pension and payed our mortgage off quicker then plowed all our savings into a pot that would give us a tidy pot to live from.
are there benefits to this or draw backs ?
thanks
dejo

hugheskevi

with pension contributions on the up and pension payments going down added to the fact i will have to work longer before i get my pension , i had an idea .

Until April 2015, pension accruals are unchanged. You might even get some extra transitional time as you are not too far off the 10 years, but I think you just miss out on that.

You don't have to work longer before you get your pension, you have to work longer to get an unreduced pension. If you opt-out, the pension will be reduced by a lot more

we currently pay in around around £400 between us , and this will rise to around £450 over the next couple of years.

Are you sure about that? It sounds a very small increase? I'd have expected more.

bearing in mind we will only be able to retire at 66 for me and 67 for my wife thats over 20 more years,

You can retire when you like. You can draw reduced benefits from age 55, and from age 50 if the NHS scheme was protected.

we both wish to retire earlier say in 10 years time

To retire at age 56 and age 51 respectively will require a careful plan. It doesn't sound like you have considered it in detail, ie, what you will need in retirement, what you have already built-up, and how to fund the difference, including different stages before occupational pensions come into payment, between then and when State Pensions come into payment, and thereafter.

and we thought that if we stopped paying pension and payed our mortgage off quicker then plowed all our savings into a pot that would give us a tidy pot to live from.
are there benefits to this or draw backs ?

Huge draw-backs. Mainly in the form of waving goodbye to the employer contribution which will be worth perhaps 20% or so of your salaries. That is a lot over 10 years.

Unless you already have more pension income accrued than you will need in the future.

To retire early, you need a plan for the next 40-50 years, not the next 10-20. There is no point being mortgage free with some money set aside if your pension is inadequate.

Whilst it depends on your circumstances, opting out is almost certainly a very bad decision. And unless it is part of a very carefully thought-through plan encompassing the next 40-50 years, it will be the wrong decision.

dejo75

thank you very much for the very quick reply , this is really helpful and i really do need to be more aware of whats happening within our scheme .

regards
dejo

dunstonh

we currently pay in around around £400 between us , and this will rise to around £450 over the next couple of years.

You do realise that you get tax relief on your contributions. Plus, you pay a lower rate of NI. So, if you opt out you wont get £400 extra in your take home. It will be around £300.

we thought that if we stopped paying pension and payed our mortgage off quicker then plowed all our savings into a pot that would give us a tidy pot to live from.

A hugely expensive mistake over the long term. Even with the proposed changes, the pension wipes the floor with anything else. If you wanted to replace the pension benefits and associated benefits that go with it by using savings, instead of costing you £300 as it currently does (after tax relief/NI), it would cost you around £2000pm (probably more).

You have one of the best pension schemes going. The changes reduce the benefit marginally but it is still one of the best going. It would be the most costly mistake in your life if you pulled out.

Think of it logically as well. If you retire early and use up your savings by state pension age (which is likely) then you will have 20-25 years of life on low income. Also, the £300pm you would save by not paying into the pension isnt going to allow you to retire early.

bigbloke45

I agree with dunstonh, but I think you are confused about what a defined benefit (final salary) pension scheme is all about.

Your personal contributions don't buy a pension; your scheme promises you a percentage of your final salary at retirement regardless of the contributions you make.

This means that the scheme takes on all of the investment risk to provide your pension, whatever happens to investment returns in the future, not you.

Perhaps you should try to understand the wonderful pensions opportunity you have (i.e. do some learning about it) and then maybe you won't come up with such half baked ideas. Sorry to be so harsh, but I really believe that people need to understand and appreciate what they have.

atush

For every 100 you put into your scheme, it would cost you 500+ to replicate outside your plan

So, don't do it. It won't make ou better off, it will make you worse off.

But I have a cunning plan. Given you are getting a pension many times better than others who earn your approx wage, why not think of increasing our mtg repayments by lowering spending. Start tiwh lowering costs via comparison shopping for utiities and insurance, then move onto cutting any waste (fat) from your budget from poncy coffees to magazines ubs, to buying lucnh 5 days a week instead of making a sandwhcih at home..

All small things can add up.

Spirit_2

The NHS employers pension contribution is in addition to your contribution and is 14% of your pay.

You will therefore be giving yourself a 14% pay cut. At the same time you will lose your life cover which is very valuable life insurance and the income protection that the Pension scheme provides should you become retired on ill health.

If you are both members of the 1995 scheme and find yourself redundant after age 50 you have also said goodbye to pension enhancement that kicks in.

Tax payers everywhere will rejoice if you give all this up.;)

Koicarp

You should have had this leaflet with your pay packet: http://www.nhsbsa.nhs.uk/Pensions/Documents/Pensions/NHS_Pensions_Payslip_Leaflet_(web_version)_-_16.01.2012.pdf

You should look here at the new calculators: http://www.dh.gov.uk/health/agenda-calculator/

You will find that you (like myself and my wife) have to work until we are nearly 62 to get what we would have had at 60 under the old (4 years old) agreement.
You won't find better elsewhere. The unions haven't agreed this yet, but it will be imposed anyway.
We will carry on paying in. We will retire at 60 anyway with a lump sum of half that previously agreed and an annual pension £2k less than previously agreed (at £15.8k) after 36 years contributions, with increases matched to cpi which will cost us 10's of thousands if we live long enough. We will (have already) cut living costs as much as possible, and continue to do so, paying whatever we can into S&S ISA's, whilst continuing to pay the mortgage, only making extra payments when ISA's are filled.
My job gives me a little time to think between patients, and whilst I prescribe, order tests and diagnose, I don't do any of these in emergency situations. Were my wife to work until 68 in the job she does now, patients will suffer, as she has to make split second life saving decisions in A&E.
The idea stated above that tax payers will rejoice if you drop out, could well be nonsense, this ignores the fact that your payments pay the pension of those already retired, and that you may end up on benefits when retired without your nhs pension- but everybody here says it so they must be right!

iolanthe07

A friend of mine (a nurse) is retiring in April with an index linked pension of around £25K a year. You would need a pension pot of more than half a million pounds to get this in the private sector, and even then it wouldn't be fully index linked. Think very carefully before abandoning what is still a fantastc scheme.