Is it worth taking out an NHS pension at age 54?

chucknorris

Bishy wrote: »

I am about to start a new job in the NHS. I have never had a pension. Would it be financially worthwhile taking out an NHS pension now at the age of 54, (55 in April)? Thanks for any advice.

It should have been one of the factors that lead you to apply in the first place, what a bonus for you to realize that you have such an enormous advantage with your new job.

purdyoaten

Employers contribution is 13.3% and remains this for 2014/15.

On the added years, I am fairly sure that they can no longer be purchased. What one can do is to buy 'additional' pension - maximum £5000. To get that additional pension, for someone of the op's age, would cost £100000.

http://www.nhsbsa.nhs.uk/Pensions/Documents/Pensions/Cost_and_Contributions_Factsheet_2013-14_(Officer)_(V3)_04.2013.pdf

http://www.nhsbsa.nhs.uk/Pensions/Maximising.aspx

chucknorris

purdyoaten wrote: »

Employers contribution is 13.3% and remains this for 2014/15.

On the added years, I am fairly sure that they can no longer be purchased. What one can do is to buy 'additional' pension - maximum £5000. To get that additional pension, for someone of the op's age, would cost £100000.

http://www.nhsbsa.nhs.uk/Pensions/Documents/Pensions/Cost_and_Contributions_Factsheet_2013-14_(Officer)_(V3)_04.2013.pdf

http://www.nhsbsa.nhs.uk/Pensions/Maximising.aspx

But the value to the employee is so much higher than 13.3%, that is the point!

I think my employer pays something like 14% into my TPS but the value to me is about 34% (overall value of 45% of salary less my 11% contribution).

The 45% comes from:
Salary £41,700 @ 1/60 accrual = £695, when multiplied by 27 (to represent what it would cost to buy a similar annuity from a private pension pot) =£18,765 (which is 45% of my salary)

Linton

purdyoaten wrote: »

Employers contribution is 13.3% and remains this for 2014/15.

...

The average employers contribution over everybody in the pension scheme may be 13.3%, but late entrants to a final salary scheme get a much better deal than long standing members. Work out the difference in cost between someone working 1 year at 20, getting 1 years worth of pension at retirement 45 years later and someone working 1 year at 64 assuming an undemanding investment rate of say inflation+2%.

purdyoaten

Linton wrote: »

The average employers contribution over everybody in the pension scheme may be 13.3%, but late entrants to a final salary scheme get a much better deal than long standing members. Work out the difference in cost between someone working 1 year at 20, getting 1 years worth of pension at retirement 45 years later and someone working 1 year at 64 assuming an undemanding investment rate of say inflation+2%.

Absolutely - agree with everything. I was merely pointing out the rates of contribution. As dustonh says - a no brainer!

chucknorris

purdyoaten wrote: »

Absolutely - agree with everything. I was merely pointing out the rates of contribution. As dustonh says - a no brainer!

The largest contribution is coming from the tax payer, obviously my calculation of 45% above is approx. (back of a fag packet) but the approx. contributions to the cost of my pension are from:

11% me
14% employer
20% tax payer

EDIT: Of course it could be argued that the 45% includes growth (above inflation) and overheads and profit of the annuity provider, so the cost is actually less than 45%, however the value to me remains at 45%

kidmugsy

Plus you get the warm glow of realising that taxpayers, including those who are much worse off than you, get to contribute to that delightful 45%. Yippee!

chucknorris

kidmugsy wrote: »

Plus you get the warm glow of realising that taxpayers, including those who are much worse off than you, get to contribute to that delightful 45%. Yippee!

Is that the way that you think? I certainly don't think that way, so no such warm glow experienced by me. In fact I agreed with the recent changes to the public sector pensions (which obviously decreased the value of them). But I am glad that it remains extremely good value and that I am recovering some of the tax that I have paid for more than 20 years as a higher rate tax payer without contributing to a pension (and therefore not receiving any pension tax relief) until I was 52 years old.

Spirit_2

FatherAbraham wrote: »

14%? More like 40%, surely, at 54?

How do you compute 14%?

Warmest regards,
FA

The NHS employers contribution is 14% pa whatever age employees are.

Why would an employer pay a higher contribution based on age?

hugheskevi

The NHS employers pay what the scheme actuary calculates to be the employer contribution rate. That is the amount that employers will need to put in (as a % of pensionable pay) to meet the cost of providing pension benefits (along with the employee contributions).

The calculation is correct at scheme level (if you consider the assumptions reasonable) but are wrong for each and every individual in the scheme (as the 'average' member will be for example 80% married, which no individual member will be).

So what the employer pays is different from the value to the individual. To illustrate this, what if the govt decides to reduce the discount rate used in the calculations (as has been done) - it increases the employer conrtibution rate but doesn't change the value of the pension to the individual at all. To illustrate further, if a notional deficit should arise in the scheme, the employer contribution rate would be increased to make good the deficit but again, the value of the pension to the individual would not change.

The nature of Defined Benefit schemes is that they are more valuable to older members than younger members. If you look at the Civil Service pension scheme, you would see that the Defined Contribution option has employer contributions that increase with age, as the contributions are intended to mirrror the value of the pension in the Defined Benefit sections. The average employer contribution is only right for those who are aged around the average of all scheme members, and earn about the same as the overall membership average.

In summary - it is irrelevant what the employer contributes in a Defined Benefit scheme, it is the value of the pension accrued that matters, as has been said earlier.