NHS Pension Scheme (opting out + receiving employer contributions)

katy123

I am currently an active member of the 2015 career average revalued earnings (CARE) scheme. I understand the employee and employer contribution amounts and wanted to opt of the scheme but want the employer contributions to be directed to a DC scheme of my choice. It is clear that the employer will be no worst off given that the contribution amount would be the same as if I was in the 2015 CARE scheme. My reasons for this is all solid and checked by an adviser – flexibility, move overseas, purchase commercial building etc….I have been told it’s not possible over the phone and but written to them for a precise reason. Does anyone know if I’ve been told the correct answer and also the exact reason. I suspect the real reason is because it is an unfunded scheme and the employer contributions don’t actually exist, i.e all pensions in payment are paid by the treasury…

Triumph13

Leaving aside the advisability or otherwise of what you are trying to do, whilst employers now have a legal obligation to offer a pension scheme, they are under no obligation whatsoever to pay equivalent contributions to a completely different scheme for someone who opts out. I would be astounded if they agreed to your request.

hugheskevi

Does anyone know if I’ve been told the correct answer and also the exact reason.

Yes you have been informed correctly. Among the main public service pension schemes only the Civil Service has a Defined Contribution alternative to the main scheme which can receive an employer contribution.

Your specific employer would be no worse off, but the general Exchequer would be worse off. Your employee and employer contributions to the CARE scheme are returned to the Exchequer and so benefit the national accounts. The funds are used to pay existing pensioners (I think the NHS scheme is cashflow positive, so the scheme takes more in contributions than it uses to pay pensioners). If instead the contributions were sent to a Defined Contribution provider, additional borrowing would be required. Insignificant in an individual case, but if offered generally the loss of revenue could be significant.

In addition, the employer contribution almost certainly includes an element of deficit reduction funding, which would be inappropriate to offer to members even if a DC alternative was available. The member contribution rate is also calculated across the scheme as a whole, and can therefore be significantly different to the value of benefits any given individual is accruing. Very generally, if members had a choice to take the employer contribution and put it into a DC scheme, younger members would be expected to be better off doing this, and older members worse-off (adverse selection). That is one of the reasons the Civil Service DC alternative scheme has tiered employer contribution rates which increase with age.

katy123

hugheskevi wrote: »

Yes you have been informed correctly. Among the main public service pension schemes only the Civil Service has a Defined Contribution alternative to the main scheme which can receive an employer contribution.

Your specific employer would be no worse off, but the general Exchequer would be worse off. Your employee and employer contributions to the CARE scheme are returned to the Exchequer and so benefit the national accounts. The funds are used to pay existing pensioners (I think the NHS scheme is cashflow positive, so the scheme takes more in contributions than it uses to pay pensioners). If instead the contributions were sent to a Defined Contribution provider, additional borrowing would be required. Insignificant in an individual case, but if offered generally the loss of revenue could be significant.

In addition, the employer contribution almost certainly includes an element of deficit reduction funding, which would be inappropriate to offer to members even if a DC alternative was available. The member contribution rate is also calculated across the scheme as a whole, and can therefore be significantly different to the value of benefits any given individual is accruing. Very generally, if members had a choice to take the employer contribution and put it into a DC scheme, younger members would be expected to be better off doing this, and older members worse-off (adverse selection). That is one of the reasons the Civil Service DC alternative scheme has tiered employer contribution rates which increase with age.

So a ponzi scheme? take from young to pay for old!!!!!!shoddy practice.Call the Police

hugheskevi

So a ponzi scheme?

More commonly called unfunded pension schemes. The difference being that ponzi scheme is not sustainable, whereas unfunded pension schemes are sustainable in perpetuity.

Economically-speaking, it doesn't matter whether schemes are funded (redistribute resources from active workers to inactive pensioners via ownership of profits and dividends) or unfunded (redistribute resources via tax and spend) - although with funded schemes you would get all the costs of investment and the govt. being in control of 100s £billions of investments.

The implicit promise of NHS healthcare, future provision of teaching, etc, are all future liabilities which will need to be paid for in future when the costs fall due.

take from young to pay for old

That is what every single pension scheme does, one way or another - redistribute resources from the active to the inactive.

Call the Police

They also have unfunded pension arrangements - no DC alternative there either

atush

How do you think state pensions are funded?

dunstonh

I understand the employee and employer contribution amounts and wanted to opt of the scheme but want the employer contributions to be directed to a DC scheme of my choice.

There is no direct employer contribution with that scheme.

It is clear that the employer will be no worst off given that the contribution amount would be the same as if I was in the 2015 CARE scheme.

That would be an incorrect assumption.

My reasons for this is all solid and checked by an adviser – flexibility, move overseas, purchase commercial building etc….

Was that a real adviser or a pretend one? (that is not a joke, there are a lot of non-advisers pretending to be advisers - especially in the overseas investment area). The "adviser" doesnt appear to know UK pensions.

have been told it’s not possible over the phone and but written to them for a precise reason

That is correct. it is not possible. And thankfully not as what you propose would almost certainly be a costly error on your part.

katy123

dunstonh wrote: »

There is no direct employer contribution with that scheme.



That would be an incorrect assumption.



Was that a real adviser or a pretend one? (that is not a joke, there are a lot of non-advisers pretending to be advisers - especially in the overseas investment area). The "adviser" doesnt appear to know UK pensions.



That is correct. it is not possible. And thankfully not as what you propose would almost certainly be a costly error on your part.

Yes, real adviser, chartered and certified with years of experience. It would not be a costly error if employer contributions are paid, the flexibility in a dc environment so far superior.....i'm sure you are aware being an adviser yourself, thanks.

Silvertabby

“ My reasons for this is all solid and checked by an adviser – flexibility, move overseas, purchase commercial building etc….
”
Was that a real adviser or a pretend one? (that is not a joke, there are a lot of non-advisers pretending to be advisers - especially in the overseas investment area). The "adviser" doesnt appear to know UK pensions.

Yes, real adviser, chartered and certified with years of experience. It would not be a costly error if employer contributions are paid, the flexibility in a dc environment so far superior.....i'm sure you are aware being an adviser yourself, thanks.

So, you are saying that this 'real advisor' recommends a DC pension scheme/overseas investments/commercial property over and above a public sector defined benefit pension scheme? In my experience (retired LGPS administrator) no reputable IFA would recommend a transfer out of such a scheme in these circumstances.

jimi_man

Leaving aside the wisdom (or not) of leaving the NHS scheme, surely any bone fide advisor would be aware of the impossibility of diverting 'employer contributions' from the NHS into a private scheme?

dunstonh

It would not be a costly error if employer contributions are paid, the flexibility in a dc environment so far superior

It would be costly as the scheme benefit in monetary terms is worth around 25-30% of your salary if you bought an equivalent yourself. No employer is going to pay you anywhere near that amount.

i'm sure you are aware being an adviser yourself, thanks.

Im am very aware of the benefits and what you say does not match reality. If it was a real adviser then they need a few more years experience.

1 - you cant do it - any real adviser would know that
2 - if you could do it then you would never be able to match the benefits with what their hypothetical contribution could be.

It is different if you were talking about a money purchase scheme where the employer is willing to contribute the same amount to your individual scheme. Then what you say would be reasonable if the employer was willing. However, not the NHS scheme.