NHS Pension Non-UK Retiree

darkidoe

Hello all!

I started working for the NHS in Scotland from 2014 and have been enrolled onto the NHS 2008 scheme initially and then the NHS 2015 scheme came along and we are all shifted onto the 2015 scheme. I have now moved to England and will be looking to transfer my pension benefits from the Scotland scheme to the England/Wales one or possibly withdraw my contributions (2 years contribution). From my understanding the NHS 2015 Scheme is:

• A Career Average Re-evaluated Earnings Scheme, where 1/54th of each years pensionable pay is earned.
• Every year, the Pension is 're-evaluated' by adding in the rate of inflation according to Consumer Price Index + 1.5%
• At retirement you pension is the added yearly contributions with yearly adjustments according to reevaluation. Does this sound right?

I have seen very minimal infomation about employer contributions adding any value to the pension according to the documents I can find on their website. Although employer contributions is noted to be 14.3% from April 2015.

Question 1. Does the employer contribution still contribute to the value of your pension pot at all?

Question 1.1 If there is no additional value of the employer contribution, is the option of a self invested pension (SIPPs) a considerable alternative for it's flexibility?

I understand on very simple terms that there is still possibility of national insurance rebates, ill health pension payout, death benefits that might make the NHS pension a more solid insurance but don't know too much about the specifics or details.

Now the complication is that I might not be retiring in the UK. I believe if I continue to subscribe to the NHS pension, I can still retain the pension benefits when I leave the NHS and the accumulated pension will continue to rise with CPI + 1.5% yearly without any further contributions and still be eligible to take this at normal pension age (which will probably be 70+++, when I retire). Is that possible, even if I do not live in the UK at pensionable age??

Question 2. Is it possible to draw a pension from the scheme if I do not retire in the UK eventually and I leave after just several years of contributions?

Question 3. Just for curiosity, in actual terms other than political, administrative terms, are there any actual differences between the NHS Scotland pension scheme or NHS England/Wales pension scheme?

In summary, I think current pensions rules are more complex then spiders web and change so frequently that you just can't trust the rules to stay the same after every 10 years. Just want to figure out a plan, so I can make things work when I do want to retire and wonder if a private pension where I am in firmer control of the figures and numbers would be a viable option.

Many thanks reading to the end and giving me your two pence!

Cheers:beer:

molerat

1. There is no "pot", the pension is based on your earnings and not the value of investments or contributions. There is no real employer contribution as it is an unfunded scheme but the employer could pay 14%, 1% or 50% - it would have no effect on your pension entitlement. The pension could have a transfer value but that would be based on the value of the liability of the scheme towards you.
1.1 A self invested pension would not have the benefit of the employer contributions, real or assumed. Would you be able to achieve the same outcome from just your contribution ?
2. Yes
3. If Nicola gets her way your pension will only be payable in Groats but apart from that no real difference

hyubh

darkidoe wrote: »

I have seen very minimal infomation about employer contributions adding any value to the pension

The value of the pension, aside from the generous revaluation and decent accrual rate, lies in the government guarantee. The employer contribution, given the nature of the scheme, is just a cash accounting device.

Question 1. Does the employer contribution still contribute to the value of your pension pot at all?

This question misunderstands how 'defined benefit' pension arrangements work.

If there is no additional value of the employer contribution, is the option of a self invested pension (SIPPs) a considerable alternative for it's flexibility?

That would likely be extremely silly - your employee contributions, invested, wouldn't buy you anywhere near an equivalent annuity to the NHS pension forgone.

I understand on very simple terms that there is still possibility of national insurance rebates

Not since the (recent) ending of contracting out.

ill health pension payout, death benefits that might make the NHS pension a more solid insurance

Yes.

Now the complication is that I might not be retiring in the UK.

The NHS scheme will still pay it overseas. Unlike the state pension, you wouldn't miss out on cost of living increases either.

I believe if I continue to subscribe to the NHS pension, I can still retain the pension benefits when I leave the NHS

Yes, assuming you meet the two year vesting period.

and the accumulated pension will continue to rise with CPI + 1.5% yearly

No, 'just' CPI with an effective floor of zero were there to be years of deflation. CPI+1.5% is the revaluation rate for active members; if you left before normal pension age, your pension would become 'preserved'/'deferred' instead, and increase by the rate for that.

without any further contributions and still be eligible to take this at normal pension age (which will probably be 70+++, when I retire).

You take it earlier than your normal pension age in the scheme (which, as you imply, is now tied to your state pension age), however it would then be subject to an 'actuarial reduction'.

Is it possible to draw a pension from the scheme if I do not retire in the UK eventually and I leave after just several years of contributions?

The vesting period is two years. Leave after that, and the pension would become deferred. Since the government has banned transfers out from unfunded public sector schemes to DC arrangements, it would likely just sit there, increasing by CPI each year, until you drew it (when it would still increase by CPI each year).

Just for curiosity, in actual terms other than political, administrative terms, are there any actual differences between the NHS Scotland pension scheme or NHS England/Wales pension scheme?

Not particularly - the contribution bands are slightly different, but the fundamentals are practically identical.

In summary, I think current pensions rules are more complex then spiders web and change so frequently that you just can't trust the rules to stay the same after every 10 years.

Au contraire, public sector pensions are pretty stable.

Just want to figure out a plan, so I can make things work when I do want to retire and wonder if a private pension where I am in firmer control of the figures and numbers would be a viable option.

Not at all, for anything like equivalent benefits.

darkidoe

molerat wrote: »

1. There is no "pot", the pension is based on your earnings and not the value of investments or contributions. There is no real employer contribution as it is an unfunded scheme but the employer could pay 14%, 1% or 50% - it would have no effect on your pension entitlement. The pension could have a transfer value but that would be based on the value of the liability of the scheme towards you.
1.1 A self invested pension would not have the benefit of the employer contributions, real or assumed. Would you be able to achieve the same outcome from just your contribution ?
2. Yes
3. If Nicola gets her way your pension will only be payable in Groats but apart from that no real difference

Ah I am starting to understand the 'unfunded' nature of the scheme. That is to say you are entitled to your pension according to the rules of the scheme you signed up with and the pension is paid out by the pension scheme regardless of how much balance is in the scheme. Hence employer contributions doesn't factor into your final pension. There is no set allocated funds specifically set out for you. Just so happens the NHS scheme is backed by the government and thus it is virtually guaranteed. In other non-government backed unfunded schemes, it might be contributors paying for pensioner's pensions ad infinitum.

What does the employer's contributions contribute to then? To achieve a healthy margin of balance in the pension scheme??

Oh what does Nicola plan to do with pensions?

bigadaj

darkidoe wrote: »

Ah I am starting to understand the 'unfunded' nature of the scheme. That is to say you are entitled to your pension according to the rules of the scheme you signed up with and the pension is paid out by the pension scheme regardless of how much balance is in the scheme. Hence employer contributions doesn't factor into your final pension. There is no set allocated funds specifically set out for you. Just so happens the NHS scheme is backed by the government and thus it is virtually guaranteed. In other non-government backed unfunded schemes, it might be contributors paying for pensioner's pensions ad infinitum.

What does the employer's contributions contribute to then? To achieve a healthy margin of balance in the pension scheme??

Oh what does Nicola plan to do with pensions?

Many Public sector schemes are backed by the government but the unsustainable nature of the pension agreement is leading to them being diluted going forward. It's theoretically possible for historic pension accruals to be reduced but politically and legally unlikely.

In non government backed funds it is contributors paying for pensions ad infinitum there's no might about it. This has led to various debacles like Tata steel and BHS and many others over the years, the introduction of the PPF has meant that protection for pensioners is better than it was, though if the fund falls into the PPF then benefits are often diluted.

The employers contribution is a nominal figure as hyub has detailed below. It can be a nominally reported figure which doesn't agree with the calculated benefit for allowance purposes or the actual liability being incurred. Actual costs vary radically dependent on scheme details, salary and probably most importantly the age of the employee, but values around the 25% to 30% of salary are often quoted for the better schemes.

For the NHS scheme then there is effectively no pot, contributions are nominal and the taxpayer assumes the liability and pays for the pension when it is claimed.

We don't know what Nicola plans to do with pensions, and with many politicians it may well be the case that she doesn't know either, or maybe she does know but can't achieve her wishes dependent on the state of the economy and the government finances. I think molerats comment was in relation to potential independence and what might be uncertainty about whether Scotland would retain sterling, join the euro and start a separate currency, as in the groat. In the latter case then if you were living outside Scotland the fab,ed groat would be subject to exchange rate differences meaning that it could be worth les or more than sterling if you lived elsewhere in the uk. Similarly if you lived in another country you would be subject to exchange rate variations, but that is obviously true today as the pensions payable in pounds would vary in value terms in dollars, euros or any other currency as the markets moved.

hyubh

darkidoe wrote: »

Ah I am starting to understand the 'unfunded' nature of the scheme. That is to say you are entitled to your pension according to the rules of the scheme you signed up with and the pension is paid out by the pension scheme regardless of how much balance is in the scheme.

Not quite - that's the 'defined benefit' aspect. The 'unfunded' part is that employer contributions are simply an accounting device that 'pay' for current pensions, rather than (as an active scheme) being invested to eventually pay for your own. If there is a surplus of current contributions over current pensions being paid out, then it goes back to the Treasury; conversely, were current contributions not enough to pay current pensions, the government would make up the difference.

Hence employer contributions doesn't factor into your final pension. There is no set allocated funds specifically set out for you.

Again, that's the 'defined benefit' aspect, not the 'unfunded' part. In a 'funded' DB scheme (private sector DB + LGPS, mainly), it's still the case that there are no funds allocated specifically for an individual member. However, contributions do go into a 'collective' investment fund that is intended to minimise the employer's cost of keeping the pension promises it has made.

In other non-government backed unfunded schemes, it might be contributors paying for pensioner's pensions ad infinitum.

In a private sector DB scheme, if the sponsoring employer falls into administration the pension scheme goes into the 'Pension Protection Fund' (PPF) - benefits are usually reduced (given most schemes have, e.g., above statutory minimum pension increases), but the bulk of their pension for most is protected.

Well before that point, a number of private sector schemes in recent years are heading (or have headed) to some sort of arrangement with an insurer for the latter to take on their pension promises. This is costly, but does get rid of the risk. (On the other hand, there is still a lot of private sector DB schemes around, if closed to further accrual.)

What does the employer's contributions contribute to then?

For the NHS scheme, to pay current pensions only.

Andy_L

[QUOTE=darkidoe;71521424
What does the employer's contributions contribute to then? To achieve a healthy margin of balance in the pension scheme??

Oh what does Nicola plan to do with pensions?[/QUOTE]

The employers contribution is used to pay the pensions of those currently retired, any excess goes to the treasury, any shortfall is made good by the treasury. Due to differing demographics the NHS scheme currently collects in more than it pays out whilst the civil service scheme pays out more than it collects.

As said the main role of the employers contribution is an accounting function., it forces the employer to consider the cost of the pension when making decisions over staff numbers, in-house vs contracting-out or staff vs labour-saving equipment

darkidoe

I wonder if there are any pensions guru who has analysed it before? But considering that our contributions is anything from a tiered contribution rates starting from 5% to 14.5% of gross salary, but the return at pension age is only 1/54 (1.85%) of each years pensionable earnings with CPI inflation accounted for?? That is quite a big differerence no?

I wonder if there has been anyone who has taken the alternative route of forgoing the NHS pension and managing their supposed contributions privately? It would definitely be much riskier given there will be no government backing, entirely dependent on your own personal skills and judgement and temperament. It would be a crazy thing to do I reckon by conventional standards.

hyubh

darkidoe wrote: »

considering that our contributions is anything from a tiered contribution rates starting from 5% to 14.5% of gross salary, but the return at pension age is only 1/54 (1.85%) of each years pensionable earnings with CPI inflation accounted for?? That is quite a big differerence no?

Erm, the contribution 'hit' is a one-off, whereas the pension is recurring income until you (and your spouse, if applicable) die...

JoeCrystal

And of c, the NHS pension also include other elements as well, the pension is the very least you will get. I think there is also death in service benefit and ill retirement option as well.

In other words, forgoing NHS pension scheme is incalculably foolish.

bigadaj

darkidoe wrote: »

I wonder if there are any pensions guru who has analysed it before? But considering that our contributions is anything from a tiered contribution rates starting from 5% to 14.5% of gross salary, but the return at pension age is only 1/54 (1.85%) of each years pensionable earnings with CPI inflation accounted for?? That is quite a big differerence no?

I wonder if there has been anyone who has taken the alternative route of forgoing the NHS pension and managing their supposed contributions privately? It would definitely be much riskier given there will be no government backing, entirely dependent on your own personal skills and judgement and temperament. It would be a crazy thing to do I reckon by conventional standards.

You seem to be making multiple posts in the basis that you don't understand the NHS pension, it really isn't too complicated.

You make contributions, and the employer makes far higher ones nominally at least, that provides a pension at one point in the future.

It is unfounded so paid from government revenues, there is no pot.

You'd be welcome to manage your pension separately, and taxpayers would thank you for it.

These schemes have been pretty much wiped out in the private sector because they are expensive and unsustainable, and are a huge perk for those working within the public sector.

I'm not particularly against db pensions but their value needs to be appreciated, they can be worth something like £10k on top of a £30k salary and that needs to be acknowledged by employees, employers and everyone else.