NHS Pension 2015 Scheme

Derekcrg8

Thanks for your reply. I understand that this is not for 1 year in isolation. What confuses me is the my contribution is greater than 1/54th of my annual salary. So is this contribution simply to enable participation in the scheme or where does it actually go?

justme111

I think it is simply to enable participation in the scheme. How contribution is calculated is not related to how the pension is calculated. You contributions are a certain percentage of your wages depending on the amount of your wages ( let's say 7% is you earn up to £2500, 8%if £3000 and so on). You pension is 1/54 of your annual salary multiplied by years worked.

hugheskevi

What confuses me is the my contribution is greater than 1/54th of my annual salary.

There is no relationship between your contribution rate and the accrual rate. You are confused as you seem to think there should be a relationship.

The pension you accrue is a promise to pay a particular amount of pension from a particular age. The cost of this is unknown, but actuaries calculate their best estimate and that determines the total cost. The cost is split between the member and employer contributions in whatever way the scheme/employer chooses.

The value of benefits accruing under the NHS scheme is calculated as 21.7% of pensionable pay, of which members pay 9.8% (on average).

So is this contribution simply to enable participation in the scheme

Paying the contribution is necessary to participate in the scheme. It is simply a part of remuneration, the scheme could just as easily be structured to have zero employee contributions and lower salaries to produce an overall similar effect.

where does it actually go?

It is paid to the Exchequer by your employer, where it is used to pay the pensions of existing pensioner members. Any surplus left over after pension payments are subtracted from contributions remains in the Exchequer to be used for whatever purpose the Government of the day sees fit, any deficit is covered by payments from the Exchequer.

Linton

REf: claimed life expectancy of 81.5 year

justme111 wrote: »

I simply googled it. Besides I live amongst people and see what age they are dying at. I accept your number may be more correct to use as it shows what age today's retirees are likely to die, not what age yesterday's retirees dying now. I am a bit sceptical about these projections though. .......

The 81.5 years is life expectancy at birth. Some people will die in childhood, be killed in road accidents etc etc well before they reach retirement which reduces the average age at death. The important figure is life expectancy at the age at which you take your pension, hence I used 68 which takes account of known future changes. Those who live til 68 are likely to be healthier than the those who dont. If you do die before retirement the value of your pension is passed to your nominated beneficiaries so isnt lost.

In addition you have known demographic changes. People dying now shortly after retirement may well have smoked all their lives or worked in life shortening jobs that no longer employ significant numbers of people, if they exist at all. So there is no need to assume major medical advances to see that average life expectancy can be expected to increase in the next few decades.

justme111

Dear Linton , as far as I can remember with the NHS pension the value of it is NOT passed onto beneficiaries if you die before retirement; your estate would get a lump sum if you die while still at work and that is about it. Surviving spouse would get something I believe if you die in retirement but I am sure it is not 100% and in any case they would not be that likely to live for that long themselves if you retired at 70+ as todays 30-40 yo likely will. I do not follow politics and news closely and I still remember some public figure talking recently about how retirement age should be moved again and that is after recent changes. It makes me think retirement age is going to be increased faster than life expectancy. I wish I was wrong. By the way my googling comes up with the figure of 16 years , not 19 like you stated

hugheskevi

as far as I can remember with the NHS pension the value of it is NOT passed onto beneficiaries if you die before retirement; your estate would get a lump sum if you die while still at work and that is about it.

The surviving spouse receives a lump sum of 2x salary plus a dependents pension of 33.75% of the member's pension entitlement, enhanced if the member dies prior to normal pension age. There are also provisions for other dependents if relevant. Full details at http://www.nhsbsa.nhs.uk/Documents/Pensions/2015_Members_Guide_(V4)_03.2016_-_digital.pdf

Surviving spouse would get something I believe if you die in retirement but I am sure it is not 100%

They get a pension of 33.75% of the member's pension, plus some lump sum if death occurs shortly after retirement.

and in any case they would not be that likely to live for that long themselves if you retired at 70+ as todays 30-40 yo likely will.

The State Pension age of 30-40 year olds is likely to be 68 or 69, based on life expectancy patterns. 70+ is possible but is less probable than <=70. See for example this link - https://www.theguardian.com/money/2016/nov/28/pension-age-may-be-about-to-rise-again-says-former-minister

Under standard actuarial assumptions, the surviving pension would be paid out for a little over 3 years if spouse and survivor have typical marriage patterns with regard to age differences between them, and die when expected. At individual level it may be much greater or less than this figure.

I do not follow politics and news closely and I still remember some public figure talking recently about how retirement age should be moved again and that is after recent changes.

DWP has commissioned an independent review of State Pension age, and reviews will happen regularly in the future as they are a requirement of Pension Act 2014. The outcome of the review has for a long time been expected to bring forward the date State Pension age increases to 68. Other recommendations are likely too.

It makes me think retirement age is going to be increased faster than life expectancy.

DWP have asked the Government Actuary's Department to provide calculations of the required increases assuming that (a) 33.3% of adult life is spent over State Pension age and (b) that 32% of adult life is spent over State Pension age. Several commentators have questioned this (eg see above article link), as this would be a policy change rather than a longevity link.

By the way my googling comes up with the figure of 16 years , not 19 like you stated

You probably found an estimate based on period life expectancy calculations (which ignores expected future improvements in survival rates and longevity), rather than cohort-based estimates.

Ray_Singh-Blue

Derekcrg8 wrote: »

what I don't understand is I contribute 9.3% of my salary each month, which over a year equates to more than 1/54th of my annual salary. What happens to this contribution pot if I only earn 1/54th of my salary? No doubt there is an easy explanation to this so if anyone could provide one I would greatly appreciate it.

Apples and oranges are being discussed in this fruit bowl.

Your contribution rate is an apple. It is 9.3%. You contribute 9.3% of your salary each month... which is the same as contributing 9.3% of your salary each year. No mattter how long you work, you will have contributed 9.3% of your salary to belong to the scheme.

The value of your pension however, is an orange. It depends on three main things: the accrual rate, the annual revaluation, and your length of scheme membership. The 2015 Scheme is a career average revalued earnings (CARE) scheme with an accrual rate of 1/54, and a revaluation of CPI+1.5% a year while in service.

Hughevskis replies are excellent, and another good explanation is at:

http://www.nhsbsa.nhs.uk/Documents/Pensions/2015_Scheme_Factsheet_V1_08.2014.pdf

Nebulous2

Derekcrg8 wrote: »

Thanks for your reply. I understand that this is not for 1 year in isolation. What confuses me is the my contribution is greater than 1/54th of my annual salary. So is this contribution simply to enable participation in the scheme or where does it actually go?

Okay in simple figures/terms. If you earn £54,000 a year, your accrued pension is 1/54 of that, or £1000 a year. This is then indexed over the years so that it doesn't fall behind todays value. Assume it is indexed at 2% for simplicity.

Next year your pay hasn't risen, so it is still £54,000. You accrue another £1000 of pension.

You are now guaranteed £2020 a year of pension when you retire. £1000 + £20 index linking for this year and £1000 for next year.

It continues to build, with each year's pension being added, and previous years being indexed until you retire.

cashbackproblems

I work in banking and my employer only gives 10% non-contributory so 14% in public sector is too good, no wonder the countries finances are in a mess haha!!

bigadaj

cashbackproblems wrote: »

I work in banking and my employer only gives 10% non-contributory so 14% in public sector is too good, no wonder the countries finances are in a mess haha!!

It's actually more than 14%, that is just a nominal figure.

Maybe we should let the banks sort out the countries finances, oh no, wait a minute just look what happened in 2008....