32 year till retirement pay our mortgage off Vs NHS pension

kara_p_uk

My husband and I both work in the nhs. His salary has just gone into the 12.5% contribution bracket of the nhs pension so on a monthly basis we are now 100 a month worse off which we cannot afford.

we are both 2015 scheme members and so will not be due to be paid out until 2048 when we are 68, as long as the state pension age hasn't increased.

His salaried contributions are 500 a month and mine are 125. After considering the income tax we would pay on earnings if not in the pension the nhs calculator says between us we would have an additional £430 a month.

therefore, we are considering other ways to invest rather than the NHS pension.

Would we be better off not paying into the nhs pension and instead paying into a decent life insurance that would pay out critical illness/death covering the mortgage and a lump sum equivalent to the nhs death in service lump sum (quick quote check about £150 a month) and using the remainder of what would have been paid into a pension fund to over pay our mortgage by £250 a month which would pay our mortgage off in 15 years instead of 23 years.

this would mean that in 15 years we would have £1350 a month to invest as we would no longer have our £1100 mortgage payment or the overpayment to make.

a quick estimate of how much we would pay into the NHS pension (not including our employers additional contribution) over the next 32 years is £240,000 even if we lived to 100 I'm not sure we would get that figure back from the pension fund?

Any others had experience of this??
Thanks
Kara

Triumph13

Although I should welcome your idea as a taxpayer given how much it would save the exchequer, I hate to see anyone do anything monumentally stupid so DON'T DO IT!


Do you seriously think that by some combination of overpaying your mortgage and investing in a personal pension you can really make up for losing not only the tax you will pay, but also the employer contributions which are significantly higher than the 12.5% your OH is paying? And that's before you even start to factor in the value of the fact that the NHS pension is guaranteed and predictable.


If you opt out then I would be flabbergasted if you ever managed to make a worse financial decision in your lives.

JoeCrystal

I didn't bother reading the rest of the post once I came across the part "Would we be better off not paying into the nhs pension,"

No, No, just No. Having said that, as a hardworking private sector taxpayer , I would personally applaud your foolishness as it will benefit the Treasury in paying out less toward the NHS pension scheme. But seriously, why would anyone opt out of the very generous public sector pension scheme is beyond me, especially when they are paying peanuts for them. You can even get ill health retirement from the pension scheme if you qualify for it (Is it even possible to get that kind of insurance to do ill health retirement provision privately)?

kara_p_uk

I understand the value of the pension being guaranteed and this would be a strong reason to remain in the pension scheme.

We are currently living very close to our income at the moment, I get paid on 28th and have 1p in the bank till then. The change in his pension contributions this month from 9.3% to 12.5% will have an impact on our ability to pay our bills etc. I don't want to end up borrowing or paying out for credit card debt when there may be an alternative as we simply don't have another £133 worth of savings to find in our budgets without the children cutting their Scouts and Tennis which I don't want to do to them.

Our employer contributes an additional 14.5% (I think) over 32 years that total pension contributions from us and them roughly would £419000 between now and when we retire, this sounds monumentally higher than the return would be? How many years post retirement at 68 would we need to survive to actually get the level of return back?

If we had paid off our mortgage our property would be owned outright which we would be able to sell once we reach state retirement age as we have an alternative place to live at retirement age. The property value is greater than the potential pension investment.

I have asked for our predicted pension rates as this will give us an idea of the potential monthly amount we will have to live off at 68 but I don't want to work till I'm 68, my dad died at 57, my husbands dad at 54, my grandma at 54... Our biggest debt is our mortgage and so it is that debt that ties us to having to work for so long.

I fully understand the need to plan for retirement and if i was in the original NHS pension scheme where I could retire at 55 I would in no way consider leaving it but this current scheme is linked to state retirement age so if that increases again and again over the next 32 years I've got to work longer and longer.

liviboy

kara_p_uk wrote: »

I fully understand the need to plan for retirement and if i was in the original NHS pension scheme where I could retire at 55 I would in no way consider leaving it but this current scheme is linked to state retirement age so if that increases again and again over the next 32 years I've got to work longer and longer.

You are more than able to retire BEFORE state pension age. It is simply that the pension will be reduced by a %age for each year you take it early as you will be taking it for longer (hopefully anyway).

You are under no obligation to work until 68, 69, 70, etc. At present even the 2015 NHS scheme can be taken at 55 though government rules may change to increase the 55 age to state pension age minus X number of years...but that would apply to equally to all types of pension.

JoeCrystal

kara_p_uk wrote: »

I don't want to end up borrowing or paying out for credit card debt when there may be an alternative as we simply don't have another £133 worth of savings to find in our budgets without the children cutting their Scouts and Tennis which I don't want to do to them.

Sorry to be blunt, but you are going to have to cut something else. There is always something to trim down on but pension contribution is not one of them. There is also a risk of opting out and then, for one reason or another, never got opted back in as well.

Anyway, if he got a change in contribution from 9.3% to 12.3%, then that suggest he is in fifth tier, £47,846.00 to £70,630.99??? If so, then the decision to opt out is even more foolish, losing the higher rate tax relief on it.

steampowered

His salaried contributions are 500 a month and mine are 125. After considering the income tax we would pay on earnings if not in the pension the nhs calculator says between us we would have an additional £430 a month.

What you are saying is that putting £625 in your pension costs you £430.

Putting £625 into your pension is almost certainly a better way of saving for retirement than putting £430 towards your mortgage.

I'm not sure how the NHS pension schemes work exactly, but it sounds like you are getting an employer contribution as well, which sounds like it effectively doubles that £625.

So let's say £1,250 in your pension is costing you £430. That sounds like a good deal on me.

If you do want to opt out of the pension scheme you need to take a long, hard, realistic look at what your income would be in retirement before making that decision. You could easily be living for another 30 years after you retire. The state pension is about £8,000 a year.

I totally understand cutting back for the kids though, after all the financial pressure will ease when they get old enough to lose home, just make sure you have a plan for catching your retirement plans back up when that happens.

stoozie1

Kara, it sounds as though things are very tight financially, as other posters have said, not making pension contributions into a really good scheme would be troubling.

Could you perhaps post a SOA on DFW to see if there are ways things could be less tight each month?

kara_p_uk

whats an SOA of DFW?

stoozie1 wrote: »

Kara, it sounds as though things are very tight financially, as other posters have said, not making pension contributions into a really good scheme would be troubling.

Could you perhaps post a SOA on DFW to see if there are ways things could be less tight each month?

kara_p_uk

Thanks, yes he earns £48000 so just in the 12.5% he wasn't at first but the 1% payrise has just pushed him into it this financial year which we weren't expecting.

JoeCrystal wrote: »

Sorry to be blunt, but you are going to have to cut something else. There is always something to trim down on but pension contribution is not one of them. There is also a risk of opting out and then, for one reason or another, never got opted back in as well.

Anyway, if he got a change in contribution from 9.3% to 12.3%, then that suggest he is in fifth tier, £47,846.00 to £70,630.99??? If so, then the decision to opt out is even more foolish, losing the higher rate tax relief on it.

stoozie1

a Statement of Affairs on the sub-forum of MSE called Debt-Free Wannabe. It's a way of getting fresh eyes on your finances to see if any easy savings can be made.