1995 NHS Pension Defer or not?

Willsie01

Looking for people who understand how NHS pensions work.
Particularly the 1995 section.

My wife has reached retirement age as far as her pension with the NHS is concerned but intends to carry on working.
The big question, which I hope someone here can help with, is does she claim her pension or defer it and continue making contributions so as to build up the eventual benefit?

I've looked at how benefits increase, and if you look at an example scenario where she defers for a year, she will lose out, in that year, the pension she would have received plus the expense of further pension contributions.
I've estimated it would then take 22.24 years of receiving the additional pension before these losses are recouped:(
Am I missing something?
This seems a very poor reward for remaining in work and paying in extra contributions, never mind the extra contributions from her employer.

kidmugsy

Willsie01 wrote: »

I've estimated it would then take 22.24 years of receiving the additional pension before these losses are recouped

Did you ignore inflation? if so, why?

hyubh

Willsie01 wrote: »

I've estimated it would then take 22.24 years of receiving the additional pension before these losses are recouped:(
Am I missing something?

Not really. The 1995 section doesn't give actuarial increases for late retirements, i.e. if a member takes their pension after NPA, it isn't increased to reflect the fact it will be drawn for a shorter period than if it had been taken at NPA, other things being equal.

This seems a very poor reward for remaining in work and paying in extra contributions

Well... the notion of 'reward' doesn't really come into it. Even if we were talking about the 2008 section where late retirement factors do apply (albeit with a higher NPA in the first place), the general intention is that, on average, someone drawing their pension late will cost the scheme the same as if had they drawn it at NPA.

Moneybutterfly

The NHS pension in my opinion is a whole different ball game x I'm in it and have been ages x that long my 1995 is froze along with 2008 and now 2015 as I'm having a years break x my understanding is that she's best cashing in if at retirement age then not working over the hours they allott which I thinks just less than part time. Her place of work will have a pension advisor free of charge she might be best picking their brains, I did my advisor and they were great x

Notfarfromtheborder

Take pension benefits, carry on working. I think however that if benefits have started to be taken from 1995 scheme then no further NHS pension can be accrued

Willsie01

kidmugsy wrote: »

Did you ignore inflation? if so, why?

Yes, I did ignore it on the assumption that the purchasing power of the pension once it kicked in would remain the same if, all things being equa...ish, the annual increases matched the rise in costs.

If this is an inaccurate method please suggest a better way.

Willsie01

hyubh wrote: »

...the general intention is that, on average, someone drawing their pension late will cost the scheme the same as if had they drawn it at NPA.

Hmm...this is interesting!
I think what you are saying is that the cost of the pension to the scheme is "cost neutral", which is a term I came across recently in the context of a deferred State Pension.

It leads me to another question: as my wife intends working reduced hours till state retirement age of 66. Do I take it as a given that the pension she finally receives is on a "cost neutral" basis or do I need to check?
How do I check?

hyubh

Willsie01 wrote: »

Hmm...this is interesting!
I think what you are saying is that the cost of the pension to the scheme is "cost neutral", which is a term I came across recently in the context of a deferred State Pension.

I understand the lower state pension deferral rate introduced with the 'new' state pension last year is intended to be 'cost neutral' in this sense, yes.

It leads me to another question: as my wife intends working reduced hours till state retirement age of 66. Do I take it as a given that the pension she finally receives is on a "cost neutral" basis or do I need to check?

Unless I'm misunderstanding the question (which is possible!), it won't be because the 1995 section doesn't give late retirement increases. If she reduces her hours at NPA, the effect will be greater than otherwise given she'll be accruing additional reckonable years at a rate slower than she's missing out on pension payments.

One scenario where not drawing her pension at NPA might make clear sense is if she gets a promotion or other sort of boost to her rate of pay at that point... though by the sounds of it, this is unlikely?

Willsie01

hyubh wrote: »

One scenario where not drawing her pension at NPA might make clear sense is if she gets a promotion or other sort of boost to her rate of pay at that point... though by the sounds of it, this is unlikely?

Promotion, the only likely way of boosting her rate of pay, is definitely not on the cards.
She has turned it down on more than one occasion.

After reading the various replies to my original post I believe the question I want to ask now is: if my wife continues to work and contribute to the scheme, I understand that the additional pension she will receive is intended to be "cost neutral" to the scheme, but, will it be "benefit neutral" to her also?
In the knowledge that this is based on her not dying before the break-even date is reached.

hyubh

Willsie01 wrote: »

I believe the question I want to ask now is: if my wife continues to work and contribute to the scheme, I understand that the additional pension she will receive is intended to be "cost neutral" to the scheme

No! 'Cost neutral' relates to any actuarial increase for retirement after NPA, which (as we've seen) won't apply here.

, but, will it be "benefit neutral" to her also?

I don't understand what you mean by 'benefit neutral' here. Your initial assumptions were (in a nutshell) the correct ones, i.e. the additional reckonable service from staying on is unlikely to make up for the lost pension in payment (+ continuing employee contributions).

Better to ask the following:

- Will her employer allow her to do the usual NHS thing of briefly leaving in order to draw the pension before continuing employed?

- Were she to do this, are there any 'abatement' rules to be wary of? (If so, this should factor into how many hours exactly she drops down to.)

- On rejoining, will there be another pension arrangement to join, or will that be it for her occupational pensions with the NHS?

On the last point, I don't think joining the 2015 scheme, afresh, is possible, but I may be wrong, and even if it isn't, perhaps the employer operates an auto-enrolment DC pension with employer contributions instead? The answer might again be negative, but best to be sure.

kidmugsy

Willsie01 wrote: »

Yes, I did ignore it on the assumption that the purchasing power of the pension once it kicked in would remain the same if, all things being equa...ish, the annual increases matched the rise in costs.

Yes but what you want to assume means that your "22.4 years" is guaranteed to be wrong because you are setting a fixed sum of money (i.e. one year's pension forgone plus the cost of the pension contributions) against an inflation-protected flow of money.

You could refine the calculations but I suspect it's a better use of your time to pursue hyubh's suggestions.