NHS Pension Confusion

andy001

Adamc wrote: »

Just on that £30,000 annual salary example with 3K per year pension contributions .

So instead of that £3K being amassed as a lump sum I would be in receipt of £555.55 every year from just one year's contribution?

Let's say CPI is 0 the following year and I put in another £3000.

£555.55 + £555.55 = £1,111.10 per year (after year two)?

Again - apologies for my total ignorance.

That's right.
But if you take pension before retirement age then there would be some penalty
Im not too sure how they calculate penalties'?
Either on Life time earning deductions or the above pension figures? One of the experts may be able to shine light on this!

andy001

hugheskevi wrote: »

If you breach the Annual Allowance (with or without a tapered Annual Allowance) you can pay the tax charge through Scheme Pays, which reduces the accrued pension in return for the scheme paying the Annual Allowance charge. Looking it on a single year of accrual basis, that means you pay 14.5% (or whatever an individual's contribution rate is) in return for building up a pension net of the Annual Allowance charge.

The Annual Allowance charge is calculated in the same way for all members, at factor 16. But the Scheme Pays factor used to calculate the pension is set on an actuarial basis and so the debit is higher for younger members, and so for any given level of Annual Allowance charge, a younger member's pension will be reduced by more than an older member if they use Scheme Pays. That is where individual member characteristics come into the calculation.

If you have access to scheme pays factors you can pretty easily knock up a spreadsheet which calculates what is accrued net of the Annual Allowance charge, then it is simply a matter of considering whether what is accrued is worth the cost (the employee contribution, including effect on income tax via tax relief).

It basically comes down to the point that even if you are paying high taxes on something, it is still better to pay the taxes and have something left, than not have anything at all but pay no taxes. If the individual could negotiate a higher salary (as would be commonplace in the private sector) in return for lower or no pension contributions, that would probably be better but that is not usually offered in the public sector. Once the Lifetime Allowance also become an issue, it is quite likely that what is accrued is not worth the contribution, especially for relatively younger members.

That's great analysis!:money:

marlot

andy001 wrote: »

That's right.
But if you take pension before retirement age then there would be some penalty
Im not too sure how they calculate penalties'?
Either on Life time earning deductions or the above pension figures? One of the experts may be able to shine light on this!

It'll be based on an assumption of your lifespan. It's not a 'penalty'.

If I take my civil service pension at 65 and assume I live to 85, that's 20 years of pension.
If I take it at 55 instead, the pension is paid for 30 years. So naturally it's rather lower.

It works for me, because I don't intend to work beyond 55.

justme111

nhsbsa website
i would not sweat too much finer detail as it may/it will change anyway .
If you just startrd working there would be surely many other areas of your life and finances requiring your attention that are more relevant.
pensionable age is 67 , the deductions for taking it early are about 4%/year ( depending on year the nimbers are far more detailed but taking 4 % as a guide is good enough for approximate planning. Ie if by the age of 6O you accrued 25 k payable from the age 67 but you take it at 6O you will get 25OOO - 7OOO(1OOO×7(=18 k

marlot

After tax, the two options can be remarkably similar if you're no longer working...

Taking the lifespan assumptions I gave earlier:

• If I take my civil service pension at 65 and assume I live to 85, that's 20 years of pension.
• If I take it at 55 instead, the pension is paid for 30 years.

Let's say my pension is £20k a year at 65. They will pay out £20k x 20 = £400k gross.
On that, I'd pay 20% tax on everything over £11,500 a year = £1700. So net income = £18300 x 20 = £366k.

Alternatively, I decide to take it at 55. The early retirement factor is 0.607 = £12,140 a year. £12,140 x 30 = £364k gross.
Tax is £128 per year, so net income = £360k.

crv1963

Adamc wrote: »

Is it the gross or net salary that is pensionable?

I have various deductions: tuition fees from self-funded training, Student Loan, car parking etc.

I had considered getting a lease car but it was so expensive. If it also affects pension then it would have been a terrible idea.

Gross salary, so paying for a lease car reduces pensionable pay and as your pension is career average then you reduce pension in the longer term. But you need to weigh up advantages/ disadvantages in your own circumstances and if you can increase contributions to an alternative such as AVC to mitigate any reduction in pension because of lease car payments.


Personally I have always shunned lease cars because of the costs of personal mileage disadvantages me due to the high miles I do, you need to weigh up increased tax costs, lease cost and pension reduction/ cost of compensating for reduced pension against the cost of privately buying and running a car.


Lease cars do have advantages - one payment per month, no ongoing costs other than fuel, no worries about reliability and of course if you aren't fussy about what you drive there are some great deals about that some I work with like - some claim and I don't doubt them that some months they actually get paid to have the car. And if you put an inexperience driver on the insurance the cost is really cheap- a friend has two of his children on the insurance for £10 per month per child a lot cheaper than if he put them on a private policy.


I'd speak to pension officer, colleagues about the pension scheme and lease cars and other salary sacrifices that affect not only pension but mortgage ability. You need to decide for your self after doing a bit of learning.

paparossco

Take into consideration that the NHS Pension age is now pegged to the State Pension age so as this rises so does age at which you can access your NHS one without an actuarial reduction. It is still one of the best out there, apart from MPs of course... Also the NHS is one of the few employers left that you can probably still see yourself working for during your whole working life so it pays to join this scheme.

Andy_L

andy001 wrote: »

Thanks
Stoozie1- What’s the difference with GPs?
Why can’t they get 1/54th of annual pay? I’m confused

GPs are an odd case when it comes to NHS pensions. Many of them are not NHS employees but are self-employed/small business owners who provide services to the NHS. Most of their NHS earnings aren't salary but turnover, and thier business model determines how the profit is turned into salary.
In addition, as effectively NHS employers rather than employees they have to pay both employers and employees contributions

stoozie1

AdamC have you accessed your total rewards statement yet? I think it will help with a few of your questions.

I work out OH's projected pension using a spreadsheet which I use a guesstimate of the dynamising, and where he will likely be on his NHS payspine in certain years of his career. It wouldn't be too hard for you to build one.

Are you a GP?

hugheskevi

It is still one of the best out there, apart from MPs of course...

What makes you think the MP scheme is better?

MP contribution rate is 11.09% compared to 13.5% for a comparable salary in NHS scheme. The accrual rate in MP scheme is 1/51 compared to 1/54 in NHS.

Both are career average schemes with Normal Pension age equal to State Pension age.

Revaluation in MP scheme is CPI, in NHS scheme it is CPI+1.5% for active members.

I don't think there is much between the schemes? MPs better for short-service, NHS better for those who stay a long time?