NHS Pension Confusion

paparossco

Hands up! I missed that the Hutton reforms had actually reached MPs.

hyubh

paparossco wrote: »

Hands up! I missed that the Hutton reforms had actually reached MPs.

The final salary scheme the current CARE one for MPs replaced had the choice of 1/60, 1/50 and 1/40 accrual rates at contribution levels of 7.75%, 9.75% and 13.75% respectively. In contrast, the final salary scheme the current CARE NHS scheme replaced had a single 1/60 accrual rate with the contribution rate between 5.0% and 14.5% tiered by whole-time equivalent pay.

Other than that, NRAs, increases, death benefits, ill health retirement terms, etc., were all either the same or very similar between the two final salary schemes.

Thrugelmir

marlot wrote: »

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.

Two things immediately spring to mind.

Firstly is that if you carry on working you'll continue to accrue further pension benefits. Another 10 years would increase the base pension considerably.

Secondly the pension will continue to grow with index linking. The £20k pension at a compound rate of 3.5% will have grown to £28,212 pa at age 65. Meanwhile the early drawn pension growing at 2% will have only grown £16,877.

Depending on life expectancy. The gulf is therefore far far wider than you suggest.

marlot

Thrugelmir wrote: »

... Firstly is that if you carry on working you'll continue to accrue further pension benefits....Secondly the pension will continue to grow with index linking.

Both points are true. If one is prepared to continue working. Not for me!

stoozie1

I thought both the 1995 and the 2008 schemes had a 1/80th accrual rate?

hyubh

stoozie1 wrote: »

I thought both the 1995 and the 2008 schemes had a 1/80th accrual rate?

No, the 2008 scheme, like the 2008 versions of the TPS and LGPS, switched from 1/80 pension + 3/80 lump sum to 1/60 pension + no standard lump sum.

Windofchange

Adamc wrote: »

Hi all

I'm relatively young guy working in the NHS and I am in the latest pension scheme. The only problem is I don't understand it.

Could anyone advise me on how it works?
Whether it's worth considering other pension schemes?

I'm ashamed to say, I'm very clueless regarding the £300-400 that is being deducted from my income each month.

Thanks for any advice. :money:

Hi Adam,

You've had some brilliant advise already, and I can only echo - STAY IN THE NHS PENSION SCHEME!!

I also work in the NHS, and up until recently was pretty similar to you probably in not fully understanding how it all worked. There are basically three sections:

1) The 1995 scheme
2) The 2008 scheme
3) The 2015 scheme

Which one you were in will depend on your length of service. If you joined before 2008, you will likely be in the 1995 section, if you joined between 2008 and 2015 you will likely be in that one, or after 2015 in that one. I remember a while back we had a pack that said basically we are moving you to the 2015 scheme, which is to my understanding better than the 2008 section. You will likely be in the 2015 section if you are a recent joiner.

Again, as others have said, you pay in, but what you pay in is just a membership fee. End of each year, you accrue 1/54th of that years salary, and that is then revalued each year until you hit retirement. So, in 40 years of service for instance, you will have built up 40 pots of money, which will have been revalued each year, and the sum of those 40 pots will be your yearly pension. Very simply, if you build £500 a year, you would receive 40 x £500, so £20,000 per annum as your pension - this is very basic and ignores the revaluing of your pots each year. The reality is your yearly income would be much higher.

Things to bear in mind.

1) Things like bike to work, PCP car deals etc take away from your pensionable pay, so will affect your final sum. It won't be dramatic if you just did it once for a few years in your career, but if you did it regularly that could add up.

2) Pensionable pay does not include overtime payments - your pot for each year is just calculated on your actual base pay. This is a shame as I log thousands of pounds of overtime - probably about a third ontop of my actual base salary.

3) The 1995 section was supposedly the best, but unfortunately that has closed a long time ago to new applicants. I think that our current 2015 section however is outstanding, and if you build up enough years service, you will retire very comfortably. I don't know what you do, or what your career prospects are, but think of this:

40 years of service. If you start as a band 5 clinical as an example, that is around £25k London, £21k elsewhere. If we take London as that is my area:

Year 1 pot somewhere around £400. You then go up through the pay bands, get some promotions and end up year 40 as a Band 8a/b/c. Your pot for that year may be in the region of £1200 - £1500 or so (at current prices, a 60 - 90k salary).

So, if you had done 10 years at band 8 level, you will have accrued around £15k per year of pension just in those ten years, let alone the 30 preceding that. I joined a little later having had a career before, but even I can expect to have 30 - 35 years of service assuming I stay in the NHS. Having already been promoted a couple of times from graduate level, I am also quite hopeful that I will end my career at a decently senior level. A rough guesstimate will be that I will quite easily be a higher rate tax payer once my NHS pension is added to my state pension, and that is added to any annuity I buy with the sizeable pot I built in the private sector prior to joining the NHS. Retirement for me looks pretty rosey!

TL;DR - Stay in the NHS scheme!!

Adamc

marlot wrote: »

As others have said, you're thinking of this the wrong way. There isn't a 'pot' as such.

How does it work with overtime and shift enhancements. These seem to cause increased pension deductions so can I assume they are increasing the final figures/having a positive impact?

mgdavid

Adamc wrote: »

How does it work with overtime and shift enhancements. These seem to cause increased pension deductions so can I assume they are increasing the final figures/having a positive impact?

overtime - read point 2 of the post immediately before yours

mollycat

Adamc wrote: »

How does it work with overtime and shift enhancements. These seem to cause increased pension deductions so can I assume they are increasing the final figures/having a positive impact?

Shift enhancements will count when calculating your pension entitlement based on your best years pay out of your final 3 years pay,

Overtime does not.

Prior to your final 3 years of employment neither is relevant.

** Above true for 1995 Section**