NHS Pension Confusion

GT85

Kudos Windofchange. Superb post.

Tried phoning HR & Payroll today, but as ever, they're a pain in the !!!! to get a hold of!

If the 2015 scheme is based on revalued 1/54 of your annual salary, why do (~£20k-30k earners) pay 9.3% per month into pension contributions?

Generic question - I've recently returned from a 6 month career break. Since returning I haven't been making contributions from my pay, but my 'pensionable pay' has been increasing with each pay slip, at similar levels of previous years. I do not understand it. My wife is also a nurse, and her pension contributions have been reactivated, so I assume I'm just still frozen. But why is my 'pensionable pay' increasing?

stoozie1

GT85 you couldn't buy a guaranteed 54th of pensionable pay revalued by CPI annually plus 1.5% and death and ill health benefits for anything like as low as 9.8%.

OH pays 12.5% and it's still a no-brainer.

JoeCrystal

GT85 wrote: »

If the 2015 scheme is based on revalued 1/54 of your annual salary, why do (~£20k-30k earners) pay 9.3% per month into pension contributions?

Because it is very expensive? The employee need to contribute something to make it more affordable. You don't just get pension but also there is an option of ill health retirement, death in service benefits and so on. The employer pays much more than 9.3% (between 14.3% to 24.8%). I think 9.3% only apply to £26,824.00 to £47,845.99 band, people on £21,478.00 to £26,823.99 contribute 7.1%.

Let say someone on £24,000 after 40 years of work want to get 74% of the salary at 68 by saving into their own pension pot (and assuming that the pay-rise and cost of living revaluation is the same) or £17,760, this person would have to contribute 85% of the salary into pension to get 5% index-linked annuity or 60% of the salary to get 3% index-linked annuity and there is no guarantee at all as it is depends on how the investments has been performing since. It is really the best way to save up for the retirement with all the investment risks rest with the employers and the Treasury.

andy001

Hi Stoozie1

For high earners there is bit of disincentive in this pension

Scheme pays tax, tapered allowance tax and AA/LTA !

I wish there was a calculator to assess if it would be worthwhile staying in NHS pension; especially for high earners ; if someone is affected by AA, tapered allowance and Scheme pays cost on top on the employee contributions

Thanks
COI-friend of mine is in this situation and i don't have answers to their queries re above
Andy

northeastcanuck

andy001,

I have had a quick skim through this as I am also affected by annual allowance tapering albeit I do not work for the NHS, but we appear to have similar concerns. I am concerned that previous advice on this forum stated that scheme pays could be used to cover your tax charge, this is only correct in the case of the tax charge resulting from the excess above the normal annual allowance of £40k, but not the part between £10k and £40k. This is the bombshell that my pension scheme has dropped on me and many of my colleagues and it would appear that the NHS pension is doing the same. This is copied directly from the NHS pension website:

There is no requirement for a scheme to accept a Scheme Pays election for the tapered Annual Allowance on a mandatory basis and the NHS Pension Scheme will not accept a voluntary Scheme Pays election for an Annual Allowance charge in respect of the tapered Annual Allowance.

What does this mean in laymans terms? You get to pay the tax out of your own pocket out of after tax income - every year. That could be as much as £13,500 a year which equates to up to £30k worth of salary before tax. Every year. Needless to say, this might affect your decision making as it could be quite crippling to remain in your pension. You should seek advice from an IFA, as its really quite serious.

andy001

northeastcanuck wrote: »

andy001,

I have had a quick skim through this as I am also affected by annual allowance tapering albeit I do not work for the NHS, but we appear to have similar concerns. I am concerned that previous advice on this forum stated that scheme pays could be used to cover your tax charge, this is only correct in the case of the tax charge resulting from the excess above the normal annual allowance of £40k, but not the part between £10k and £40k. This is the bombshell that my pension scheme has dropped on me and many of my colleagues and it would appear that the NHS pension is doing the same. This is copied directly from the NHS pension website:



What does this mean in laymans terms? You get to pay the tax out of your own pocket out of after tax income - every year. That could be as much as £13,500 a year which equates to up to £30k worth of salary before tax. Every year. Needless to say, this might affect your decision making as it could be quite crippling to remain in your pension. You should seek advice from an IFA, as its really quite serious.

Thanks a lot for taking time to search for me.
I think she (my friend who is affected) took IFA advice and was told that it's a good scheme to stay put and not to leave till hit LTA- which I think will take her another 7-8yrs.. She was advised that this is the best pension even with AA/tapered and scheme pays charges...She is thinking to to pay NHS pension knowledge IFA to see if it's worthwhile leaving scheme or what the best options would be?
One of her colleagues is paying in scheme only for 2/12 out of 12/12 and then will 'opt in ' the pension next year.. He is doing this to avoid above big charges. I'm unsure if it's allowed? or classed as borderline tax fiddle?... Still will be liable for taxes as high income due to not getting much tax relief on pension.. so seems not actual tax fiddle. Unsure what's right...??
I'm sure one of the experts in here may be able to shine light on the tax issue...Thanks
Andy

northeastcanuck

Hi andy001, sorry I didn't mean to imply I was researching specifically for you (although I am happy to accept the kudos!), it was something that I had stumbled across whilst I was researching my own situation and thought it might be relevant in this case. Obviously as I am not a member of the NHS pension I can't comment on whether or not it is worthwhile staying in or not, just that if you are subject to tapering it looks like you will have to be prepared to pay that bill yourself if you wish to remain in the scheme. That is certainly the case with my own corporate scheme. The difference between my scheme and the NHS is that the NHS scheme is guaranteed whereas mine is a promise for the distant future

stoozie1

andy001 wrote: »

One of her colleagues is paying in scheme only for 2/12 out of 12/12 and then will 'opt in ' the pension next year.. He is doing this to avoid above big charges. I'm unsure if it's allowed? or classed as borderline tax fiddle?... Still will be liable for taxes as high income due to not getting much tax relief on pension.. so seems not actual tax fiddle. Unsure what's right...??
I'm sure one of the experts in here may be able to shine light on the tax issue...Thanks
Andy

Certainly not an expert, but my understanding is that whilst opted out, a member forfeits Death in Service benefits.

andy001

northeastcanuck and stoozie1:
Thanks for your views

Stoozie1- for DIS benefits- wouldn't it be cheaper to have life insurance policy? ..than paying such heavy charges?

Andy

stoozie1

Good point, it may well do.

Our life insurance for my OH was higher tgan normal due to preexisting conditions and he isn't a high enough earner to have the impact you discussed above, so definitely a case of do your own research

But 2 x annual salary plus 6m full pay plus a lifetime pension for spouse and dependants under 23 would be hard to purchase IMO.