Pension help

Jennifer_Graham_5

Hi there, looking for some advice on what I should do about my pension. I'm currently paying nearly £300 a month in to my pension. I'm 26 and I work for the NHS so I know they are one of the best for pensions but I'm wondering if I will be better off coming out of a pension and saving that £300 a month in a high interest savings account and not touch it until I need it when I retire. As I am not eligible to get my pension until 67 with the NHS and there's no way I will be able to keep doing this job until 67. I want to be able to have access to my money earlier and the monthly amount I would get from my NHS pension would be nothing compared to what I could take if I had it saved myself. As they pay smaller monthly payments hoping you'll not live longer so they won't need to pay your full pension back to you. Any advice will be helpful.
Thanks

JoeCrystal

No, just no. Do not opt out NHS pension scheme. The value of it is much greater than 300. Beside you would be taxed on that amount so you get even lesa.

crv1963

Stay in the NHS Pension- it is worth far more than you think. Search the forum for NHS Pension there have been several threads on the subject.


Basically you're going to get an index linked income for life, death in service benefits and possibly ill health retirement for your £300pm.


There are ways to plan to retire before 67, read up and create other pots of money to enable this as I agree doing whatever role you are in now for another 41 years seems a big task. Set about creating yourself options but don't leave a scheme that many in the private sector would give their hind teeth for.

Bimbly

When you pay into a pension, you get tax relief. So every £100 that arrives in your pension, from a basic rate tax payer (I'm assuming you) only costs you £80. In fact, I believe you get national insurance relief too in the NHS scheme (at 12%), so actually it only costs you £68 from your take home pay.

So instead of paying that £300 into your pension, you will paying £201 into a savings account. You already have less money!

(Putting it in savings accounts, which all have low interest rates, your £201 will struggle to keep up with inflation, so will be worth even less in real terms in 30 years)

Although that is by the by as the NHS pension is a guaranteed pay out on retirement. So it doesn't really matter how much you pay into it, you are going to get a payout for life. If you were to achieve this outside of a pension, it would cost you more than you are paying in at the moment.

But I hear you on the whole working until 67 thing. I'm with you on this.

The way to look at it is, you are sorted for retirement from age 67. That's being cared for by them, you don't have to worry. But you'll need to bridge the gap between when you want to retire (say 60, for the sake of argument) and NHS retirement age. So seven years of income.

You can do this several ways. The most tax efficient way is to open another pension outside of the NHS. So every £80 you put into it, you instantly have £100 because of the tax relief. You will be able to access this money 10 years before state retirement age (I think 57 or 58 in your case).

Another way is just to save. You can put some in savings accounts for an emergency fund, but when you get a lot of money, putting it in a stocks and shares ISA will mean it will be invested and have the capacity to grow above savings accounts rates. This money can be accessed at any time.

As you are only 26, you have a lot of time to build up funds so won't have to put in hundreds per month to achieve this. Compared with someone who decides to do this at age 40. So it's great you're thinking about this at your age.

Kynthia

These are the years to build up the low-risk, guaranteed incone for the life of your retirement. This is the best value compared to the amount you are contributing, won't ever run out if you live a long time, won't drop in value if there's a stock market dip, etc. Being a member of the schene also keeps you eligible for ill-health retirement should you become too ill to work, gives your partner a pension for life should you die even before retirement age, it means your children will get a pension for their whole childhood should you die young, and your beneficiaries will get a lump sum should you die while employed in the NHS. You lose all this protection if you opt out.

When you leave the NHS you will likely be enrolled onto a DC scheme. If you can afford it then consider opening one now to stick some extra money into, as the longer it's invested the better the compounding interest is for growth. This will be a pot of money invested and you have more flexibility on how you access this money. I would consider using these funds, and possibly other savings vehicles, to find your retirement between when you stop working and the age you get your state pension and NHS pension.

If it time you realise you're going to stay with the NHS in a DB scheme then you can look at saving into ISAs or a private pension as well to fund that gap if you don't want to take your NHS pension early and actuarially reduced. Or start that now if you can afford it, but make sure you have enough accessible savings first as you'll be locking this Money away for a long time. However don't opt out as you'll be giving up too many benefits.

dunstonh

but I'm wondering if I will be better off coming out of a pension and saving that £300 a month in a high interest savings account and not touch it until I need it when I retire.

Goodness. That would a be a tragically poor idea. Probably the worst financial decision of your life.

Firstly you are not comparing like for like. Paying £300 into a pension is not the same as paying £300 into a savings account. That £300 from your income would be subject to tax and NI. Bimbly posted above the impact.

The NHS pension is worth around 25% of your income if you were to try and buy comparable benefits elsewhere. i.e. if you bought another pension, you would have to pay around a quarter of your income into it to get close to the benefits. If you were to use a savings account (which is even worse) you are looking at having to pay around half your salary into the savings account to match the NHS pension.

I want to be able to have access to my money earlier and the monthly amount I would get from my NHS pension would be nothing compared to what I could take if I had it saved myself.

You are so far wrong it is almost unbelievable. If you are lucky, you may get 1/20th of what the NHS pension is worth to you. How have you calculated that a savings account would give you more as it is just not possible.

And I have said it before and will say it again, what it is with NHS workers that makes them the worst decision makers when it comes to pensions. They have the most inaccurate picture of pensions and retirement planning of any workplace/employer.

ams25

You've probably got it by now but to add one more...

When I was your age I opted out of a FS pension scheme because I wanted more flexibility and 60 NRA seemed a million years away. Even though I did at least put money into a private pension scheme at this time, my later self frequently thought my 25 yr old safe was a complete idiot.

I joined a DB scheme a few years later luckily (not so stupid next time) but even now I harbour small regrets about this stupid decision.

Just don't do it. Put whatever spare money you can, raises etc, into a stocks and shares ISA to fund the gap years as mentioned above for earlier retirement.

Good luck

stoozie1

Hi OP,

My OH doesn't think he will be able to work clinically and safely up to SRA and so he has stayed in the NHS scheme (as the benefits are unmatchable, as detailed above).

To bridge the gap between early retirement and SRA, we are using a mix of ISAs and SIPPs (and possibly early retirement from the 2015 scheme with actuarial reduction depending on what's going on with the Lifetime Allowance at that point).

atush

Jennifer_Graham_5 wrote: »

Hi there, looking for some advice on what I should do about my pension. I'm currently paying nearly £300 a month in to my pension. I'm 26 and I work for the NHS so I know they are one of the best for pensions but I'm wondering if I will be better off coming out of a pension and saving that £300 a month in a high interest savings account and not touch it until I need it when I retire. As I am not eligible to get my pension until 67 with the NHS and there's no way I will be able to keep doing this job until 67. I want to be able to have access to my money earlier and the monthly amount I would get from my NHS pension would be nothing compared to what I could take if I had it saved myself. As they pay smaller monthly payments hoping you'll not live longer so they won't need to pay your full pension back to you. Any advice will be helpful.
Thanks

You would be MUCH worse off doing that. By a factor of thousands I would think. You'd be losing ground to inflation with your 300 and would be giving up the 700-1K the govt puts in to buld your NHS pension.

How can givign up that amount of money each month ever be worth it?

What you do if you want to retire early, is save outslde the NHS pension (while staying in that). Cash to start fro emergencies then onto S&S isas and DC pension pots (that you can use to live on whie waiting for the NHS pension to pay out in full).

Silvertabby

dunstonh wrote: »

Goodness. That would a be a tragically poor idea. Probably the worst financial decision of your life.

Firstly you are not comparing like for like. Paying £300 into a pension is not the same as paying £300 into a savings account. That £300 from your income would be subject to tax and NI. Bimbly posted above the impact.

The NHS pension is worth around 25% of your income if you were to try and buy comparable benefits elsewhere. i.e. if you bought another pension, you would have to pay around a quarter of your income into it to get close to the benefits. If you were to use a savings account (which is even worse) you are looking at having to pay around half your salary into the savings account to match the NHS pension.

You are so far wrong it is almost unbelievable. If you are lucky, you may get 1/20th of what the NHS pension is worth to you. How have you calculated that a savings account would give you more as it is just not possible.

And I have said it before and will say it again, what it is with NHS workers that makes them the worst decision makers when it comes to pensions. They have the most inaccurate picture of pensions and retirement planning of any workplace/employer.

It's the question that's been asked over and over again - over the 'phone when I worked for the LGPS and many times on this board - not only by NHS members.

Question: Why am I paying £3K a year in pension contributions but will only get £2K pension back ?

Answer: Because, for each year you contribute, you only pay one x £3K but will get back £2K (index linked) for every year of your life in retirement.

Penny usually drops with a great big clang !

kidmugsy

Jennifer_Graham_5 wrote: »

I'm wondering if I will be better off coming out of a pension and saving that £300 a month in a high interest savings account and not touch it until I need it when I retire.

The League of Beleaguered Taxpayers will warmly welcome your proposal.