NHS Pension advice

crv1963

redlfc wrote: »

thanks so much for the explanation. Whilst it is a very attractive offer, in the example you have provided for instance I would have to outlive SPA by 5 years alone just to recoup the money I invested. That would likely be 75 years old by that time - and whilst I would hope to live past this nothing is for granted - and to have to live past 75 to make any "profit" on my original deposits across lifetime is not ideal.

That's why you save into other tax efficient tools, so you can retire earlier than SPA, currently you can go when you like and preserve the NHS Pension to when it is due, then take it unreduced.

You are working out your options.

For example- my NHS Pension can be taken at 55, by carrying on for another 3 years post 55 I can get another 5/80ths added to it. We are also saving for the 9 years 58-67 when SP becomes payable.

Also what would happen if I were to die before even reaching SPA/just after?

If you die before SPA or just after your nominated person/ spouse would get a pension for the rest of their life. There are always risks and some don't make it. That doesn't mean you don't prepare for a long life, you are a doctor, you see life and death, probably have a reasonable mix of good and bad habits like everyone else, just make sure you steer clear of the worst excesses!

I had a heart attack at 53, 20 years ago I'd probably be dead, instead I am told by my Cardiologist I am likely - having stopped smoking now, made lifestyle changes, and make time for relaxation - to live a full life exceeding my cohort as my heart is now more efficiently working.

Other issue is LTA - is there a way I can monitor this during my career and if I do surpass it - would I be better off simply stopping working and waiting for SPA or continuing to work and taking the 55% hit on whatever is above 1 million. I know its roughly 20x firsy year income plus lump sum

It will rise with inflation is the present policy, who can guess what changes will be made over the next 43 years? Keep an eye on the changes but don't worry too much, better to be in a position of having too much rather than too little money.

From my understanding, you get 25% of total pension pot tax free, then pay income tax on the rest as per normal tax brackets - but some articles suggest higher rate tax payers will immediately get all income taxed at 40% rather than just the amount above usual 46,250 bracket - is this true?

I don't know the exact rules but you can pay a small percentage to take your pension 3 years earlier without reduction, have a read on the BMA website to learn a bit more if it is worth doing for you? The earlier you start paying the lower the percentage of wage it takes.

sorry for all the quetions

There is no such thing as too many questions, those that don't question are the fools, ask and learn than make expensive mistakes!

crv1963

HappyHarry wrote: »

SPA = 68 / life expectancy = 86 - That's an average of 18 years pension. Why do you think that SPA will exceed 68?

If you die before or after taking your pension, your spouse will get 50% of your pension for their lifetime.

LTA is not going to be a problem unless your pension exceeds £50,000pa. Even then, in most situations with NHS pensions, it is better to get the larger pension and suffer the LTA charge than to opt-out of the scheme. This isn't something you will need to worry about for many, many years, as the LTA is also index-linked.

Pension income is treated as earned income for tax purposes. e.g. if £5k of your pension falls into the higher rate tax bracket, then you pay higher rate tax on that £5k, not on all your pension. Also, pensions are exempt from National Insurance Contributions.

Forgive me if I am wrong, but you appear to be looking for reasons not to be in the NHS pension scheme. I would suggest that opting out of the NHS pension scheme would probably be the worst financial decision that you will ever make.

Well said HappyHarry! Over my career I have come across many people who opted out, to a man they all opted back in and bemoan lost years service/ reduced pension.

Many my age (55), are retiring and returning, retiring totally or retiring and following other interests such as research. In my field the NRA is/ was 55, for others it is 60.

poppy10_2

crv1963 wrote: »

I was advised at 21 by an old charge nurse (probably a few years younger than I am now!)- Spend a bit (here and now, live life), Save a bit (for what I want, home, cars, holidays), Gamble a bit (Long term savings such as what are now ISAs) and remember that it is all underwritten by the knowledge that I have a gold plated pension for security in my old age!

Pretty good advice.
Don't forget to live now, OP. You'll have plenty of income in retirement, but it is in these next few years as you buy a house, start a family etc that you may struggle. Makes no sense to put too much money away to use in 40 years time (when you probably won't need it) at the expense of having a difficult time when you are in your prime years.

HappyHarry wrote: »

LTA is not going to be a problem unless your pension exceeds £50,000pa.

Almost all senior hospital consultants reaching approaching the end of their career have hit the lifetime allowance. It's a massive issue.

HappyHarry wrote: »

SPA = 68 / life expectancy = 86 - That's an average of 18 years pension. Why do you think that SPA will exceed 68?

I've been working for just 14 years and my pension age has risen from 60 to 68. I'm expecting it to rise further to at least 70/71 over the rest of my career. The government pension scheme is unfunded and basically bankrupt thanks to the baby boomers milking it for years.

redlfc

HappyHarry wrote: »

SPA = 68 / life expectancy = 86 - That's an average of 18 years pension. Why do you think that SPA will exceed 68?

If you die before or after taking your pension, your spouse will get 50% of your pension for their lifetime.

LTA is not going to be a problem unless your pension exceeds £50,000pa. Even then, in most situations with NHS pensions, it is better to get the larger pension and suffer the LTA charge than to opt-out of the scheme. This isn't something you will need to worry about for many, many years, as the LTA is also index-linked.

Pension income is treated as earned income for tax purposes. e.g. if £5k of your pension falls into the higher rate tax bracket, then you pay higher rate tax on that £5k, not on all your pension. Also, pensions are exempt from National Insurance Contributions.

Forgive me if I am wrong, but you appear to be looking for reasons not to be in the NHS pension scheme. I would suggest that opting out of the NHS pension scheme would probably be the worst financial decision that you will ever make.

Thanks for your response - no no I have read plenty of useful advice on MSE which all say to stay in the NHS pension so I will be definitely doing that - just wanted to look into it properly as part of a New Years resolution to start addressing finances and thinking ahead to the future investment wise!

I thought SPA would probably go to 70 by my time (knowing my luck anyway - went to medical scool in the first year tution fees went up to 9k leaving me with 80k repayment figure at 6.6% interest! )

I have to admit I have understood a fair amount of my reading on ISAs/LISAs/S&S but pensions is really confusing me as I keep reading articles which contradict each other.

When I come to retirement age - is my pension amount a total pot (like when people refer to LTA) or is it a yearly amount i.E 40k a year

If its the yearly amount - how does the 25% tax free lump sum work - if we use 40k as an example - would 10k be tax free, then of the remaining 30k would the first 11,850 also be tax free as its in PSA - meaning Id only be taxed 20% on the remaining 18,150. I keep seeing things which say you would get taxed 40% as higher rate tax payer but dont really understand

Also on top of this NHS pension - is there a seperate state pension you receive as when I logon to HMRC website i see a projected amount of 8,500 pounds a year from 2061 onwards

GunJack

redlfc wrote: »

thanks so much for the reply! in your example is that also taking into account the 1/54 increase per year?

also in regards to LTA - is this something id be able to monitor/caluclate in anyway once im closer to it? and if I were to breach it - are you saying it would make more sense financially to simply stop working with no income and wait till SPA to receive pension rather than to continue working once LTA is surpassed and take 55% hit on income above 1million limit?

In that example, the £555 and £600 represent your 1/54th earned pension per year (I upped it to 6oo in year 2 to allow for a salary increase, which would up the £value of the 1/54th, IYSWIM).

In terms of LTA, you can keep an eye on where you are by your annual benefits statement that NHS Pensions should be providing for you, using 20x the p.a. amount PLUS any compulsory lump sum (don't know the current NHS scheme well enough to know if there's a standard lump sum on retirement) to see where you are..

HappyHarry

poppy10 wrote: »

Almost all senior hospital consultants reaching approaching the end of their career have hit the lifetime allowance. It's a massive issue.

For those in the 1995 and 2008 schemes, then yes, many senior consultants will have an issue. However, even in these schemes, the vast majority of NHS employees will not have an issue.


The issue is likely to be even far less with the 2008 scheme, as it is a career average scheme rather than final salary. This means that a few years of significant earnings at the end of a career will be far less likley to tip a worker over the LTA.

As said above, even if there is an LTA issue, it is usually far better to continue contributions to the NHS scheme than not.

poppy10 wrote: »

The government pension scheme is unfunded and basically bankrupt thanks to the baby boomers milking it for years.

How can an unfunded scheme become bankrupt? There are no funds (the hint is in the name )

Even if it could become bankrupt, why blame the baby boomers? They've hardly been "milking it", rather, just taking the pension they were entitled to.

NoMore

First off you need to understand the difference between a defined benefit scheme (like the NHS pension, where benefits are defined by length of service and salary and not what you contribute) and a defined contribution (where the money you contribute produces a pot of money for you to withdraw at and during retirement).


Calculation of LTA is one example where things are different, for DB its 20 x your benefit while DC is just the total value of the pot.

hugheskevi

If you die before or after taking your pension, your spouse will get 50% of your pension for their lifetime.

Survivor pension is 33.75% rather than 50%, although if the member dies in service the survivor receives 33.75% of an enhanced pension.

HappyHarry

When I come to retirement age - is my pension amount a total pot (like when people refer to LTA) or is it a yearly amount i.E 40k a year

If its the yearly amount - how does the 25% tax free lump sum work - if we use 40k as an example - would 10k be tax free, then of the remaining 30k would the first 11,850 also be tax free as its in PSA - meaning Id only be taxed 20% on the remaining 18,150. I keep seeing things which say you would get taxed 40% as higher rate tax payer but dont really understand

There is no total pot. You are lucky enough to have a defined Benefit (DB) scheme. This is a promise to pay you a pension for life.

Those less fortunate have Defined Contribution (DC) pensions, which do have a pot of money, which the individual needs to work out how best to use to provide a lifetime income in retirement. These DC schemes are the ones that the 25% tax free cash generally refers to.

However, you will be able to "commute" some of your NHS pension for a tax-free lump sum., i.e. get a tax free sum and receive a lower pension for the rest of your life. This is generally a poor value option.

Also on top of this NHS pension - is there a seperate state pension you receive as when I logon to HMRC website i see a projected amount of 8,500 pounds a year from 2061 onwards

Yes, you will also be eable to claim the state pension, of around £8,500 per year.

GunJack

redlfc wrote: »

When I come to retirement age - is my pension amount a total pot (like when people refer to LTA) or is it a yearly amount i.E 40k a year

If its the yearly amount - how does the 25% tax free lump sum work - if we use 40k as an example - would 10k be tax free, then of the remaining 30k would the first 11,850 also be tax free as its in PSA - meaning Id only be taxed 20% on the remaining 18,150. I keep seeing things which say you would get taxed 40% as higher rate tax payer but dont really understand

Also on top of this NHS pension - is there a seperate state pension you receive as when I logon to HMRC website i see a projected amount of 8,500 pounds a year from 2061 onwards

The LTA is more concerned with Defined Contribution (i.e. a pot of money) schemes, not Defined Benefit (like NHS, Civil Service) schemes. The 25% tax-free lump sum only applies to DC schemes. You will get an annual income for life from your DB scheme, but LTA issues come in if you have earned a pension that is big enough for 20x it to be around £1million (or whatever the LTA is at the time). So, £50k p.a. pension will put you thereabouts.

Yes, the State pension is on top of your Occupational pension but doesn't count towards LTA.