NHS Pension advice

redlfc

crv1963 wrote: »

For all of the criticism about the 2015 scheme being less generous than previous versions it is still a very good buy. As others have pointed out you cannot match it on the open market for costs vs benefits.

There will no doubt be many changes and variations over course of your career. All you can do is work within the rules as they are at the time. So given current rules and LTA it makes sense for you to keep abreast of any rule changes and adjust your savings goals as you go along.

If rules change over LTA for doctors- many rushing to reduce hours or retire before the LTA penalises them too hard is a current example of unintended consequences of policy to manage one thing (city fat cats as the papers label them, hard workers who know how to work the rules to others) that hits people the papers/ public value (but without the income generated by the financial sector there would be less tax take to pay for the doctors).

I would suggest that the other benefits of the scheme that don't attract as much attention are equally important- the life cover, illness cover and survivor benefits. So for that reason I'd strongly recommend staying in it.

To your situation- you are young and have a career and life to live, I'd suggest direct savings into tax efficient options currently available, maybe Help to Buy ISA, Lifetime ISA to help get on the property ladder, also maybe to build tax efficient options for later life- retire earlier, travel, family etc.

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!

Whatever you do with your life and career keep the NHS Pension and if you marry/ enter long term relationship, encourage your partner to also make pension savings, two is better than one for tax reasons in retirement no point in wasting a partners tax allowance!

Good Luck!

thank you for your reply! all that advice is very helpful - i have no plans to leave the NHS scheme just wanting to look properly into it! I am looking at investing in LISA/S&S ISA too

sorry i miss your point in regards to wasting partners tax allowance - is this something id be able to also make use of with my pension ? what would be the tax benefits for the 2 of us

HappyHarry

hugheskevi wrote: »

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

I stand corrected - thank you.

GunJack

redlfc wrote: »

sorry i miss your point in regards to wasting partners tax allowance - is this something id be able to also make use of with my pension ? what would be the tax benefits for the 2 of us

or in other words, You have a LTA and tax allowances, and so does/will your partner - these things are individual, not assessed as a couple

redlfc

GunJack wrote: »

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.

thank you that clears things up - but then how does will anyone get taxed at 40% in that case. As the 40% tax bracket isnt till 46,250 currently whic will likely go up - so wouldnt i get the first 11,850 tax free and remainder of my pension taxed at 20% that year?

Flugelhorn

As a new NHS pensioner, my lump sum landed in my bank account today. My advice to the OP - stick with it. I can remember it looked very feeble amounts of money when I was a junior doc but things changed.

Yes you will probably breach the LTA at some point - I did 2 years ago and left the scheme then, deferring the pension until this week.

GunJack

redlfc wrote: »

thank you that clears things up - but then how does will anyone get taxed at 40% in that case. As the 40% tax bracket isnt till 46,250 currently whic will likely go up - so wouldnt i get the first 11,850 tax free and remainder of my pension taxed at 20% that year?

That £46-oddk is gross, i.e. the first £11.8k is tax-free, then 20% up to £46250, then 40% starts at £46,251. So if you were on 50kp.a. you'd pay 40% tax on £3750p.a.

redlfc

GunJack wrote: »

or in other words, You have a LTA and tax allowances, and so does/will your partner - these things are individual, not assessed as a couple

yes thats what i thought - so missed the point being made with regards to wasting partners tax allowances - did he mean to ensure they are on some sort of pension scheme aswell (long term girfriend is doing a finance grad scheme so not sure what hers is)

GunJack

redlfc wrote: »

yes thats what i thought - so missed the point being made with regards to wasting partners tax allowances - did he mean to ensure they are on some sort of pension scheme aswell (long term girfriend is doing a finance grad scheme so not sure what hers is)

In a word, yes

redlfc

Moonwolf wrote: »

I'm sure someone will correct me if I'm wrong but I think the LTA (£1 million) uses a value of 20x your defined benefit. So equal to a pension of £50k a year. This is better than you would get as an annuity from £1 million, particularly as it includes inflation growth and a widows/widowers pension .

When you reach that you have three choices, stay in but accept heavy tax penalties. Stay working but opt out of the scheme and invest elsewhere, ISAs, property, your own private practice or retire, which would be dependent on your savings.

In the meantime there are likely to be changes, there are campaigns for additional relief for doctors from the LTA in order to keep them in the profession and there will usually be other tax efficient vehicles around.

thanks for the reply - how the actual tax is applied is whats confusing me

for example lets say my pension was 60k a year - would i be correct in assuming only the amount from 50-60 would be taxed at 55% as its over the LTA?

and the amount from 11,850-46,250 (or whatever tax brackets are at the time) is taxed at 20%?

I hear a lot of responses about that tax relief the governent give but not really sure what this applies to

redlfc

Moonwolf wrote: »

To a certain extent you are correct but this is like life insurance in reverse, you are betting you will live longer, this is usually a good bet. A good rule of thumb for how long you live is take the average age all your grandparents died and add 5 years. This gives me 88 which is quite realistic but I could well live into my 90s. Plus there is the partners element, the fact that as a doctor you will be wealthy that has a good correlation with life expectancy.

If you save the money outside a pension you will lose the tax benefit and a your employer's contribution. In real terms, for the NHS scheme, that is probably worth £1.50 extra for each £ invested (very difficult to estimate properly with a DB scheme) so you will almost certainly have saved less. When you have saved that money you still need to spend it at a rate that assumes you will live until your 80s or 90s, you haven't made the problem of having money left go away.

thanks for your reply! I do definitely plan on remaining in NHS pension!

My point was that if say I was to pass away before I had even recouped the money I invested across my career - even with the 33% my partner would get it would be a loss but I guess thats just how it goes!

when you refer to the tax benefit - what do you mean by that? For instance if, in addition to my NHS pension, i invested into ISAs each month - that would also collect interest and remain tax free if im not mistaken?