NHS pension- consequences of temporarily opting out?

AnotherJoe

GunJack wrote: »

The thing is, it's a MASSIVE risk to opt out of one of the best pension schemes in the country with all the benefits it has, to chase the small amount of money it costs (that you'll never have seen in your pocket anyway. If the OP (or anyone else for that matter) needs to make an extra £2-300 a month they'd be far better getting a pt job to make that, rather than miss out on the:-

1. future income
2. Death In-Service (i.e. Life insurance)
3. Survivor's Benefits
4. Dependant children's benefits
5. Ill-health early retirement

there's probably a few more I've not listed, but you get my drift....and if the unthinkable were to happen and most of the NHS gets privatised, then you'll thank your lucky stars you've got x years service banked already when your new private sector employer's pension scheme is a bog-standard auto-enrolment DC scheme...

Great points.Answers my question comprehensively. Reminded me of someone i knew of who finished a job on a Friday and started new one on a Monday. Was killed in a RTA at the weekend, family not covered by either employers death in service benefits - this would be the equivalent only for years not a weekend.

dunstonh

The NHS is one of the most poorly educated when it comes to the pension. You have highly qualified individuals often making or proposing to make some of the worst financial decisions. The knowledge of their workplace pension is amongst some of the worst in the country. We frequently see NHS posts on this forum with people proposing to do something really silly with the pension but the same occurs in real life advice scenarios as well.

In my experience, the two worst have been Bernard Matthews workers and NHS workers.

In this scenario, the contribution is not actually large and that amount wouldnt be received by the OP anyway as it would then be subject to tax and NI.

The amount saved net of tax & NI would not actually be that much over a few years. Plus, once you move in, then you get a whole load of new costs and plenty of reasons not to rejoin for a further few years. Then more reasons, a few more years and before you realise, you are in your 40s and you have lost hundreds of thousands of pounds.

Even two years out now could cost the OP over £100,000 in lost income in retirement. All to get a few thousand pounds now.

BobQ

If the OP is a junior doctor, we do need to bear in mind that if he becomes a consultant in the future he may actually exceed the Life Time Allowance by the end of his career?

Pension_Geek

BobQ wrote: »

If the OP is a junior doctor, we do need to bear in mind that if he becomes a consultant in the future he may actually exceed the Life Time Allowance by the end of his career?

Within the NHS scheme there are plenty of ways of rejigging it to mitigate LTA tax.

I might do the sums on whether those that are fairly young and in the CARE scheme are likely to exceed LTA. Of course, there are myriad assumptions required, but it will be interesting.

Pension_Geek

BobQ wrote: »

If the OP is a junior doctor, we do need to bear in mind that if he becomes a consultant in the future he may actually exceed the Life Time Allowance by the end of his career?

Although, having said the above, if the OP or any other NHS pensions scheme member is likely to exceed LTA, I would suggest opting out later in your career is a better idea than doing so early. Ie when you have actually exceeded the LTA. Then a life plan could be purchased to replace the loss of DIS benefits.

hugheskevi

If the OP is a junior doctor, we do need to bear in mind that if he becomes a consultant in the future he may actually exceed the Life Time Allowance by the end of his career?

That has an implicit assumption that the pension tax regime will experience little change over decades, which on the basis of past experience appears unlikely.

Even if a member will exceed the LTA they will still usually be better in the scheme to get the benefits and pay the charge. It gets more marginal if there are also significant Annual Allowance charges. At that point, the member is paying a high contribution rate, large Annual Allowance charges (probably with a heavily or fully tapered Annual Allowance), LTA charges and income tax on the money received. The combination of all those reductions is very harsh in value-for-money-terms and remaining in the pension and paying the charges or opting-out can become a difficult/close decision.

However, at the moment the OP can build up pension based on a lower member contributions and no Annual Allowance charges. The possible future implications of pension tax in many ways provide an incentive to build up pension accrual whilst still below the pension tax thresholds, so that in future when the Annual Allowance becomes an issue there is already a decent pension accrued. That foundation is very helpful for options such as private sector, opt-out, etc.

I might do the sums on whether those that are fairly young and in the CARE scheme are likely to exceed LTA. Of course, there are myriad assumptions required, but it will be interesting.

I did that in the past, using standard OBR assumptions for inflation, earnings, etc. It turned out that anyone with a full career in a CARE scheme would breach LTA as long as their starting salary was about £23,000 Although that largely reflected the OBR assumption of CPI of 2% and earnings of something like 4.5% in the long run.

Pension_Geek

hugheskevi wrote: »

I did that in the past, using standard OBR assumptions for inflation, earnings, etc. It turned out that anyone with a full career in a CARE scheme would breach LTA as long as their starting salary was about £23,000 Although that largely reflected the OBR assumption of CPI of 2% and earnings of something like 4.5% in the long run.

I am glad I am not the only one that thought that such an enterprise was a waste of time!

andy001

hugheskevi wrote: »

That has an implicit assumption that the pension tax regime will experience little change over decades, which on the basis of past experience appears unlikely.

Even if a member will exceed the LTA they will still usually be better in the scheme to get the benefits and pay the charge. It gets more marginal if there are also significant Annual Allowance charges. At that point, the member is paying a high contribution rate, large Annual Allowance charges (probably with a heavily or fully tapered Annual Allowance), LTA charges and income tax on the money received. The combination of all those reductions is very harsh in value-for-money-terms and remaining in the pension and paying the charges or opting-out can become a difficult/close decision.

However, at the moment the OP can build up pension based on a lower member contributions and no Annual Allowance charges. The possible future implications of pension tax in many ways provide an incentive to build up pension accrual whilst still below the pension tax thresholds, so that in future when the Annual Allowance becomes an issue there is already a decent pension accrued. That foundation is very helpful for options such as private sector, opt-out, etc.
.

One of my friends, is a GP and is only at 50% of LTA. He has issues as mentioned above. Tapered taxes, High total income (threshold), due to rent from properties. Total income above 215k. He is leaving pension as paying 25k tapered AA taxes yearly (has exhausted carry forward)

Lots of consultant and GPs leaving scheme for similar reasons.

When OP was asked by his consultant to leave scheme- there might be some of the reasons, mentioned below!

Times has covered it today : Doctors pay to work after change in pension tax rule!

FT has also covered this in greater details recently in last few weeks as well as its covered in parliament.

https://parliamentlive.tv/Event/Index/62bd0078-616c-430c-b543-6b89904b589e

It was covered in Sky news views too-
https://news.sky.com/story/sky-views-when-will-the-penny-drop-its-the-pensions-crackdown-thats-damaging-the-nhs-11684482?

crv1963

Hi Dane89

I'm with those that suggest remain in the scheme. For the reasons you have already been given. It is better to be concerned about going over the LTA than not having accrued enough pension for your future needs. No one knows what changes will be made to the scheme, the tax regime or the longer term privatisation of healthcare.

In the short term, if the 9.5% deduction is a real problem in terms of income or cash need for you then I suggest you do what many NHS staff do- pick up an extra shift here or there. I know many medics that have and still do pick up locum work. I myself (not a medic) pick up additional shifts and yes it affects work/ life balance but any more than you let it.

fred246

I think most of the extra shifts are in specialities where most of the patients are alive.