40 No Pension NHS

Franky2019

Hi All

Well as the title says I'm 40 with no pension, having been in low paid jobs most of my life, struggling just to put food on table and pay mortgage/bills, there just hasn't been a whole lot of spare cash for pensions/savings.

We have made an effort in the last few years to get a savings pot behind us, so we now have a few £££ saved up (under 9k)

I have just started a new job with the NHS and have been auto enrolled into their pension scheme, just had my first wage slip and they have deducted £92.95 (NHS pension 5.65%)

If i retire at 68 that gives me 28 years, presuming i never have an increase in wage, would that level of contribution give me any pension worth having? or am i better just sticking £100 a month into a savings account that I cant get easy access to?

There isn't enough spare cash to contribute anymore that £100 per month, i know im not going to have anything significant, but i want to do the best i can with that i do have.

We do have a mortgage that will be clear by the time im 65, and there should be enough to sell the property and buy a smaller house and possibly put 10/20k in savings.( i know we cant depend on this)

What would you do in my circumstances? I cant seem to find a NHS calculator anywhere that gives me a simple answer on how much it would roughly be worth in 28 years.

Thank you

p00hsticks

Franky2019 wrote: »

What would you do in my circumstances?

Definitely stay in the NHS Pension scheme - apart from it being a very good scheme there are tax advantages (they may have deducted £95 from your wages, but this will have been before tax & NI was taken - if you opted out you'd only get a fraction of that to save elsewhere).

NoMore

The NHS pension will be way better than saving 100 a month into a savings account! You wouldn't get £100 a month extra anyway, if you chose to stop due to tax.


The NHS pension is a defined benefit pension, which means the amount you pay in is not related to what you get out but rather to your length of service and your salary during said service.


You would be mad to opt out and try and save instead.

jimi_man

Hi

The NHS pension is a Career Average pension which means that each year you build up 1/54th of your salary. Using the figures you provided I worked your salary to just under £20K, so each year you’d get about £365.

The way the pension works is that every year that £365 is revalued by CPI (inflation) + 1.5%. Leaving aside inflation, just using the £365 yearly ‘pots’ or ‘slices’ would give you over 28 years a range of pots from £365 (the last year of service) to £545 (the first year of service which would have been revalued 28 times by 1.5%). If you add all these yearly ‘pots’ or ‘slices’ together you get your yearly pension for life. I make it around £12.5K (however I stand to be corrected?). Including the State Pension that would take it to around £20K per year.

That £12.5k is Index linked for life (keeps pace with CPI inflation) and is a significantly (with the emphasis on significantly!!!) better deal that anything you could get privately for £100 a month. Compounded over 28 years at 5%, that £100 would only give you about £73K if you invested it privately – equates to very roughly around 5-6 years of that £12.5k.

Entirely your decision but for God’s sake, stay in the NHS pension!!!!!!!!!!

Brynsam

p00hsticks wrote: »

Definitely stay in the NHS Pension scheme - apart from it being a very good scheme there are tax advantages (they may have deducted £95 from your wages, but this will have been before tax & NI was taken - if you opted out you'd only get a fraction of that to save elsewhere).

A minor point - NI is the same whether or not OP is in the NHS scheme or not. NI contributions are paid on full salary.

cobson

jimi_man wrote: »

The way the pension works is that every year that £365 is revalued by CPI (inflation) + 1.5%. Leaving aside inflation, just using the £365 yearly ‘pots’ or ‘slices’ would give you over 28 years a range of pots from £365 (the last year of service) to £545 (the first year of service which would have been revalued 28 times by 1.5%). If you add all these yearly ‘pots’ or ‘slices’ together you get your yearly pension for life. I make it around £12.5K (however I stand to be corrected?).

You can use Excel's FV function to make these kind of calculations, in this case the formula is:

=FV(1.5%,28,-20000/54)

which gives £12771 in today's terms, so you are right.

Franky2019

Thank you so much for all your replies.

So the message is STAY in the pension

does it make a huge difference if i wanted to retire at 65? so with my current NHS pension and state, I would be roughly 20k p/a income?

apologies, I am a bit naive when it comes to pensions.

Silvertabby

Franky2019 wrote: »

Thank you so much for all your replies.

So the message is STAY in the pension

does it make a huge difference if i wanted to retire at 65? so with my current NHS pension and state, I would be roughly 20k p/a income?

apologies, I am a bit naive when it comes to pensions.

Your NHS normal retirement age is 68, same as your State pension age. However, unlike the State pension, you may take your NHS benefits early - subject to a reduction for early payment.

Another option would be to retire at 65, but leave your NHS pension deferred until no reductions apply. This would mean saving enough money to live on for these 3 years.

jimi_man

Another alternative, if you get into a position where you can afford to save a little more is Early Buyout. Essentially you are paying more contributions to take the same pension that you would have got at 68 at 65.


https://www.nhsbsa.nhs.uk/sites/default/files/2019-05/ERRBO%20factsheet%20-%2020190510-%28V8%29.pdf


That explains it more. At your age the extra is about 4% (about £65 a month).

xylophone

And remember that your NHS pension protects your widow/dependants.

woolly_wombat

Congratulations on securing your new job with the NHS.

As others have said, please stay in the NHS pension.

If you can only afford to set aside a maximum of £100 per month then pay £92.95 into the pension and £7.05 into a savings account!