NHS Pension

Lukas239

Forgive me if this has already been done to death, i did scroll through the first few pages and couldn't find anything similar.

I'm approaching my 2rd year in the NHS and have yet to contribute to a pension. From my limited research it seems the NHS pension scheme is one of the better options but i'm reluctant because of the contribution percentages.

If i'm not wrong, i'd have to contribute a defined amount which would equate to nearly £400 a month (pre-tax). This is a pretty hefty pill to swallow as i'm a 1st-year homeowner and trying to become debt free (other than the mortgage - about 3 months shy at present). Its money locked away that i'd make good use of.

SO... thoughts and opinions from those in the know? I'm 26 and otherwise invest in S&S for what its worth.

GunJack

Get into the pension scheme NOW!!! Your future self will give you a massive hug for leaving them with a very decent pension, with the possibility of retiring early..

If you think it seems expensive, see how big a DC pension you'd need to provide a similar retirement income to that you'll get in the NHS scheme - it'll cost you probably 2-3 times as much easily, if not more.

It really is a no-brainer.....get onto payroll/pension dept ASAP and get in it..

Browntoa

As above , take the hit now and join

GunJack

Oh, and you've already paid tax on the money in the S&S ISA, the pension contributions are before tax, thus lowering your tax every month..

BoGoF

Try using the search facility......you will find several more people who feel they can't afford it but the reality is it will be the worst financial decision of your life.

What makes you think S & S is going to better it?

Lukas239

BoGoF wrote: »

Try using the search facility......you will find several more people who feel they can't afford it but the reality is it will be the worst financial decision of your life.

What makes you think S & S is going to better it?

By worst decision, you mean not taking advantage of it?

No S&S won't be better but its not locked away at all.

hugheskevi

If i'm not wrong, i'd have to contribute a defined amount which would equate to nearly £400 a month (pre-tax).

This is consistent with a salary of about £47,500 p/a.

Assuming a salary of £47,500 you accrue £880 of pension payable every year from age 68. The £880 figure will increase by CPI+1.5% whilst you are in the NHS, so about 3.5% to 4% each year typically.

So if you stayed in the NHS until age, the pension you would build up over the next year - at a net cost to you of £3,534 after tax relief - would be worth £1,645 p/a in today's terms, paid every year from age 68. You would expect to receive that for about 20-25 years, so a total of about £32,900 to £41,125. After basic rate tax that is £26,320 to £32,900 in return for the cost of £3,534. Plus things like death-in-service protection, survivor benefits, ill-health protection and so on.

What you are effectively doing is borrowing £3,534 p/a (ie your extra net income) at an interest rate of about 5-6% above inflation, with repayment due long into the future (ie the £26,000 to £33,000 of pension you will not receive due to choosing £3,534 more now).

I'm 26 and otherwise invest in S&S for what its worth.

The money you invest in S+S will need to be invested at a high risk level to have any chance of competing with the pension, which benefits from tax relief and (more importantly) employer contribution. You are effectively borrowing £3,534 p/a to take on a high level of risk for no reward in comparison to the risk-free pension you could choose.

SO... thoughts and opinions from those in the know? I'm 26

If the above isn't conclusive enough, bear in mind that there is every chance in the future that you will be affected by pension tax (Annual Allowance and Lifetime Allowance). That isn't something you need to worry about at the moment, but if your salary increases to above £100,000 you probably will be - especially as all the Annual Allowance thresholds are frozen in cash terms.

At that point you may again start to question whether the pension is worth it. That makes ensuring you build up pension now whilst paying a lower contribution rate than you will in the future and not being affected by pension tax issues yet even more financially advantageous.

BoGoF

Lukas239 wrote: »

By worst decision, you mean not taking advantage of it?

Yes, that should be obvious from the other replies.

Unless you have a ridiculously high mortgage rate it is sheer financial folly to prioritise your mortgage over any pension, let alone the NHS pension.

Brilley

..just start paying into the NHS pension scheme ASAP....


(With all the posts on this type of question I am amazed that there are still people out there who need to ask..)

atush

Lukas239 wrote: »

By worst decision, you mean not taking advantage of it?

No S&S won't be better but its not locked away at all.

Yes, not taking advantage ie not joining is the worst idea ever.

Were you auto enrolled and then opted out? Or did they neglect to auto enroll you?

atush

Lukas239 wrote: »

By worst decision, you mean not taking advantage of it?

No S&S won't be better but its not locked away at all.

Yes, not taking advantage ie not joining is the worst idea ever.

Were you auto enrolled and then opted out? Or did they neglect to auto enroll you?

If you cant afford it, stop paying into the s&S isa until your next pay rise